June 12, 2001

The Honorable Curt Hébert, Jr.
Chairman
Federal Energy Regulatory Commission
888 First Street, NE
Washington DC, 20426

Dear Chairman Hébert:

Since last summer, the Committee on Energy and Commerce has closely monitored the electricity situation in California. Today, the West continues to suffer from the second worst drought in a century, and California faces the threat of blackouts and potential price spikes again this summer. After extensive review of the energy crisis in the West, including several hearings in Washington and California, we recommend that the Commission take further actions to help mitigate wholesale electricity prices and keep power flowing into California.

We recognize the Commission’s efforts in recent months to address the electricity crisis in the California and western markets, including measures to investigate and mitigate wholesale electricity prices. While we are pleased that current trends show reduced demand and lower prices throughout the West, we remain concerned about the potential impacts of high wholesale electricity prices on consumers and economic growth in California and the entire West in the hot summer months to come. To ensure that prices are just and reasonable during the critical months ahead, we believe the Commission can and should do more to mitigate wholesale electricity prices in western markets. We strongly urge the Commission to implement a comprehensive plan to mitigate wholesale prices and aggressively monitor wholesale sales of electric energy by public utilities and other market participants within the entire Western Systems Coordinating Council (WSCC).

Specifically, such a plan should ensure that rates for all wholesale electricity sales are just and reasonable in all markets throughout the WSCC. The plan should also prohibit unnecessary generation outages and failures to comply with agreements to sell power. If the Commission finds that a rate charged does not comply with the price mitigation plan, it should strictly enforce the plan and require refunds and penalties to the full extent allowed by law.

Aware of the danger of discouraging supply, the Commission has relied upon market-oriented methods rather than imposing rigid price controls that would exacerbate the crisis and increase the likelihood of blackouts. We share the Commission’s concerns regarding the need to encourage supply. Accordingly, to prevent blackouts and contribute to a long-term solution, the Commission’s comprehensive plan should adopt market mechanisms as appropriate and allow recovery of all verifiable costs to avoid discouraging availability of supply and investment in new generation and transmission.

To mitigate prices and increase available supply, we also urge the Commission to take every additional step within its authority to promote conservation and demand response throughout the western market. In States where retail rates do not fully reflect wholesale costs, consumers have less incentive to conserve. While demand reduction incentives are not a substitute for accurate price signals, a demand response program can encourage conservation while retail and wholesale rates are not in parity. Such a program should provide incentives and opportunities for both wholesale and retail consumers to sell, at market or other incentive prices, "foregone" electric load that they would otherwise be expected to consume. Specifically, the Commission should: (1) establish or certify a wholesale "clearinghouse" for demand reduction agreements; and (2) enable consumers, whether individually or through aggregation arrangements, to sell foregone power to their own local distribution utility or to third-party purchasers. We recognize that individual States and utilities are implementing demand reduction programs, but a broader, regional solution is needed to enable sufficient demand reductions in time for an expected hot summer. We understand that such a program can be implemented without preempting State laws, abrogating existing contracts, or shifting costs to non-participant consumers.

We look forward to working with you to build upon the Commission’s previous efforts to ensure reliable power supplies at just and reasonable prices for consumers in California and the West this summer and thereafter. To ensure maximum relief to western consumers in the months ahead, we request that you take appropriate action consistent with our recommendations as soon as possible. We request that you respond to our recommendations in writing not later than the close of business on Friday, June 22. If you have questions please contact our staff. Thank you in advance for your cooperation with this request.

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