Midwest ISO

Federal and state interests clash as the FERC battles California over the future of the state's power exchange.

The California Power Exchange will not outlive its four-year mandate because it cannot compete with lower-cost exchanges, such as the New York Mercantile Exchange, Automated Power Exchange and low-cost over-the-counter brokers. So says Edward Cazalet, chief executive officer at Automated Power Exchange and chief rival of the CalPX.

News Digest was compiled by Carl J. Levesque, editorial assistant, Lori A. Burkhart, contributing legal editor, and Bruce W. Radford, editor. For continual news updates, see www.pur.com.Nuclear Power

Transmission & ISOs

Transco Independence. Granting Entergy's request for a declaratory order, the Federal Energy Regulatory Commission ruled in a case of first impression that a stand-alone transmission company ("transco") would meet the test in Order 888 for independent system operators despite passive ownership by a power producer or other market participant.

Tales of bad faith, cold feet and price manipulation.

Lollipops"/fn1/ and "loopholes." "Islands" and "peninsulas." Utilities have invented a colorful new lexicon to explain what's happening at power pools and regional transmission groups. Yet the basic issue remains familiar: How to gain a competitive advantage.

As utility takeovers break new ground, the FERC ponders proposed rules, perhaps already out of date.

A year ago, when U.S. Antitrust Czar Joel Klein talked of a "window of opportunity" for electric utility mergers, he didn't predict when it would close.

And it hasn't yet.

In the 12 months leading up to January 1998, when Klein had addressed the Federal Energy Regulatory Commission through its "Distinguished Speakers" series, only the ill-timed Primergy deal had been turned down. The next year, 1998, would prove no different.

Secretary of Energy Bill Richardson has selected Daniel M. Adamson as deputy assistant secretary for utility technologies, Office of Energy Efficiency and Renewable Energy. Adamson had served as special assistant, Office of the Secretary since 1994.

The FERC's latest idea throws pipelines for a loop, with implications for power markets, too.

Transmission and distribution (em the business they call "pipes and wires" (em can't last much longer with rates set by cost of service. Contrary to the myth, these services deserve no special status due to their high embedded costs. They carry no intrinsic value apart from the electrons and molecules they deliver.

Contrary to findings, the conditions seen in June 1998 were not that unusual. And next year could promise prices even worse (em or, for the first time, real reliability problems.

The recent report by the staff of the Federal Energy Regulatory Commission on the causes of the power price spikes that occurred in the Midwest performs an important service (em it acknowledges that in competitive markets, the price of wholesale power can be quite high in periods of peak demand.

Nevertheless, the staff went wrong in reporting that the conditions behind the price spikes were unusual.

MARKING THE FIRST CASE of a voluntary agreement in a region not previously organized as a tight power pool, or compelled to act by state legislation, a group of 10 operating electric utilities won approval from the Federal Energy Regulatory Commission on September 16 to form the Midwest Independent Transmission System Operator, Inc., which will take over operational control of certain defined jurisdictional transmission facilities, provided that it complies with conditions imposed by the FERC.

"THESE ARE THE DOG DAYS OF DEREGULATION." That's how Federal Energy Regulatory Commission chairman James Hoecker put it last month in Houston at his luncheon talk at the Sixth DOE/NARUC National Electricity Forum. He bemoaned the "evidence of delay" in restructuring that now "clearly exists."

Don't be fooled. What Hoecker has up his sleeve is nothing less than a full-scale overhaul of FERC Orders 888 and 889.

FERC

MIDWEST POWER PRICES. Federal Energy Regulatory Commission Chairman James Hoecker announced July 15 that as soon as the staff presents its findings, the FERC will deal with the complaints filed by Cinergy, Steel Dynamics Inc., and others asking for regulatory relief from the late June run-up in Midwest bulk power prices (as high as $7,500 per megawatt-hour), and for a price cap set at $100/MWh. Nevertheless, Hoecker advised that the FERC was in "no hurry," and that the remedies available to it were not entirely clear. Docket No. EL98-53 (Cinergy), filed June 29, 1998; Docket No.