US FERC Chairman Vows Action By Dec On Western Pwr Woes

US FERC Chairman Vows Action By Dec On Western Pwr Woes
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10/05/2000
Dow Jones Energy Service
(Copyright © 2000, Dow Jones & Company, Inc.)
WASHINGTON -(Dow Jones)- The U.S. Federal Energy Regulatory Commission will
act no later than December in response to power capacity and volatility
problems that plagued Western power markets this year, Chairman James Hoecker
said Thursday.
Hoecker, after appearing before the Senate Energy Committee, told reporters
that he expected the results of an expedited staff investigation of the
matter to be forwarded to the commission before the month is out.
The commission will "take serious action" in response to the staff report
"before the holidays," he said, without elaborating.
Before the panel, Hoecker said he expected the commission to act in response
to the staff's nationwide probe of problems besetting competitive wholesale
markets before the end of this year. The staff report on the nationwide
investigation is due Nov. 1.
In meeting with reporters after the hearing, Hoecker appeared to indicate
that the response to the Western market woes could come sooner than December.
Hoecker outlined the tentative timetable after the Senate hearing into
concerns the Pacific Northwest is becoming increasingly prone to power supply
shortages in the coming years.
The Northwest Power Planning Council projects that by 2003 the regions runs a
one in four risk of a power shortage - and resulting grid blackouts or
brownouts - during peak summer and winter demand periods as demand outstrips
supply.
In order to lessen that 25% risk to an acceptable 5%, the council determined
the region would need an additional 3,000 megawatts of new generation
capacity, either installed or imported from elsewhere.
The hearing featured testimony from the Bonneville Power Administration and
others regarding how California's grid capacity problems this summer have had
an adverse affect on the region in terms of price volatility.
Prepared testimony from BPA featured a graph illustrating that the region's
spot market prices during the two years prior to California's power market
restructuring never exceeded $50 per megawatt-hour, and typically were well
below that level.
Since the California power exchange began operating in May 1998, spot market
volatility markedly increased into a price spike this summer in excess of
$200 per megawatt-hour.
But another key factor in the Pacific Northwest's problems was dry weather
that depressed available hydropower generation from the region's massive
complex of federally owned dams, said Stephen Oliver, BPA's vice president of
bulk power marketing and transmission services.
The difference between a wet year and a dry year is 5,000 megawatts of power
generation capacity, Oliver told the committee.
Sen. Slade Gorton, R-Wash., who chaired the hearing, elicited from Oliver
that operational changes mandated to aid migration of salmon and other
endangered fish cost the system another 1,000 megawatts of capacity.
"At this point, the pricing problems in California and the Northwest appear
to be related," he said, citing near-record warm weather in the region and
lower-than normal hydropower availability.
Additionally, Hoecker attributed the region's price volatility to
California's "very high reliance on the spot market."
The supplies of power in the U.S. West are "simply inadequate," Hoecker said.
The picture painted by the hearing testimony served in contrast to the
"rumbling" of officials in California that imports of federal hydropower from
the Pacific Northwest were contributing to California's market problems,
noted Sen. Gordon Smith R-Ore.
"It is the structure of (California's) market that has created the problem,"
said Smith, noting, too, that the state's discouragement of new power plant
capacity has contributed to the problem.
"It looks like the markets have gone haywire," said Sen. Ron Wyden, D-Ore.,
who attributed the problems to deregulated power markets. He vowed to fight
any congressional deregulation legislation that threatens to raise power
costs in the Pacific Northwest.
-By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com