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House oversight hearing on FERC covers range of issues


From the December 9, 2013 issue of Public Power Daily

Originally published December 9, 2013

By Robert Varela
Editorial Director

A Dec. 5 House oversight hearing on the Federal Energy Regulatory Commission touched on a wide range of issues, including capacity markets, physical and cyber security, allocation of transmission line costs under FERC’s Order No. 1000 and potential reliability impacts of environmental regulations. APPA filed a statement for the hearing record with the House Energy and Power Subcommittee focusing on FERC’s "ill-advised, continued support of mandatory capacity markets run by regional transmission organizations." (See story, below.)

Rep. Paul Tonko, D-N.Y., raised the issue of the minimum offer price rules in capacity markets, saying recent changes to the rules threaten the ability to self-supply. "This problem is particularly acute for publicly owned and cooperatively owned electric utilities because it endangers their ability to finance new generation units needed to serve their customer base using their traditional business model, which relies on long-term contracts and lower cost of debt," he said. He asked FERC Acting Chair Cheryl LaFleur if the commission anticipated public power and cooperative utilities would be able to exercise buyer-side market power.

FERC is looking at the issue now in its ongoing inquiry into capacity markets, she said. Any generation that is bid into the capacity markets at a subsidized rate could depress prices and affect reliability, LaFleur said, adding that municipal utilities "always have the right to prove that their costs are lower and show the ISO that they can self-supply because they can do it more cheaply."

Rep. Bob Latta, R-Ohio, asked what are the best measures to determine whether the restructured wholesale electricity markets operated by regional transmission organizations are benefiting consumers. Reliability and costs over time are key measures, LaFleur said, but it's "very difficult to compare the costs of the restructured markets with the places that didn't restructure because the places that restructured were the high-cost places to begin with."

Rep. Morgan Griffith, R-Va., asked if FERC has conducted a study to determine whether the RTO-run markets have actually lowered the costs of electricity to the consumer. The commission gets regular reports from the RTOs and their market monitors and "compiled a major set of metrics from the different RTOs that included cost metrics over time," LaFleur said. Costs have come down in PJM and the other eastern markets, driven in part by reductions in natural gas prices, but transmission congestion costs have gone down also, she said. LaFleur said the agency would provide a written update.

Rep. Adam Kinzinger, R-Ill., asked commissioners if they agreed that there is a fundamental mismatch between the investment recovery profile of power plants, which have a 40-60 year lifespan, and the capacity markets, which typically operate three years ahead. Some of the capacity constructs "were largely put in place to provide a revenue stream for generators that were spun off in a lot of restructured areas," Commissioner John Norris said. "There’s been a cushion of time for that to play out. We’re reaching the end of that cushion now." The commission has to play a role in structuring the capacity markets "so long-term supply is available for adequacy," he said. FERC is looking at the capacity markets "largely to see if they attract the investment we need," LaFleur said.

Subcommittee Chairman Edward Whitfield, R-Ky., and other committee members voiced concerns about the reliability impacts of coal plant retirements due to environmental regulations and low natural gas prices, with some 50 GW of coal-fired plants slated to retire.

Commissioner Tony Clark noted that the Midcontinent Independent System Operator (MISO) is projecting a 7.5-GW shortfall in reserve margin by 2016. He said FERC should maintain its independence and provide information to "the rest of the federal government so they can understand the implications of different policy choices that may be made."

Commissioner Phil Moeller said the Environmental Protection Agency’s utility MACT rule takes effect April 16, 2015, "so if you've got a marginal plant that can't afford a retrofit, it's going to be shut down in roughly about 15 months."

Asserting that "it is clear that the electric grid is not adequately protected from physical or cyberattacks," Rep. Henry Waxman, D-Calif., said Congress needs "to give FERC important new authorities, like the authority to take action to protect the grid in emergencies."

Asked about her priorities, LaFleur said she is still talking to her colleagues, but reliability and security—including resource adequacy—will continue to be a top priority. Other priorities are transmission, including Order No. 1000 and transmission rates, and "making sure the markets are fair and that they work to attract the investment the country needs and that the infrastructure is there," she said.

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Senior Vice President, Publishing 
Jeanne Wickline LaBella
202/467-2948
JLaBella@publicpower.org

Editorial Director
Robert Varela
202/467-2947
RVarela@publicpower.org

Editor, Public Power Daily
Jeannine Anderson
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JAnderson@publicpower.org

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