Southern states could face a power crisis

Gilbert Nicholson Staff A top executive of Southern Co. warns that California's electricity disaster could happen in the South and other regions of the country if untested wholesale marketing models are rashly put in place as part of a new federal effort to open the big-wire transmission network to all competitors.

Meanwhile, an Alabama Public Service Commission official says the federal effort – which would create independent regional transmission organizations (RTOs) to control the privately owned high-voltage transmission network – will cost millions of dollars that will eventually be passed on to ratepayers.

"What I'm worried about is putting in a wholesale market model that's not well thought-out, that will increase the volatility of the cost and supply of electricity and decrease reliability across the region. This isn't soybeans," says Bill Newman, senior vice president for transmission and planning for Southern Co., the nation's largest electric power producer and parent of Alabama Power.

The Federal Energy Regulatory Commission has ordered investor-owned utilities nationwide to divest their transmission systems to independent RTOs by Dec. 31, in an effort to open the nation's big-wire transmission grid to all competitors.

Newman, one of the chief architects of Southern's RTO proposal to FERC, says rolling out the RTOs without carefully planned marketing could lead to a collapse of the system. He warns that California's practices of eliminating long-term contracts and requiring real-time instant buying and selling of electricity on the spot market could lead to disaster.

"I'm calling for self-restraint in the implementation of the RTOs, and involvement by state public service commissions to move cautiously ... so that we don't put something in place that endangers the reliability of the electric system," Newman says. "Turning people's lights off is a giant failure. It's destroying (California's) economy."

California deregulated its wholesale market but not the retail market. Skyrocketing wholesale prices that can't be passed on to consumers is one of the major factors, along with a shortage of power-generating plants, causing rolling blackouts that are creating an electricity crisis in California.

FERC spokeswoman Barbara Connors says the agency has accepted feedback on the RTOs – known as Order 2000 – from all interested parties through a series of four regional public meetings last year and from a public comment period on the various RTO proposals that have been filed.

"The commission is certainly aware of the regional differences and concerns in setting up these markets and always has an ear to public interest," Connors says.

FERC is currently considering the RTO proposals from around the country and has no timetable for granting approval on the filing made by Southern and other utility companies, she says.

Meanwhile, the Alabama Public Service Commission is powerless over the RTO plan, since FERC has jurisdiction over wholesale electricity while the PSC has authority only over retail rates, says Gene Hanes, PSC federal affairs adviser in Montgomery.

"We made some legal challenges to their (FERC's) authority to do this (establish RTOs), which they have turned down," Hanes says. "We then said, if they didn't agree with the legal arguments, and if they had to press forward, to give deference to the states, who have to answer complaints if things don't go right."

Hanes cites a hypothetical example of an independent RTO with offices outside Alabama managing Southern Co.'s transmission wires deciding it needs to expand the grid in Alabama to benefit the region.

"Who has the authority to say, `Who'll pay for that?'" Hanes asks. "What if some people in Alabama don't want the lines there? How will you fight that battle?"

Hanes, like Newman, argues that state public service commissions understand the market dynamics of their individual states and are in a better position to tell whether certain market models will work or not.

"There ought to be some sort of regional cooperation with the local regulatory agencies involved to deal with these things," Hanes says. "It shouldn't be taken out of the hands of the people that have ensured the progress of the system up to this point.

"They (FERC) haven't addressed the question that after all this is set up, what kind of deference will the state commissions have in the decisions FERC makes?" Hanes adds. "At the end of the game, we would hope there would be some place for various PSCs to provide input to decisions FERC makes."

Some industry observers say FERC's setting wholesale rates and market models for the RTOs will affect the retail rates the PSCs have exclusive authority to govern.

Hanes, meanwhile, says the costs of creating an RTO – which Newman has estimated between $40 million and $150 million for Southern's $2.5 billion transmission system – will eventually be passed on to both business and residential retail ratepayers. estimated between $40 million and $150 million for Southern's $2.5 billion transmission system – will eventually be passed on to both business and residential retail ratepayers.

http://birmingham.bcentral.com/birmingham/stories/2001/02/05/story3.html

-- Martin Thompson (mthom1927@aol.com), February 05, 2001