FERC Filings
MOTION FOR LEAVE TO INTERVENE AND COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION-Removing Obstacles To Increased Electric Generation And Natural Gas Supply In The Western United States- Docket No. EL01-47-000
II. Comments on Short-Term Measures
1. Qualifying Facility (QF) Waivers
EPSA applauds the Commission’s effort to increase supplies from QFs by extending prior temporary waivers of operating and efficiency standards and fuel use requirements through December 31, 2001 and applying them to the entire Western System Coordinating Council (WSCC). However, EPSA urges the Commission to adopt addamounts of QF power. The consequences of the failure of host utilities to pay QFs for power already delivered are obvious and unacceptable. Under such circumstances, QFs should be permitted to sell up to 100 percent of its power to the market at market-based rates, without additional FERC rate filings.
EPSA urges the Commission to also consider the following, related provisions: (1) QF sales at negotiated rates with third-party buyers should be allowed under existing interconnection arrangements; (2) QFs should not be required to resubmit interconnection requests and/or agreements and associated studies unless there is an associated material increase in the QFs’ output; (3) the existing power purchase agreements (PPA) will remain in full force and effect, and any sales pursuant to Commission emergency relief orders shall not be grounds for breach of the PPA; (4) subject to mitigation, any revenues a QF receives under a third-party sale shall not affect utility obligations under existing PPAs; and (5) grant waivers of otherwise applicable tariff requirements.
2. Credit Assurances
As the Commission is well aware, continuing credit issues, both with respect to past sales and for ongoing sales, continue to plague the California market. As the Commission has recognized, credit risks in California have been real and substantial, with many suppliers – QFs, generators and marketers --accruing huge unpaid liabilities. In a recent case, California Independent System Operator, et el., 94 FERC 61,132 (2001), the Commission addressed credit issues, noting, “Moreover, we are concerned that a lowering of the financial creditworthiness standard, without some assurance of payment for third party sales, would further increase prices paid by consumers. This is because…the tariff revisions likely would increase the risk premium added to the price of power due to the exposure of non-payment."
This concept has been recently echoed by Duke Energy North America, which asserted, in a recent filing responding to the Commission’s March 9th and 16th Refund Orders, that its prices above the Commission’s benchmark “included reasonable, commercially-based credit premiums to cover the very substantial risks of nonpayment.” In fact, ISO payments made in February for November transactions covered less than two cents on the dollar of amounts owed to generators.
While not addressed in the Commission’s Order in this proceeding, EPSA urges the Commission to take all possible steps to insure that all suppliers are paid in full for energy sold in California.
3. Electric Transmission Infrastructure
The Order states that the Commission believes it can have the greatest impact fostering investments in the transmission system. The Commission’s proposed actions to create and enhance incentives relating to expanding and improving the transmission infrastructure through higher rates of return on equity (ROE) and accelerated depreciation schedules are positive steps. The Commission normally conditions such premiums on meaningful participation in RTOs. However, given the current situation and the immediate impact of any projects that might be entitled to the higher ROE, EPSA supports this proposal.
Further, EPSA believes that new and additional merchant capacity, in conjunction with the Commission’s vigorous pursuit of the objectives contained in Order No. 2000, will largely determine the future of competitive electric power markets. New and expanded generation projects provide much-needed supply, enhance reliability, promote diversity in products and services offered to the market, mitigate market power and contribute to overall market liquidity. But if this merchant generation is to be built, it must be expeditiously and predictably interconnected to the grid.
We applaud the Commission’s focus on the need to interconnect new supply to the bulk power system, along with the upgrades needed to ensure that consumers benefit from increased generation. This is particularly true in California, where the utilities do not operate under OATTs and the ISO does not operate an OASIS. The lack of standardization and transparency in the interconnection process defies accountability and creates a fruitful environment for affiliate abuse. In numerous filings last year, EPSA explained the need for a Bill of Rights For New Generation Interconnection (“Bill of Rights”) to establish the framework for a future Commission interconnection policy statement. The Order provides another opportunity for the Commission to comprehensively address existing and potential problems associated with interconnecting new generation to the grid.
Specifically, a new generating project planning to interconnect to the interstate transmission grid should have the right to:
As we have asserted in previous filings, EPSA believes that, in order for the electric power industry, and, ultimately, the consumers of electricity, to realize the full benefits of competition, the interconnection process must be reformed. With respect to the Western Interconnection which is the focus of the Order, requiring the implementation of the Bill of Rights, presumably within the context of the Commission’s review of RTO proposals, would be a significant step toward ensuring the most efficient and fair interconnection process. The best way to accelerate the interconnection process is for the Commission to address both the generator’s rights, as discussed above, and the interconnection service provider’s obligations with respect to new interconnection requests in conjunction with RTO proposals. Interconnection-specific standardized rules and tariff procedures for requesting interconnection service will streamline the entire interconnection process, and contribute to moderating supply/demand imbalances.
With respect to the treatment of interconnection or system upgrade costs, in light of the extreme circumstances the Order addresses and the urgent need to increase power supplies on the Western system, EPSA supports the Commission’s proposal to roll these costs into the average system rate. However, interconnection costs are just one potential barrier to entry that deserves Commission attention and action. EPSA also remains concerned about other potential barriers to entry into competitive markets and open access to the transmission system that must be resolved through the regional solutions embodied in Order No. 2000. While perhaps somewhat less conspicuous or politically charged, solutions to these problems are no less urgent.
4. Natural Gas Pipeline Capacity
Limited gas availability due to pipeline capacity constraints and the escalation in the price for natural gas supplies as fuel source for electric generators has been prominently featured in descriptions of California’s energy problems. Accordingly, EPSA appreciates the Commission’s effort to increase pipeline capacity and measures to expand the gas infrastructure. Particularly, the proposed waivers of blanket certificate regulations are welcome developments. In addition, rate incentives for new projects should be considered on a case-by-case basis.
One the other hand, it is important that the Commission focus its efforts on where it can be most effective. For example, there are numerous planned expansions on interstate pipelines bringing gas into California. The Commission should continue its efforts to streamline its environmental process in order to avoid protracted environmental review. Further, “take away” capacity is limited within California and increased upstream interstate pipeline capacity may not result in improved gas deliverability in many parts of the state. While aspects of these problems may be outside the Commission’s jurisdiction, EPSA urges the Commission to work with other state and federal regulatory agencies to develop a more unified and streamlined approach to needed infrastructure development.