UNITED
STATES OF AMERICA
FEDERAL
ENERGY REGULATORY COMMISSION
Electricity Market Design and Structure. ) Docket
No. RM01-12-000
Working Paper. )
___________________________________
)
COMMENTS OF THE
IDAHO PUBLIC UTILITIES COMMISSION
I. INTRODUCTION
On March 15, 2002, the Federal
Energy Regulatory Commission (Commission) published a Working Paper on
standardized transmission service and wholesale electric market design. To allow for this discussion, the Commission
provided Notice to the public on March 15, 2002, that comments on the Working
Paper could be submitted in the above-referenced docket through March 27,
2002. On March 25, 2002, the Commission extended the deadline for
comments until April 10, 2002.
The
Idaho Public Utilities Commission (“IPUC”) provides comments on a limited
number of issues raised in the Working Paper.
The slightly extended comment deadline is inadequate to study and address
the full range of complex and inter-related issues contained in the Working
Paper. And the lack of detail and
specificity in much of the Working Paper makes it necessary to defer more
analytical comments until the expected Notice of Proposed Rulemaking offers
more time for additional study and comment.
Our recommendation is that FERC hold technical
conferences on the Working Paper prior to the issuance of a Notice of Proposed
Rulemaking with the expectation that many of the technical aspects of standardized
market design could be explained and discussed in greater detail.
The scope of our comments
at this point is confined to a limited set of key issues of concern to the
State of Idaho. Our silence on some
issues should not be taken as evidence of support. We have serious concerns whether a standardized wholesale market
structure is an appropriate policy objective at this time, particularly for our state and the Pacific Northwest
region.
II. NAME AND IDENTITY OF COMMENTER
1. The name and address of the commenter:
Idaho Public Utilities
Commission
472 West Washington St.
P.O. Box 83720
Boise, ID 83720-0074
2. All correspondence, communications, and
pleadings in this proceeding should be sent to each of the following:
William
Eastlake Donald
L. Howell, II
Electricity
Policy Advisor Deputy
Attorney General
Idaho
Public Utilities Commission Idaho
Public Utilities Commission
472 W.
Washington St. 472
W. Washington St.
PO Box
83720 PO
Box 83720
Boise,
ID 83720-0074 Boise, ID 83720-0074
(208)
334-0363 (208)
334-0312
III. COMMENTS ON THE WORKING PAPER
Regional
Differences Are Important
The IPUC agrees with the Commission’s recognition that regional
differences exist in electricity systems.
At item 11 on page 14, and again at item 7 on page 17, we see that
“additional scheduling options may need to be developed to address the special
conditions facing energy-limited resources (e.g., hydroelectric power and
environmentally constrained thermal power).”
It is rare and for that reason worthy of commendation, to see
recognition that hydroelectric generation and the regions that depend heavily
on it may have specific operating concerns.
We see our regional differences as a counterbalance to the idea of a
standard market design for the entire U.S.
We urge
the Commission to consider those regional differences when scheduling or
transitioning to any new requirements imposed from the implementation
of a standard market design. A
standard market design that is compatible with existing institutions in the tight
eastern power pools may not be equally appropriate for the West. In fact, we urge
the Commission to allow regional flexibility in meeting the goals of more
efficient and effective wholesale electricity markets so that regional
differences in system operating characteristics can be accommodated.
Priorities
Have Become Confused
Since the summer of 1999 many parties and hundreds of
individuals in the Pacific Northwest and elsewhere in the country have devoted
countless hours to debate and shape and then comply with the Commission’s
policy initiatives aimed at improving wholesale market performance through the
establishment of Regional Transmission Organizations (RTOs). Serious work has already been accomplished
in the direction set by the Commission in Order No. 2000, aimed at the
establishment of voluntary RTOs. We are heartened at the willingness of the
Commission to listen to Pacific Northwest concerns and to provide some measure
of deference to the good-faith efforts of entities in the Western Interconnection
to craft new institutions that meet our needs while moving in the direction the
Commission desires.
Much
of that work is still underway and will require continued commitment to reach
its ultimate destination. A broad new
initiative on a Standard Market Design is certain to detract from the resources
and raise questions about the commitment in the region to finish design and
implementation of an RTO that suits Northwest needs. Such a disruption will increase costs, heighten uncertainty about
where resources should be allocated, and undermine investment in needed
infrastructure. For the Commission to
step off in a new direction raises questions about whether resources have been
squandered on trying to shape an RTO process to regional needs and whether and
how this new effort might be complementary with or
contrary to processes already underway.
Even if this new initiative is an effort in the same direction as the
RTO process, one wonders how it can be in the public interest to force interested parties in the Pacific Northwest to
either divide their resources between the two processes or decide to support
one or the other, but not both.
We ask
the Commission to avoid aggressive implementation schedules on this new
initiative and to continue to support work already underway to design an RTO
West responsive to the Commission’s existing policy direction.
Support for Existing Rights
The
Working Paper affirms at page 7 that “customers under existing contracts (real
or implicit) should continue to receive the same level and quality of service
under standard market design” and at page 8 states a policy to “preserve the
existing rights of current users of the system.” We applaud this affirmation that preservation of existing rights
is an important objective that extends to implicit as well as explicit
contracts. Retail customers taking
bundled service depend on their utility’s continued access to its owned- and
contracted-for transmission capacity.
Retail customers pay for the investment the utility has made in
transmission plant dedicated to their service as well as its current
operational cost.
Some
of the implicit transmission rights at issue in market standardization are
associated with the capacity necessary to afford adequate and reliable service
to native load customers of regulated utilities. We are concerned that use of the term “implicit” rights might
indicate a diminished importance of native load rights. We feel compelled to point out that these
“implicit” rights are really much more legally binding
than the word implies. Service
to native load customers is the legal responsibility of regulated utilities in
Idaho. We see these rights and
responsibilities as guaranteed by Idaho state law rather than being a creation
of standard commercial contracts.
The Purpose of Markets
The
lessons learned section at item 6 on page 6 appropriately notes that market
rules must be neutral, that is, must not unduly bias the choice between demand
or supply sources. Furthermore it notes
that demand resources “should be able to participate fully in energy, ancillary
services and capacity markets.” The
IPUC agrees fully that demand response is essential to assure efficient
interaction of supply and demand and to act as a check on market power. It is for those two reasons that we are
working to provide a meaningful opportunity for customers to make informed
choices in the selection of authorized supply and demand resources.
But
item 8 on page 6 succumbs to the inappropriate notion that choice is valuable
in its own right. Choice has little
inherent value, at least insofar as it pertains to energy. Demand response is essential because it
makes for efficient markets. Choice has
value only to the extent that it improves market functioning. We favor demand response for the vital
reason that such choice is essential to effective market performance. Some of the calls for demand response and
market signals seem to place concern for markets ahead of concerns for
consumers, who need access to reliable, universal electric service at a
reasonable rate.
Demand Response is a Retail Matter in States with Fully Bundled
Service
Over the last two years, experience in Idaho and in
the Pacific Northwest in general has borne out the value of demand management
programs. During the drought conditions
and astronomical wholesale prices of 2000-2001, Idaho investor-owned utilities
under the jurisdiction of the IPUC operated several programs to encourage
reduction in electricity usage. All were
successful in tempering demand. These demand
response programs helped regulated utilities manage the physical balance
between loads and resources and reduce the costs of wholesale power purchases
in a time of extraordinary price pressure.
More importantly to the IPUC, utilities were able to keep retail prices
lower than they otherwise would have been.
We do
not question the importance of demand response. But we seriously question the
right of any standard wholesale market design to permit or authorize
direct participation of retail customers in wholesale markets. As noted in previous responses to the
Commission on this topic made by the IPUC and by
our colleagues at the Washington Utilities and Transportation Commission, the retail market is
in the jurisdiction of the States, and demand
response is fundamentally a retail matter.
New York, et al. v. FERC, et al., 555 U.S. ___, slip op. at 22
(March 4, 2002). In our fully regulated
state retail consumers have nothing to sell in a wholesale power
market. Their utility provides service
to them under a state statutory service obligation. The consumer has no title or anything akin to a “property right”
for service that would allow her to sell the utility’s capacity
or energy to someone else.
Permitting
retail customers to sell their energy savings in the wholesale market
independently of their utility would undermine the ability of the utility to
manage its resources and loads and ultimately undermine the reliability of
retail service. Further, it would
render meaningless a state policy decision not to open retail service to
competition. Retail customers in
bundled retail states cannot buy directly from wholesale markets (retail
wheeling) nor can they sell load reductions in those markets (reverse retail
wheeling).
The Commission should clarify
that, in states with bundled retail service, it is utilities that represent
retail customers for demand response in wholesale markets, and that the
decision to design and implement retail demand response programs rests with the
utility and appropriate state authorities.
The Commission should clarify that it will work with the affected states
in these circumstances where demand-side bids are to be required in power
markets.
What Are Acceptable Demand Response Mechanisms?
We echo National Rural Electric
Cooperative Association (NRECA) comments on this issue made in previous
FERC proceedings. NRECA applies a
reasonableness approach to demand response, offering support for initiatives
that can lower power costs for all of a power company’s consumers. Regulated utilities in Idaho during 2001
offered programs for small consumers to engage in programs whereby customers
could receive a specified bill credit in return for achieving certain energy
savings goals when the utility was short on power or power was unduly
expensive. Those same utilities also
provided large industrial consumers and irrigators economic incentives to shed
load for periods ranging from a few days to a full irrigation season. These programs were designed to share the
value of load reduction with participants and
non-participants alike so that all consumers on the system benefit.
Certain demand response programs could create a secondary
market for electricity that allows individual consumers – usually large
industries – to gain all the profit of power sales while leaving load serving
entities and their other consumers with all the risk. That would seriously hamper the ability of utilities and
regulators to assure all consumers have access to reliable, universal electric
service at reasonable rates.
Certain
proposals could undermine existing demand-side management and other load
reduction programs. Many utilities are
already using voluntary load reduction programs now to shave peaks and reduce
their exposure to risk in the wholesale markets. Customers are unlikely to participate in a voluntary program that
shares the value of the unused power if they are allowed by the Commission to
keep the full value of the power by selling it directly into the wholesale
market.
Jurisdiction
The
Commission’s goal of facilitating successful demand response programs is
laudable. But the issue of the reach of
the Commission’s jurisdiction over demand response programs cannot be ignored. Further clarification on this aspect of the
Commission’s Standard Market Design is vital.
The
Commission has previously noted in orders relating to the California situation
that it would allow retail customers, as permitted by state laws and
regulations, and wholesale customers to reduce consumption for the purpose of
reselling their load reduction at wholesale.
But the Commission overreaches if it asserts jurisdiction over the retail customer, as with the pure load reduction
agreement, where there is no actual sale of energy but rather only the
agreement to reduce load and not to consume.
The goal should be not to assert new jurisdiction but to work
cooperatively with the States to achieve a common good.
Because
a demand resource is a customer resource, there are repercussions for
retail rates which States cannot ignore.
These include the local, state, and regional economic impacts of having
a customer shut down or cut back on production, the shifting of costs to other
customers or customer classes, and possible reliability and air quality impacts
from back-up generation being brought on line.
Because these impacts have the potential to be translated into retail
rates for which the States bear responsibility, the States should determine how
to coordinate customer participation in wholesale markets so that they can
balance the benefits to participants against the costs to non-participants.
Another reason for the States to maintain their
role in demand resource programs is that there is not a uniform level of
sophistication among customers and customer classes. Not all large industrial customers possess the knowledge or
interest necessary to participate in demand response programs because that is
not their primary line of business.
Other customer classes could participate in demand resource programs but
are too small to be considered absent some type of aggregation. Whether and how smaller customers are
aggregated as demand resources should be a State decision. The States are in the best position to
coordinate customer participation in wholesale markets.
Finally, the IPUC urges the Commission to consider that the
Standard Market Design proposal may lead to conflicting, rather than
complementary, wholesale and retail demand response programs, which will
diminish the benefits of both. Idaho
and many other states have demand-side programs, some of which are
longstanding, in place for various retail customer classes. These programs bring benefits to customers
and create more efficient use of resources.
The inclusion of demand resource bidding in wholesale markets creates an
opportunity for possible double dipping or double counting for customers who
try to participate in both wholesale and retail demand resource programs. Thus, in order to maximize the benefits of
both demand resource bidding at the wholesale level and demand-side programs at
the retail level, coordination of customer participation needs to occur. And the entities best suited to insure that
coordination, because of our knowledge of and experience with retail customer
programs, are the state commissions.
IV. CONCLUSION
The IPUC requests that the
Commission consider conducting technical conferences on the standard market
design proposal contained in the Working Paper so that its implications can be
further explored before the issuance of a Notice of Proposed Rulemaking. We believe that this would be more helpful
and efficient in the process of arriving at a standardized market design than
moving too rapidly to the more formal NOPR process. We also urge the Commission to maintain enough flexibility in
market design to allow regional operating and system characteristics to be
accommodated. We also ask the
Commission to give the current RTO West effort the opportunity to address
issues related to an appropriate market design for the Pacific Northwest
region, so that the value of the work that has gone into this effort is
realized, rather than abandoned. We
also ask the Commission to acknowledge the binding nature of native load rights
in those states like Idaho, where vertically integrated utilities provide bundled
electric service.
These
comments should make it quite clear that Idaho is not “just saying no” to
demand response. Rather, Idaho is
clarifying that demand response remains primarily under state jurisdiction and
that any incursion by the Commission into this arena must be crafted carefully
to assure that it complements state efforts.
Thus, we urge the Commission to allow the
States to coordinate customer participation in demand resource programs to
insure that the benefits of such participation are maximized.
RESPECTFULLY SUBMITTED this 11th day
of April 2002.
FOR
THE IDAHO PUBLIC UTILITIES COMMISSION
Donald
L. Howell, II
Deputy
Attorney General
472
W. Washington Street
Boise,
ID 83702
(208)
334-0312
