UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION

Order Removing Obstacles to Increased Electric Generation and Natural Gas Supply in the
Western United States and Requesting Comments (Docket No. EL01-47-000) on Further Actions to Increase Energy Supply and Decrease Energy Consumption.

I. INTRODUCTION

On March 14, 2001, the Federal Energy Regulatory Commission (FERC) announced certain actions it is taking within its regulatory authorities under the Federal Power Act, the Natural Gas Act, the Natural Gas Policy Act, the Public Utility Regulatory Policies Act, and the Interstate Commerce Act that are designed to help increase electric generation supply and delivery in the Western United States. In addition, the Commission requested comments on certain additional actions it might take to further this objective. In the instant filing, the Washington Utilities and Transportation Commission (WUTC) submits these Comments on these additional actions described by the Commission.

II. IDENTITY OF THE WUTC

The WUTC is a state commission having sole jurisdiction to regulate the retail rates, services, and practices of investor-owned electric utilities within the state of Washington pursuant to state law. Title 80 Revised Code of Washington (RCW). In this capacity, the WUTC regulates the retail electric services and rates of Puget Sound Energy, Inc., Avista Corporation, and, PacifiCorp.

The WUTC has authority under state law to act: ‘. . . as petitioner, intervenor, or otherwise to initiate and/or participate in proceedings before federal administrative agencies in which there is at issue the authority, rates, or practices for transportation or utility services affecting the interests of the state of Washington, its businesses and general public, and to do all things necessary in its opinion to present such federal administrative agencies of all facts bearing upon such issues. . . .’ RCW 80.01.075.

III. COMMENTS OF THE WUTC

On March 14, 2001, the Commission issued its Order Removing Obstacles to Increased Electric Generation and Natural Gas Supply in the Western United States and Requesting Comments on Further Actions to Increase Energy Supply and Decrease Energy Consumption (Order). 94 F.E.R.C P61,272 (2001). In Section I.D. of its Order, labeled "Purchases of Demand Reduction," the Commission requests comments on its proposal to issue a blanket authorization allowing 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. The Commission’s objective for this blanket authorization is summed up by its statement: "By providing additional load resources when generating resources are scarce, these ‘negawatts’ should help maintain the reliability of the grid." The order notes that "allowing retail load to reduce consumption for resale in wholesale markets raises legal, commercial, technical and regulatory issues."

As the Commission’s proposal applies to retail customers, the WUTC is concerned about all four of these issues. We note that the three utilities under the jurisdiction of the WUTC have retail service tariffs approved and in place that permit the utility to "buy-back" power from certain classes of industrial and pumping/irrigation customers. Those tariffs serve the objective the Commission has described in this section. This is fundamentally a matter of retail service that falls squarely within the exclusive jurisdiction of the WUTC. We are concerned that the Commission’s proposal is fundamentally unworkable and would inappropriately attempt to extend its reach into the relationship between the utility and its retail customers. This proposal threatens to undermine the demand reduction tools we already have in place. With respect to the four issues noted in the Commission’s Order, we note the following.

Legal: Under Washington law, utilities have an obligation to serve their retail customers. RCW 80.28.110. The utility, faced with a supply shortage, can offer customers compensation, subject to the approval of the WUTC, for a customer’s voluntary choice to forego service which the utility may otherwise be obligated to provide under state law and regulation. In this way, a utility may be able to obtain a demand-side resource at a cost less than what it might otherwise need to pay for power supply to maintain minimum-cost service and reliability for its remaining customers. Allowing retail customers to sell power provided by a utility on the wholesale market, as the Commission proposes, implies that the right to be served confers a customer ownership right to the utility’s power. No such right is established in state or federal law. Further, the Commission’s proposal implies that a retail customer has the authority to compel the utility to make wholesale power deliveries to a third party with whom the utility has not otherwise entered a sales agreement. Retail customers have no such authority under state or federal law.

Commercial: The Commission’s proposal envisions a commercial transaction between a retail customer and a purchaser of power at wholesale. Presumably, the payment for the power would be tendered by the wholesale purchaser to the retail customer, but the power would necessarily be delivered to the wholesale purchaser by the utility. The benefit to the retail customer making this sale is the difference between the market value of power and the embedded-cost, regulated, retail rate he and all other customers pay to the utility. But, as we have noted above, the power belongs to the utility, not the customer. Nothing in state or federal law entitles the retail customer to capture this benefit to the exclusion of the utility or the utility’s other retail customers.

Technical: Allowing retail customers to resell power that they do not own or generate would create an administrative nightmare. Does the Commission propose that these technical and administrative issues be addressed under its authority? Problems include: (1) ensuring that the selling party actually had a load equal to the power sold and actually ceased to consume the agreed-to amount of power; (2) ensuring that the power sold could reasonably be redirected by the customer to the purchaser; (3) identifying and properly accounting for the multiple sources of the power obtained by the buyer; (4) establishing that the power in question was of the same quality as the power otherwise to have been delivered to the customer; (5) establishing a contractual standard for the firmness of the power; and (6) establishing the regulatory powers under which the utility is required to sell power at wholesale pursuant to a contract in which it is not a party.

Regulatory: Placing retail customers in the shoes of wholesale power marketers would fundamentally interference in the state’s ability to regulate retail rates. State law requires that utilities meet their service obligations to all customers at rates that are set to be fair, just, reasonable, and sufficient. In addition, rates cannot be unduly discriminatory or preferential. This requires striking a balance between the interest of the retail customers in low rates, the interest of the utility in cost compensation, and a fair rate of return on property dedicated to public service. Striking this balance is not possible in an environment of retail customers cutting side deals with each other, with other utilities, or with wholesale purchasers for the disposition of power the utility has generated or acquired to meet the loads of all of its customers.

We agree that achieving demand reduction in the tight supply situation facing the western power system is an important goal. However, we disagree that the Commission has any important role to play in regulating or fostering service options to be offered by retail utilities to achieve such demand reductions on the part of retail customers. That is a matter for state regulation of retail service. As we have already noted, demand reduction service options are already in place in Washington and, we would add, in a number of other western states. These arrangements would not benefit from or require any action on the part of the Commission in its regulation, which must be focused not on retail electricity service but on ensuring that wholesale power markets produce power prices that are just and reasonable.

IV. CONCLUSION

The WUTC appreciates this opportunity to offer comments on the actions proposed by the Commission in Docket No. EL01-47-000. The WUTC appreciates the Commission’s attention to the near-term electricity and natural gas supply challenges facing the western United States. We look forward to working with the Commission to address these challenges through

complementary actions that recognize the appropriate roles and authorities of state and federal jurisdiction.

DATED this 29th day of March, 2001.

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION

MARILYN SHOWALTER, Chairwoman

RICHARD HEMSTAD, Commissioner