Washington, D.C. March 17, 2003 — In the hopes of “breaking the political logjam over national electricity policy,” a coalition of Western business leaders has proposed a Western alternative to the Federal Energy Regulatory Commission’s (FERC’s) Standard Market Design rulemaking.
The plan, called “Western Market Design,” proposes to empower Western states to take the lead in mapping the future of Western wholesale electricity market, rather than federal regulators. The proposal is being presented this week to policymakers in Washington, D.C. and in the states as model for other regions as well.
As developed by the Western Business Roundtable, the plan is intended to “provide a more regional approach to market design and get the country moving forward again on a path to increased investment in our electricity infrastructure system,” according to Jacob Williams, Chairman of the Roundtable’s Electricity Task Force and an executive with Peabody Energy.
“With consumers facing the prospect of much higher natural gas and electricity utility bills, and with those price increases fueling inflationary pressures on the economy, the urgency has never been greater to find ways to modernize and improve our nation’s electric transmission system,” Williams said. “Getting lines built so more low-cost baseload power can be made available to consumers is one of the most important keys to protecting them from future price spikes.”
Under the Roundtable’s Western Market Design (WMD) proposal, Congress would statutorily authorize a Western regional entity with authority to establish and govern a number of critical elements of market design and function, including, at a minimum: 1) regional planning; 2) regional transmission tariff development and administration for new regional transmission lines, and; 3) siting of critical interstate transmission facilities.
Governors of the Western states would take the lead in proposing the specific structure and composition of such a regional entity. The Federal Government would provide sufficient funding to establish the Western regional entity. Once established and functioning, funding for its operations would be provided through a fee on electricity consumption.
“This approach would enhance the authority of states, rather than diminish it,” Roundtable Executive Director Jim Sims said. “Rather than simply being relegated to an advisory role in a FERC-run process, the states, through the regional body, would enjoy real authority to shape and monitor the interstate wholesale electricity market in the region.
“Under this delegation regime, Congress and the Federal government would retain overarching authority to make sure that the regional approach being developed by the regional entity does not violate the overall objectives of the Federal Power Act,” Sims added.
The WMD proposal lists seven critical organizing principles:
“- All transmission entities within the region – including FERC non-jurisdictional entities, WAPA and BPA – be must be involved and treated equitably. In the West particularly, a significant portion of the transmission system is owned by federal power agencies, municipal utilities and rural electric cooperatives. It is critically important that all such entities play by the same rules and be treated equitably. Otherwise, the goal of ending balkanization of the system will be frustrated and regional bottlenecks will continue to exist.
“- The regional planning involved must include the entire West. The regional body should be tasked with identifying: 1) coordination issues needed to be resolved between functioning RTOs; 2) what facilities are needed; 3) when those facilities need to come on-line; 4) cost justifications for each; and 5) what is required to ensure that reliable and affordable service is provided to all consumers in the West.
“- When such projects identified are multi-state in nature, the regional body must have tariff authority and use it to assure that costs are properly allocated among all regional beneficiaries of the project. The costs of multi-state transmission projects should be spread across regional beneficiaries via regional transmission tariffs, thereby eliminating the pancaking of rates that now occurs. Absent this approach, transmission for low-cost, remote projects will not be built, thereby causing a continued reliance on price-volatile sources built close to load centers.
“- The regional entity needs to be vested with adequate authority for planning, siting and issuance of Certificates of Need. The grant of such authorities is important to assure that critical multi-state facilities can be constructed on the timeline dictated by the regional planning process. It is important to recognize that, in the case of most transmission upgrade projects, only the widening of existing transmission corridors are involved.
“- A clear mechanism to govern operation of the entire interstate grid must be established. An independent operational entity must be a key component of the system and will go far in mitigating the conflicts of interest that currently occur where wholesale market participants also control transmission planning, rights availability and allocations.
“- Full and open transmission access is critically important. Open and non-discriminatory access is the key to eliminating market power abuses that result from exploitation of imperfections and bottlenecks in the regional transmission grid.
“- Western Governors should take the lead in proposing the specific structure and composition of such a regional entity. The Roundtable strongly urges Governors to give state regulatory commissions meaningful roles in the governance and operation of the process. This approach will enhance the power of states and state commissions by giving them real authority, via a regional mechanism, to shape and monitor the interstate wholesale electricity market in the region.
“- The federal government should provide sufficient up-front funding to establish the Western regional entity. Once established and functioning, funding for its operations would be provided through a fee on electricity consumption.
Full text of the WMD proposal can be found here: http://www.westernroundtable.com/energy/WMD_proposal.pdf.
The Roundtable (www.westernroundtable.com) is a coalition of CEOs and senior executives of corporations doing business in the Western U.S. The organization represents a broad cross section of Western business interests, including those engaged in construction, conventional and renewable energy development, electric power generation, oil and gas exploration and development, engineering, financial, accounting, manufacturing, mining, utility and others.