FERC Pushes Conversion to a National Power Grid

Trying to revive competitive electricity markets after the debacle in California, federal regulators Wednesday proposed sweeping changes to speed the creation of a national power grid and encourage investment in new transmission lines and generating plants.

The Federal Energy Regulatory Commission unanimously approved a controversial 600-page plan to transform how the power grid is operated, imposing one set of rules on an “obsolete patchwork” of regional and state systems.

The plan would require traditional utility companies to transfer control of transmission systems to independent regional entities, which would then open the power grid to any qualified seller.

Proposed safeguards would ensure that each region of the country retains enough electricity supply to meet its own needs, and that efforts to manipulate markets are blocked.

The vision of a national power grid was endorsed by the Bush administration in its energy strategy last year. Carrying it out may prove trickier than imagined.

“At 600-plus pages, the devil’s in the details,” said Bill Brier, a spokesman for Edison Electric Institute, a utility trade association.

FERC Chairman Patrick H. Wood III said the plan would benefit California by making it easier for the state to import power during periods of high demand. Nationally, he predicted that the new system could reduce wholesale electricity prices 5% to 10% by the end of the decade.

“Unlike what happened in California, we don’t want to make people worse off,” Wood said.

Separately, Wood also said some of the trading strategies employed by Enron Corp. during the California energy crisis were based on “fraud and misrepresentation.” Wood’s comments were stronger than he has made in the past, but he also said that FERC had not yet reached any conclusions in its probe of market manipulation in the West.

FERC’s new market proposal brought a sharp rebuke from several state regulators, including California Public Utilities Commission Chairwoman Loretta Lynch, who blasted the plan as an attempt by Washington to usurp authority and undermine consumer protections. National rules would take away much state jurisdiction.

“They are taking away the job of 50 states to figure out how to run their electricity systems and giving it to folks in Washington who have serious problems running their own show,” Lynch said. “They have taken a one-size-fits-all Cinderella shoe and are trying to shoehorn everybody’s feet into it. Well, the West’s feet are too big to fit.”

Lynch said the PUC would file a challenge to the plan with FERC. Gov. Gray Davis was also critical, saying in a statement that “FERC’s one-size-fits-all approach--does not offer a solution to California’s problems.”

But Mark Cooper, an energy analyst with the Consumer Federation of America, said some of the principles of the plan could be valuable for homeowners and businesses. “A transmission grid that is adequate and open is important,” Cooper said. “Just like a good interstate highway system is good for consumers, a good interstate transmission system is good for consumers.”

The plan proposed by FERC would not become final until the end of the year, at the earliest, and then would take two more years to put into practice.

The power lines that deliver electricity to communities were built to serve local needs and have never been part of a national system.

In some areas, such as the West, the connections between states and regions are dicey, with different rules and pricing systems making it difficult to transmit power over long distances.

The transmission infrastructure is widely acknowledged to be inadequate for the future needs of the country, but investment in improvements has been slow in coming.

Moreover, the control of much of the system by utilities has been controversial. The government has found that utilities discriminated against independent generators by impeding their access to the electric wires.

Advocates of change believe that the combination of one set of national rules, impartial operation of the grid and better connections among states and regions will spur a wave of investment in power plants and transmission lines that ultimately will benefit consumers. Abundant, cheap power in one part of the country could be funneled to areas of greater need, they say.

“The status quo is not in the public interest, and a sharp change is necessary,” said FERC Commissioner William Massey, who was one of California’s strongest advocates in Washington during the state’s power crisis.

Under the FERC plan, prices would rise and fall according to supply and demand.

But there would be a price cap of $1,000 per megawatt hour, as is now in effect in New York and Texas. Market rules would prevent Enron-type manipulations based on strategies that artificially created congestion on the California grid.

“It’s more of a restructuring, or a different type of regulation--it’s not deregulation,” said Alice Fernandez, a FERC specialist who worked on the plan.

Some aspects of the proposal resemble the system now in place in California. Long-term fixed-price contracts would supply most of the power in any given region of the country. The independent operator of the power grid--akin to the California Independent System Operator, or Cal-ISO--would supervise short-term needs to cover day-to-day fluctuations in supply and demand.

Segments of the power industry that are traditionally at odds responded favorably to the plan. Both independent marketers and utilities said they hoped it would help restore confidence in their scandal-racked industry.