MEMORANDUM

TO: Regulatory Affairs Committee
       Power Marketers Working Group

FROM: Joe Hartsoe, Regulatory Affairs Committee Chair
            Bob Reilley, Power Marketers Working Group Chair
            Julie Simon, Vice President of Policy
            Mark Bennett, Senior Manager of Policy
            Erin Perrigo, Manager of Policy

DATE: March 20, 2001

RE: Commission Actions to Increase Supply and Decrease
      Consumption in the Western United States--Key Points for
      EPSA Comments Due MARCH 30TH

As we previously reported, on March 14, 2001, FERC announced certain actions 
to address the energy problems in California and other areas of the West in 
an Order Removing Obstacles to Increased Electric Generation and Natural Gas 
Supply in the Western United States and Requesting Comments on Further 
Actions to Increase Energy Supply and Decrease Energy Consumption.  The 
following is an overview of the steps the Commission proposes to "immediately 
help increase supply from existing power sources and to provide regulatory 
incentives to build new electric and natural gas infrastructure."  The 
Commission also invited comments on certain proposals.  This memo includes a 
list of key points we intend to make in comments that are due by March 30th.

Overview of Order

The Order reflects a thorough review of  "all of [FERC's] rate and facility 
certification authorities in the areas of electric energy, natural gas, 
hydroelectric and oil to determine how it can increase electric energy 
supply"; however, the Commission noted that its authority is "somewhat 
limited."  While the Commission believes state regulators must assume the 
lead role due to their authority over siting of generation and transmission, 
as well as demand reduction measures, the Commission noted that the impact of 
California's energy shortage on the Western Interconnection "underscores the 
regional, interstate nature of the energy marketplace."  Accordingly, it 
encouraged the formation of a single regional transmission organization for 
western markets.

EPSA appreciates the Commission's effort to exercise the full extent of its 
authority to help ease the West's energy problems.  Taken together, the 
Commission's proposed actions represent positive steps toward rational 
solutions to the difficult circumstances in the West.  Most importantly, the 
Order highlights the importance of promoting infrastructure investment, 
including increased generation, transmission and natural gas pipeline 
facilities.

The Commission's immediate actions, which will expire on December 31, 2001, 
include:

-Requiring the California ISO and transmission owners within the WSCC to 
provide FERC with a list of short-term grid enhancements.

-Extending and broadening waivers of operating and efficiency standards and 
fuel use requirements for qualifying facilities (QF).

-Providing wholesale power sales from generation used primarily for backup 
and self-generation for businesses with prior notice waivers and market-based 
rate authorization.

-Allowing wholesale and retail load reduction to be resold at wholesale 
market-based rates.

The Commission seeks comment on several other proposals, including:

-Rolling in new supply interconnection and upgrade costs.

-Increasing the rate of return on equity for projects that significantly 
increase transmission on constrained and new routes in the near term.

-10-year depreciation for short-term transmission projects, and 15-year 
depreciation for upgrades involving new rights of way that can be in service 
by November 1, 2002.

-Use of the interconnection authority set forth in FPA  o210(d) to help 
alleviate obstacles to electric supply reaching load.

EPSA's Comments

In its conclusion, the Commission stated that comments should be "concise and 
focused."  Accordingly, we suggest that EPSA's comments focus on the 
following areas:

? Applaud the Commission's effort to increase supplies from QFs, but 
encourage it to provide relief from existing contracts by allowing QFs to 
sell to creditworthy parties.

? We understand that there are ongoing differences of opinion regarding the 
relative merits of an incremental versus a "rolled in" approach to 
interconnection and upgrade costs.  Therefore, while we may lack a consensus 
on the question as a final policy position, we believe that the extreme 
circumstances surrounding the Order, and the urgent need to move power 
quickly into the Western system, make it wise to endorse FERC's instant 
recommendation.

? The Commission's proposed actions to create and enhance incentives relating 
to expanding and improving the transmission infrastructure through higher 
ROEs and accelerated depreciation schedules are positive steps.  The 
Commission normally conditions such premiums on meaningful participation in 
regional transmission organizations.  However, given the current situation 
and the immediate impact of any projects that might be entitled to the higher 
ROE, EPSA could support this proposal.

? Constraints on the gas infrastructure have a generally adverse impact on 
the energy supply system.  Therefore, the Commission's proposed waivers of 
blanket certificates and rate incentives to expedite construction projects, 
are favorable developments.

We will discuss the Order and EPSA's comments during tomorrow's Regulatory 
Affairs/Power Marketers' conference call.  In addition, we have been asked to 
consider what type of short-term relief could be included in federal 
legislation.  We will discuss this question as well.  To access the call, 
dial 1-800-937-6563 and ask for the Julie Simon/EPSA call. In the meantime, 
if you have any questions, please contact either Julie Simon, jsimon@epsa.org 
or Mark Bennett, mbennett@epsa.org at (202 628-8200).