WASHINGTON – Governmental Affairs Committee Chairman Joseph Lieberman, D-Conn., has written the Federal Energy Regulatory Commission, outlining a three-part strategy for reducing the high cost of energy in the West. Lieberman will call all five FERC Commissioners before the committee on Wednesday, June 20, 2001, to question them about the agency?s approach to solving the California energy crisis. Following is text of the letter, dated Friday, June 15, 2001:

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

Dear Chairman Hébert:
In its order of December 15, 2000, the Federal Energy Regulatory Commission (FERC) concluded that the California market was deeply flawed and, combined with other factors, has caused electricity prices to be neither just nor reasonable, as required by the Federal Power Act (FPA). FERC has reiterated this view both in its April 26, 2001 mitigation plan and in its May 25, 2001 clarification of the mitigation plan.

The Senate Governmental Affairs Committee held a hearing on June 13, 2001, to take testimony from renowned economic experts on the crisis in the Western electricity markets. All witnesses agreed that the market is dysfunctional and five of the witnesses, including Cornell University economics professor emeritus Dr. Alfred Kahn, a leading expert on deregulation, agreed that temporary price measures are necessary. I am sending under separate cover copies of their written testimony for your consideration.

FERC?s obligations under the Federal Power Act could not be clearer. As stated in the Commission?s November 200 Order outlining its proposed approach to the California crisis, “(t)he Commission is obligated under the FPA to ensure that rates, terms and conditions of wholesale sales and transmission in interstate commerce by public utilities are just, reasonable, and not unduly discriminatory or preferential.” In other words, wholesale rates under FERC?s jurisdiction must be just and reasonable at all times, everywhere. Witnesses at the June 13th hearing testified that the remedies FERC has heretofore ordered for California have fallen far short of meeting its obligations under the Federal Power Act to ensure just and reasonable prices.

I understand that the Commission plans to address remedies for the Western electricity crisis more fully on Monday. Speed is critical because ratepayers need relief, particularly as the summer begins.

I believe that it is essential that FERC?s order address rates, terms and conditions of wholesale sales and transmission for all hours and throughout the entire Western interconnection. Second, witnesses before the Governmental Affairs Committee indicated that it will take a number of months, if not longer, to ensure that there is adequate electric generation capacity to support a properly functioning market. Therefore, I suggest that FERC may want to guarantee that its mitigation measures remain in place for a sufficient period of time to allow this additional generation capacity, including ample reserves, to be developed. Third, while there was not unanimity among the witnesses on the exact form that price mitigation measures should take, FERC and the states have decades of experience with the use of cost-of-service and load-differentiated-demand based rates. Experts tell us that these are tried and true approaches to meeting FERC?s obligation to ensure just and reasonable rates which could restore stability in the Western electricity market on an interim basis under these extraordinary circumstances.

I would appreciate FERC?s review of these expert suggestions and I look forward to the Commission?s testimony before the Senate Governmental Affairs Committee on June 20, 2001.


Joseph I. Lieberman

cc: The Honorable Pat Wood, III
The Honorable Linda K. Breathitt
The Honorable William L. Massey
The Honorable Nora M. Brownell