Commission Meeting - February 23, 2000

John & Hengerer's summary of today's Commission meeting.

February 23, 2000

MEMORANDUM

TO: Interested Clients

FROM: John & Hengerer

RE: Commission Meeting -- February 23, 2000

At today's meeting, the Commissioners approved the consent agenda and
discussed the following items.

HYDRO AGENDA
Public Utility District No. 1 of Okanogan County, Washington, Docket No.
P-10536
This draft order rescinded the hydro license issued to Public Utility
District No. 1 of Okanogan County, Washington (Utility District) after the
National Marine Fisheries Service (NMFS) conditioned the license on
construction of a fish ladder that would have rendered the proposed project
uneconomic. Commissioner Hebert moved the item to the discussion agenda to
highlight the difficulties incurred in hydro licensing proceedings due to the
conditioning authority granted to certain federal agencies, such as NMFS.
Because such agencies possess the authority to impose costly environmental
conditions, Commission Hebert stated, they essentially hold veto power over
project applications. Commissioner Hebert urged federal agencies to weigh
potential public benefits before imposing costly environmental conditions
that doom proposed projects.

Avista Corporation, Docket No. P-2058
In this draft order, the Commission granted a hydro license to Avista
Corporation. Chairman Hoecker moved the item to the discussion agenda to
champion the use of alternate licensing procedures and applaud the parties
for negotiating the settlement approved by the draft order. Avista began
negotiating for the license in 1996 and eventually reached a settlement with
26 stakeholders. According to Chairman Hebert, such negotiations maximize
benefits, reduce application costs, and set a positive example for other
parties to follow. Although the other Commissioners generally echoed
Chairman Hoecker's praise, Commissioner Hebert criticized the draft order for
not quantifying the environmental benefits of Avista's proposed project.

ELECTRIC MATTERS
New England Power Pool, ISO New England, Docket Nos. ER00-984, et al.
Price caps on the ISO's Operating Reserve and Operable Capability markets
were extended by the Commission in this draft order, Commissioner Hebert
dissenting. Both caps expired on December 31, 1999. The cap on the
Operating Reserve Market was extended until June 30, 2000, or until the ISO
submits a market redesign plan to correct market flaws. The cap on the
Operable Capability Market was extended until February 29, 2000, after which
the market will be terminated. According to the ISO's filing, which was
approved in this draft order, the Operable Capability Market duplicates other
ISO markets and is no longer needed.

Commissioner Hebert dissented and moved the item to the discussion agenda to
express his disapproval of price caps, both in general and in this particular
proceeding. In general, Commissioner Hebert believes that price caps remove
the natural incentives created by a competitive market. In this particular
proceeding, Commission Hebert argues that supposedly temporary price caps
have become a Acrutch@ relied on by the ISO. Moreover, Commissioner Hebert
does not believe that the ISO market is flawed and contends that the ISO has
failed to illustrate the existence of any flaws. For these reasons,
Commissioner Hebert would not have extended the price caps.

Regional Transmission Organizations (Order on Rehearing), Docket No. RM99-2
In this draft rehearing order, while making relatively minor clarifications
and revisions, the Commission unanimously affirmed the policy decisions
outlined in Order No. 2000.89 FERC & 61,285 (1999) Issued in December 1999,
Order No. 2000 outlined the Commission's policy with regard to RTO formation
and adopted regulations governing the filing and review of RTO proposals.
This draft order affirmed the voluntary and flexible approach adopted by
Order No. 2000, as well as the RTO functions and characteristics outlined in
that order.

However, the draft order does include a number of relatively minor revisions
and clarifications. Specifically, the draft order: (i) denies requests to
phase out passive ownership of RTO facilities by transmission owners, but
clarifies that passive owners must not interfere with day-to-day RTO
operations; (ii) clarifies Section 205 tariff filing rights by reiterating
that RTOs should have control of their own tariffs, while transmission owners
should determine their own return on equity; (iii) incorporates Order No.
2000's audit requirements into Commission regulations, while ruling that the
both an RTOs ownership and governance structures are subject to audit; and
(iv) clarifies that public utility compliance filings must specify what
efforts were made to include RTO participation by public cooperatives.

In approving the draft rehearing order only two months after the issuance of
Order No. 2000, the Commission hopes that the ongoing collaborative process
will be able to focus on the basic elements of RTO formation, rather than on
the contentious issues raised in the rehearing requests. Order No. 2000's
collaborative process began this month and is scheduled to run through April
2000. Public Utilities not currently participating in a regional
transmission entity are required to make a compliance filing by October 15,
2000, while those utilities that are already a part of a regional entity must
make a compliance filing by January 15, 2001.

Midwest Independent Transmission System Operator, et al., Docket Nos.
ER00-448, et al.
In this draft order, the Commission unanimously (Commissioner Massey
concurring) voiced its support for the binary RTO model proposed in this
proceeding, but declined to issue the requested declaratory order until a
final proposal is filed. The binary model proposed by Midwest ISO
participants would require the ISO to delegate certain functions to a
for-profit transco, while retaining other functions and maintaining
responsibility for overseeing the transcos activities. The draft order
commends parties for developing the proposal and finds that the proposed
binary model generally conforms to the Commission's RTO mandate. However,
the Commission declined to make a final determination until a complete
proposal is submitted. Commissioner Massey's concurrence raises concerns
associated with the sharing of power between an ISO and a transco.
Commissioner Massey believes that such a division of power may be
counterproductive and urges the parties to address the issue in their final
filing.

PIPELINE MATTERS
ANR Pipeline Company, Docket No. CP99-241
ANR's proposal to increase mainline capacity from Joliet, Illinois, into
Wisconsin was approved in this draft order. Specifically, the draft order
permits ANR to construct an additional 20,000 horsepower of mainline
capacity, thereby increasing mainline capacity into Wisconsin by 109,000
Dth/day by November 1, 2000. The Commission approved ANR's proposal after
concluding that demand in Wisconsin justifies the expansion.

The expansion approved in this draft order is part of ANR's SupplyLink
proposal (to be built in conjunction with the Independence/MarketLink
project). ANR decided to proceed with the Joliet-to-Wisconsin expansion
after the SupplyLink/Independence/MarketLink project was delayed due to
Commission concerns that the project was not adequately supported by market
demand. Although the expansion approved in this draft order was unrelated to
the contentious portions of the larger project, Commissioner Hebert
nonetheless moved the item to the discussion agenda to express his belief
that market demand justifies the Independence/MarketLink project.
Specifically, Commissioner Hebert cited recent spikes in heating oil prices
as evidence that gas demand in the northeastern United States more than
justifies the project. Commissioner Breathitt disagreed with Commission
Hebert and argued that the price of heating oil does not necessarily
correlate to natural gas demand.