Feb 25 2003

SENATOR SHELBY ADDRESSES SOUTHERN GOVERNORS ASSOCIATION

Senator Discusses Proposed Standard Market Design

On July 31, 2002, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking to create a one-size-fits-all template for electric markets referred to as Astandard market design@ (SMD).

The SMD rule would bring about numerous sweeping changes, the degree and consequences of which are still being assessed. The proposed rule would require customers to pay for transmission facility upgrades caused by new generators, even if the customer does not need or use the power from those generators.

FERC's proposal would also usurp state authority to obligate utilities to serve customers, set generation reserve margins, centrally control generation dispatch, and set rates for retail transmission service. FERC=s proposed rulemaking will effectively eliminate a state=s ability to make decisions on issues specific to their state. Such sweeping changes to the energy industry should only be made after careful consideration of all potential consequences. I believe the best opportunity for this time of consideration is in Congress through consideration of comprehensive Energy legislation.

I, along with a large number of my colleagues in the Senate, the Southern Governors Association, the Western Governor’s Association, the Southeast Association of Regulatory Utility Commissioners, and many consumer advocacy groups have severe reservations about FERC Chairman Pat Wood’s Standard Market Design proposal.

I am very concerned with the possible adverse affects this massive proposal would have on southern rate payers. SMD could easily lead to cheap power from the South being exported to regions with high electricity costs. This would force Southern rate payers to cover some of the cost of electricity in other regions that have higher rates.

The SMD proposal has the potential to undermine the ability of state commissioners to provide customers with firm, reliable and efficient service. Currently, Southern rates and reliability are some of the best in the nation. I see no reason to put low rates and high reliability at risk by implementing an untested plan.

SMD is an academic model that has not been tried before even on a smaller scale. It is likely that the rule would cause tremendous uncertainty in the electricity markets that would affect consumers, the industry and regional economies.

On February 11, I and nine of my colleagues in the Senate met with Chairman Pat Wood to outline our opposition to SMD. In the meeting, we repeatedly covered obvious problems with the proposal and suggested several options to solve these problems.

I find it disturbing that despite our meeting and the comments from many concerned parties, Chairman Wood still thinks SMD, in its current form, should move forward. He has refused to entertain the possibility of implementing a pilot program or a long term delay of implementation to allow a national debate.

During my service on the Energy and Natural Resources Committee in the 107th Congress, I worked diligently to include language to delay implementation of the SMD rule in the Energy bill that stalled last year. This year, during the debate of the Omnibus Appropriations bill, I worked closely with my colleagues that serve on the Appropriations committee with me to have strong language included that would require an independent evaluation of SMD. Finalization of SMD is prohibited until this report is completed and received and reviewed by Congress. In addition, I have contacted President Bush’s Chief of Staff, Andrew Card, to ensure that the concerns of my constituents and yours are known to the White House.

I will continue to monitor this process to ensure that Southern rate payers are not harmed by any actions of FERC. I believe FERC will best serve the nation by recalling its proposal and allowing Congress the opportunity to discuss electricity restructuring in an Energy Bill.