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June 18, 2001
LIEBERMAN OUTLINES THREE-PRONGED APPROACH
FOR ENERGY RELIEF
WASHINGTON - Governmental Affairs
Committee Chairman Joseph Lieberman, D-Conn., has written the
Federal Energy Regulatory Commission, outlining a three-part
strategy for reducing the high cost of energy in the West.
Lieberman will call all five FERC Commissioners before the
committee on Wednesday, June 20, 2001, to question them about
the agency’s approach to solving the California energy crisis.
Following is text of the letter, dated Friday, June 15, 2001:
The Honorable Curt Hébert,
Jr.
Chairman
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
Dear Chairman Hébert:
In its order of December 15, 2000, the Federal Energy Regulatory
Commission (FERC) concluded that the California market was
deeply flawed and, combined with other factors, has caused
electricity prices to be neither just nor reasonable, as
required by the Federal Power Act (FPA). FERC has reiterated
this view both in its April 26, 2001 mitigation plan and in its
May 25, 2001 clarification of the mitigation plan.
The Senate Governmental
Affairs Committee held a hearing on June 13, 2001, to take
testimony from renowned economic experts on the crisis in the
Western electricity markets. All witnesses agreed that the
market is dysfunctional and five of the witnesses, including
Cornell University economics professor emeritus Dr. Alfred Kahn,
a leading expert on deregulation, agreed that temporary price
measures are necessary. I am sending under separate cover copies
of their written testimony for your consideration.
FERC’s obligations under
the Federal Power Act could not be clearer. As stated in the
Commission’s November 200 Order outlining its proposed
approach to the California crisis, "(t)he Commission is
obligated under the FPA to ensure that rates, terms and
conditions of wholesale sales and transmission in interstate
commerce by public utilities are just, reasonable, and not
unduly discriminatory or preferential." In other words,
wholesale rates under FERC’s jurisdiction must be just and
reasonable at all times, everywhere. Witnesses at the June 13th
hearing testified that the remedies FERC has heretofore ordered
for California have fallen far short of meeting its obligations
under the Federal Power Act to ensure just and reasonable
prices.
I understand that the
Commission plans to address remedies for the Western electricity
crisis more fully
on Monday. Speed is critical because ratepayers need relief,
particularly as the summer begins.
I believe that it is
essential that FERC’s order address rates, terms and
conditions of wholesale sales and transmission for all hours and
throughout the entire Western interconnection. Second, witnesses
before the Governmental Affairs Committee indicated that it will
take a number of months, if not longer, to ensure that there is
adequate electric generation capacity to support a properly
functioning market. Therefore, I suggest that FERC may want to
guarantee that its mitigation measures remain in place for a
sufficient period of time to allow this additional generation
capacity, including ample reserves, to be developed. Third,
while there was not unanimity among the witnesses on the exact
form that price mitigation measures should take, FERC and the
states have decades of experience with the use of
cost-of-service and load-differentiated-demand based rates.
Experts tell us that these are tried and true approaches to
meeting FERC’s obligation to ensure just and reasonable rates
which could restore stability in the Western electricity market
on an interim basis under these extraordinary circumstances.
I would appreciate FERC’s
review of these expert suggestions and I look forward to the
Commission’s testimony before the Senate Governmental Affairs
Committee on June 20, 2001.
Sincerely,
Joseph I. Lieberman
Chairman
JIL:dmb
cc: The Honorable Pat Wood, III
The Honorable Linda K. Breathitt
The Honorable William L. Massey
The Honorable Nora M. Brownell
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