May 17, 2000


Via Internet

MEMORANDUM

TO: Interested Clients

FROM: John & Hengerer

RE: Commission Meeting -- May 17, 2000

At today's meeting, the Commissioners approved the consent agenda and then 
discussed the following items.  

 ELECTRIC MATTERS
Alliance Companies, et al., Docket Nos. ER99-3144
In December 1999, the Commission issued an order conditionally authorizing 
the formation of the Alliance RTO.  At today's meeting, the Commissioners 
denied (by a margin of 3 to 1, Commissioner Hebert dissenting) rehearing of 
the December 1999 order.  The Commissioners also unanimously rejected 
(Commissioner Massey concurring) Alliance's compliance filing.

In its original filing, Alliance proposed allowing each of its 5 active 
owners to retain up to a 5 percent ownership interest in the RTO (up to 25 
percent total ownership by active owners).  The December 1999 order rejected 
this proposal as contrary to the independence principle outlined in Order No. 
2000, which states that active ownership should be limited to a total of 15 
percent unless special circumstances are shown.  Rejecting requests for 
rehearing, the majority concluded that Alliance had failed to justify active 
member ownership in excess of 15 percent.  Dissenting, Commissioner Hebert 
argued that (i) the 15 percent benchmark is arbitrary and should not be 
viewed as creating a binding legal requirement. and (ii) limiting active 
ownership will provide a disincentive for other utilities to join the RTO.


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The Commissioners also rejected Alliance's compliance filing submitted to 
satisfy the terms of the December 1999 order.  In addition to failing to 
correct the active ownership issue outlined above, the Commissioners faulted 
Alliance for not eliminating pancaked rates and for not addressing issues 
associated with the RTO's scope and configuration.  Commissioner Massey 
indicated that he would write a concurrence to stress that Aseams@ agreements 
do not negate the need to review the RTO's scope and configuration to ensure 
that it is properly designed and sized. 

Southwest Power Pool, Docket No. EL00-39
The Commissioners unanimously rejected, as failing to meet the requirements 
of Order No. 2000, the Southwest Power Pool's (SPP) RTO proposal.  
Commissioner Massey, who moved the item to the discussion agenda, cited the 
following shortcomings in SPP's proposal: (i) operational control of 
transmission facilities was not turned over to the RTO; (ii) the RTO's 
proposed open-access transmission tariff did not comply with Order No. 2000; 
(iii) no real-time balancing market had been proposed; (iv) lingering 
concerns with the RTO's governance structure; and (v) the RTO's proposed 
scope and configuration are inadequate.  Commissioner Massey encouraged the 
SPP to join other entities seeking to form an RTO, or consider merging with 
the Midwest ISO. 

Notice of Interim Procedures to Support Reliability and Request for Comments, 
Docket No. EL00-75
The Commissioners unanimously approved short-term procedures designed to 
address Summer 2000 reliability concerns.  The approved measures provide for 
(i) streamlining FERC procedures to promote on-site, distributed generation, 
(ii) waiving prior-notice requirements for load-reduction agreements, (iii) 
improving demand-side price signals, (iv) requiring more extensive OASIS 
posting of available transmission capacity; and (v) making Commission Staff 
more available to the industry to address reliability concerns.  Comments on 
the proposed short-term measures are due by June 2, 2000.  

Additionally, agreeing that the short-term procedures are very minimal in 
nature, the Commissioners requested comments on long-term reliability 
issues.  Comments are due by June 30, 2000.
Finally, Commissioner Hebert indicated that he would write a separate 
concurrence to express his belief that competitive forces are the answer to 
reliability concerns and to criticize the Commission for not eliminating 
artificial price caps and promoting competitive rates.  Commissioner Hebert's 
accusation that the Commission was more concerned with politics than good 
policy touched off a heated debate, with Chairman Hoecker reciting FERC 
successes and Commissioner Massey scoffing at Commissioner Hebert's 
suggestion that price caps were to blame for generation shortages. 



 GAS MATTERS
Regulation of Short-Term Natural Gas Transportation Services, Regulation of 
Interstate Natural Gas Transportation Services, Docket Nos. RM98-10, RM98-12
The Commissioners unanimously addressed and generally denied requests for 
rehearing of Order No. 637.  Finding that Order No. 637 strikes a good 
balance between competing interests, the Commissioners indicated that their 
order would, with several exceptions, uphold the mandates of the order.  The 
Commissioners expressly noted that requests for rehearing of 
right-of-first-refusal (ROFR) roll-up issues would be denied. Order No. 637 
states that, if a pipeline is fully subscribed, a party wishing to exercise a 
ROFR will be required to match competing bids, even if a competing bid 
exceeds the maximum rate for the capacity.  

Revisions and clarifications of Order No. 637 approved by the Commissioners 
at today's meeting include:
(1) shippers with multi-year contracts at max rates for seasonal service will 
retain their ROFR;
(2) pipelines will be required to post available capacity within one hour of 
each nomination cycle, rather than within one day as directed by Order 637;
(3) short-term capacity release transactions must be posted within one hour 
of the first nomination under the contract, rather than upon the execution of 
the contract as stated in Order No. 637; and
(4) Order No. 637's OFO penalty and imbalance provisions will be clarified in 
the Commission order.

Although comments at today's meeting were brief, we anticipate a lengthy 
order addressing the numerous issues raised by parties in their requests for 
rehearing.