FERC Potpourri

1. FERC Potpourri Roundtable Discussion 2005 APPA Legal Seminar San Antonio, TX

2. Major FERC Issues for Public Power • Generation resource adequacy/LICAP/capacity markets • LICAP in New England: no capacity mechanism in CAISO tariff; but soon may have one; how to assess legal position? • CAN an ISO impose resource adequacy on munis given recent case law? • RPM in PJM : has some possible application; munis must bid into market

3. More Major Issues • LICAP: It is an attempt to put a market model in place in NE with a demand curve; an alternative is being proposed; the entire Congressional delegation and all Governors to object to LICAP: now being postponed • FERC on LICAP: Why doesn’t it work? It works in NY; got generation built in NYC (but it was built by NYPA—not in response to market signals) Case is now in settlement negotiations in Boston; they are hoping for consensus result

4. More Major Issues • Must bid requirement—if you must bid in to meet capacity obligation are you subject to new FERC refund authority??? Can you be forced to bid in and thus subject yourself to FERC jurisdiction under new FPA section? • MISO: MISO Whitepaper has no capacity construct--energy only market with relaxed price caps; State PUCS and regional reliability councils want to keep resource adequacy; MISO Staff wants to let the energy price signal need for new capacity • Retail choice states thinking shorter term; other states want longer term planning.

5. More Major Issues • IPPs want prices to spike to as high as the market will set; they say otherwise no one will construct new capacity in absence of capacity market. • CA: PUC wants to do resource adequacy (instead of ISO); backstop procurement by ISO on “peanut butter” rate basis can add millions to rates • What about the munis not in the ISO? Will the charge on exports draw them in?

6. More Major Issues • Some munis in MISO prefer the energy only market to the capacity construct; you can use bilaterals to protect yourself from most price volatility; you can deal with the price spikes • CAL: Our price spikes were very prolonged and it would be politically very difficult to lift caps • Role of Transmission constraints in CA, NE: can contract ahead if not in load pocket; if in load pocket, hard to contract due to few choices. RMR units had to be kept in operation and paid via PUSH, RMR contracts

7. More Major Issues • Higher of cost or market; role of Transmission constraints and NIMBYs in maintaining these problems • Capacity poison or energy market poison? Which is the better for us, or is there a third way? • Mergers: Cross country mergers may be on the rise. How to get FERC to pay more attention? Does membership in an RTO mean that generation/transmission market power is fully addressed? (Hardly)

8. More Major Issues • Can you show flows of power coming from new merger partners’ transactions will exacerbate market power even in an RTO region? • Gas-electric mergers; Dominion, Duke • Market-based rate dockets: what happens after loss of market based rates? • CLECO docket: negative 500 MW import capacity!

9. What’s Eating Public Power Systems? • AMEA: Southern OATT customer; big issue is the comparability of the rates they pay; Southern uses postage stamp and Alabama Power’s rate is lower. Creates competitive problems for AMEA • NCPA: All of the above. Rewrite of ISO Tariff being done on the fly and outcome could be very problematic. • NTUA: Keeping WAPA out of an RTO; Desert Star turned into Death Star

10. What’s Worrying Us? • WPPI: Best way to protect yourself is to have own base load generation; need LTTRs to do this. • FMPA: RTOs now scare them; looking for mandatory joint planning; may lead to joint ownership? Need recognition of generation behind the meter; why is it not part of the network? No one size fits all on behind the meter generation

11. What is Worrying Us? • Those in MISO--SECA: MAKE IT GO AWAY! • McDiarmid: How to strengthen the TX system? This is the key to other problems. • SEPA: Our plants badly need maintenance. Weathered one year in PJM. Customers want to manage own allocations; rolling change, possible impact on Transmission; review of Southern system agreement

12. What is Worrying Us? • Michigan: Capacity issues; developers come and go but won’t invest—no surety they will get money back. How to finance capacity for growth? • UAMPS: How to serve load growth? Generation and transmission planning with multiple states raises many issues; parochial state jurisdictions; network customers get forgotten? Coordinated planning could get us far…

13. What is Worrying Us? • FLA: looking at OATT; rollover rights • MAPP: Lack of competitive bids for power supply; need adequate transmission • Jennifer Tribulski: Need non-monetary incentives to encourage us to invest in transmission; high rate of return does not do it for us; congestion charges don’t get transmission built; offsets transmission charge; no structural incentive to eliminate transmission constraints

14. What is Worrying Us? • Platte River: Cure to our problems may be worse than the disease. CO is a “backwater” that was not on the bleeding edge. Relatively small G&T; how will FERC-lite be implemented and will we have to functionally unbundle? • CA: Cost/benefit analysis—we were sold a bill of goods. Lack of transmission capacity and long term planning; why are folks fleeing CAISO? High costs.

15. What is Worrying Us? • Metropolitan Water District: Reliability and the ISO’s goldplating; 15% reserve morphing into operating reserve; what does the ISO really need? And can some one else do it more cheaply? • Reemergence of market power; in CA the IOUs are reacquiring generation; can they in an LMP environment exercise market power? • Cost allocation consistent with cost causation; demand response also a big issue

16. What is Worrying Us? • Vernon: Behind the meter generation; how will it be treated by the ISO? • NCPA: Long term bilateral contracts; need to make sure the terms are fair and not subject to abuse; need to avoid unfair termination provisions in power supply contracts