FERC gives PSC a big headache July 19, 2001 By AMY L. BERNSTEIN, Daily Record Business Writer The Public Service Commission is up in arms over a sweeping new order from the Federal Regulatory Energy Commission — politically motivated, some say — that may derail new commercial power contracts in Maryland and increase uncertainty for regulated utilities like BGE.

In a nutshell, FERC — which includes three new senior-level Bush appointees — is demanding that independent power grid operators for the mid-Atlantic, New York and New England regions merge into one giant regional entity, covering the entire Northeast.

FERC has given the PSC and other state regulators, power generators, energy retailers and power grid operators just 45 days, beginning next week, to create a framework for a so-called Northeastern Regional Transmission Organization, or RTO.

By its own admission, such a move is likely to benefit big merchant energy companies like Houston-based Enron, a major Bush campaign contributor with close ties to the White House, which earns profits on high-volume energy trades.

But it’s not necessarily good news for Maryland at this time.

The order “took a lot of people by surprise,” said PSC Chairman Catherine I. Riley, who expressed dismay at the agency’s short timeline.

“Somewhere down the road, in a year or two, this [could] be a good thing,” Riley said. “But to move ahead when there’s no crisis adds a huge new variable of instability” to deregulation in Maryland.

“Does this mean states have no right to control [electricity] reliability?” added Riley, who will brief Gov. Parris N. Glendening tomorrow on the implications of the ruling.

Riley predicted the change could create uncertainty by altering the business rules that now govern how electricity is moved, priced and monitored through PJM Interconnect — the Mid-Atlantic’s independent energy grid authority, considered by many the best of its kind.

For instance, electricity that moves on short notice between contiguous states, such as Maryland and Pennsylvania, may now have to travel farther, up to New York or New England.

“It speaks to how much sway big money has in these policy decisions and creates the appearance of a rigged system.” - Jeff Cronin

As a result, some companies that submitted bids last week to supply BGE with competitively priced electricity through 2006 “may want to bail out [because] of potential instability in PJM [and] the potential increase for the cost of transmission,” Riley said.

“I’m not anxious to see [the Northeastern RTO] happen,” said Tom Saquella, president of the Mid-Atlantic Aggregation Group, a consortium of retailers and others who jointly purchase power in bulk.

“The terms [energy] suppliers offer could change,” Saquella said. “There would be uncertainty in a market that is still somewhat unstable.”

BGE is on track to award new long-term power contracts by August and it is too early to predict trouble, says Robert S. Fleishman, vice president of corporate affairs and general counsel with Constellation Energy Group.

However, he acknowledged, “it’s very unclear what’s going to come out of this [FERC] process.”

The ruling runs counter to FERC’s goal of designing RTOs “tailored to the specific needs of each region,” wrote FERC Commissioner Linda K. Breathitt, a Clinton-era appointee, in a dissenting opinion.

But many energy suppliers and retailers applaud the FERC order, including the Mid-Atlantic Power Supply Association, a staunch advocate of unencumbered free-market deregulation.

“All in all, anything that removes barriers between markets is something that we support very strongly [because] it will clearly improve the economics [of energy transmission] and allow us to serve customers at a lower rate,” said Suzanne Daycock, executive director of MAPSA.

“In the end, what the customer wants is electricity, and the most efficient way to [get it] is through an unencumbered system with as few administrative bottlenecks as possible,” said Mark Palmer, an Enron spokesman.

Whether that proves true remains to be seen — but meanwhile Enron’s efforts to influence FERC in connection with this ruling have raised eyebrows.

In February, Enron petitioned FERC to reject three separate proposals submitted by PJM and other regional RTOs, arguing that the Northeast is one market, not three.

Then in May, Enron Chairman Kenneth Lay, a close friend of Bush’s and a campaign donor, personally asked FERC Chairman Curtis Hebert Jr. to push harder to create more open access to the electricity transmission grid for his company and its competitors.

“That’s a particularly cavalier way for an industry leader to approach a regulator,” said Jeff Cronin, a spokesman for Common Cause in Washington. “It speaks to how much sway big money has in these policy decisions and creates the appearance of a rigged system.” Copyright © 2000 The Daily Record. All Rights Reserved.

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-- Martin Thompson (mthom1927@aol.com), July 19, 2001