News Releases

Murray, DeFazio Question Federal Power Plan

Sep 17 2002

Joined by Northwest Congressional Delegation in Letter to Energy Secretary

(WASHINGTON, D.C.) – In a letter to Energy Secretary Spencer Abraham, U.S. Senator Patty Murray (D-Wash.) and U.S. Representative Peter DeFazio (D-Ore.) expressed their concern over the Federal Energy Regulatory Commission's (FERC's) Standard Market Design (SMD) proposal, which would set uniform, national standards for the operation of regional transmission grids and wholesale energy markets.

This proposal increases the opportunity for market manipulation and price gouging, thereby raising rates and harming consumers in the Northwest.

The full text of the letter, signed by twenty-four members of Congress representing the states of Washington, Oregon, Idaho and Montana follows:

September 12, 2002

The Honorable Spencer Abraham
Secretary of Energy
Forrestal Building
1000 Independence Avenue, S.W.
Washington, DC 20585

Dear Secretary Abraham:

As you know, on July 31, 2002, the Federal Energy Regulatory Commission (FERC) released a proposed Standard Market Design (SMD) for electricity markets throughout the nation. FERC's SMD applies to public utilities, and contains a reciprocity standard applicable to non-jurisdictional entities such as the Bonneville Power Administration. The Washington Utilities and Transportation Commission, many public and private utilities in the Northwest, other state regulatory commissions and public officials, including Attorneys General, have read these rules in detail and have found that they contain serious problems. We share these concerns. Like the aforementioned entities, we believe the rules will increase - rather than reduce, as the Commission claims - opportunities for market manipulation and price gouging, thus raising rates and harming consumers.

In light of the energy crisis of 2000-2001, it is important to consider these concerns very seriously. Given the importance of Bonneville to our region, the Northwest congressional delegation, and other parties in our region, are working with Bonneville to guarantee that FERC's movement toward regional transmission organizations (RTOs) and SMD is compatible with the Northwest's interconnected hydroelectric power system, economically beneficial to Northwest consumers, and fully consistent with the Bonneville's statutory and contractual obligations. All of this takes a lot of time, surely much longer than the aggressive implementation schedule FERC has proposed.

We are mindful, and thankful, that you provided discretion to Bonneville earlier this year on joining an RTO (May 23, 2002, letter from Secretary Abraham to Northwest congressional delegation), and indicated that the agency pursue RTO West based on explicit conclusions that this step could improve regional transmission planning and operations.

FERC is now making it clear that RTOs or other independent transmission providers (ITPs) will implement SMD through a new, standardized FERC transmission tariff and interconnection agreements that embody FERC's SMD. Hence, it would now appear that a decision to join an RTO is a decision to implement SMD. For utilities that do not join an RTO, SMD implementation will be a matter of reciprocity. In either case, BPA has statutory discretion whether to comply, and we would ask that you affirm the agency's discretion to not implement SMD in the event BPA determines that the SMD is incompatible with the Northwest's interconnected hydroelectric power system, economically harmful to Northwest consumers, or inconsistent with the Bonneville's statutory and contractual obligations.

While we have significant reservations regarding RTO West, in our view, the proposed SMD raises a number of even more difficult problems, such as:

Imposing a complex and costly model in an effort to solve problems - such as discriminatory access to and pricing of transmission, inadequate investment in infrastructure, inadequate resource planning - that either do not exist in the Northwest or, to the extent they do, can be resolved using existing institutions.

Requiring that utilities abrogate customers' existing transmission rights, including a right to service for load growth, and the right to change pre-schedules and points of delivery without penalty, among others. Rather, the SMD envisions that utilities must participate in an auction to get critical transmission rights.

Making the new independent transmission providers (ITPs) responsible for long-term generation and transmission resource adequacy. This conflicts with federal statutes that give this responsibility to the Northwest Power Planning Council (for BPA), state regulatory commissions (for private utilities), and local governments (for public utilities), and could impose significant new costs on ratepayers.

Imposing unfair cost shifts from independent power generators onto load-serving entities, and from importing regions onto exporting regions.

Requiring that the ITP solicit and accept "demand reduction" bids from retail customers, a step that could conflict with federal statutes that prevent resale of federal requirement power and numerous state statues.

Requiring locational marginal pricing (LMP) for hydroelectricity despite evidence that it may not work with a coordinated hydroelectric system like that in the Northwest, and may actually prevent operation of facilities consistent with statutory and regulatory obligations for fish recovery, irrigation, navigation, and other public goods.

Threatening other BPA statutory obligations, including public power preference and regional preference.

Pricing of losses at marginal cost, inconsistent with the notion of cost-based power rates from the Federal system.

Standards and findings in the Order that preferential use of transmission to meet firm bundled retail loads is undue discrimination that can only be remedied by making all transmission available on a competitive basis, again potentially in conflict with state and federal statutes governing least-cost, environmentally sound resource acquisition. We are doing our best to read and understand FERC's proposed SMD. However, our preliminary assessment is that many of the market rules may work better in the tight power pools of the eastern interconnection than in the loosely connected southeast and west. Many utilities and state regulators from the southeast and western regions have expressed their concerns to FERC, but there is little evidence in the proposed rule that FERC understands or sees value in accommodating significant regional differences. Accommodating these differences would not, in our estimation, undermine FERC's goal of a robust wholesale power market throughout the United States. Such a robust wholesale market does not depend on a standardized "cookie cutter" approach. We would also ask you to communicate these concerns to FERC Chairman Pat Wood.