NUMBER ONE 2006

E L E C T R I C I T Y C O N S U M E R S R E S O U R C E C O U N C I L

ELCON Prevails in Cogenerator Case

ELCON Meets with Competition Task Force

ELCON's position in defense ofcogenerators and alternate powerproviders was upheld recently by

the Federal Energy RegulatoryCommission (FERC) in a test case on howFERC is going to interpret changes to thePublic Utility Regulatory Policies Act(PURPA) under the recently enactedEnergy Policy Act.

PURPA, enacted in 1978, gave cogen-erators and other alternate power produc-ers (sometimes called qualifying facilities,

or QFs) the right to sell power to utilitiesand the right to purchase stand-by andback-up power from utilities. Utilities hadobjected to these "mandatory purchase-and-sale" requirements virtually sincePURPA was first passed.

The new Energy Policy Act includedan amendment (known as either Carper-Collins language or Landrieu-Alexanderlanguage) that ELCON helped draft in2001 intended to relieve utilities of their

Continued on page 7

A L S O I N T H I S I S S U E . . .

Chairman’s Column.............................2

Little Savings Seen From Expansion....2

No Year-End Electricity Bill Enacted.....3

ELCON Sets 2006 Priorities.................3

February Workshop Scheduled............4

NERC Said Ready for Liability Role......4

Price Effect of Natural Gas...............4

ELCON at FERC..................................6

ELCON Commends Pricing Reform.....7

Justice, Federal Trade Commission, andRural Utilities Service of the Departmentof Agriculture.

The group solicited comments fromthe public and received hundreds of sub-missions, but only a few associations andcompanies were invited to meet personal-ly with the task force. ELCON was cho-sen to represent industrial electricity con-sumers. ELCON President John Andersonemphasized that ELCON members contin-ue to support "true" competition but arefinding that the so-called OrganizedMarkets are more likely to impose re-reg-ulation (through capacity markets andlocational marginal pricing) than they areto promote policies to encourage competi-tion.

The task force will publish its report inabout a year. "Competitive markets canbenefit large and small consumers," saidAnderson. "I hope the task force realizesthat there are no truly competitive marketsout there right now." E

Although consumers and con-sumer groups in New Englandhave strongly protested the

proposal by ISO New England (ISO-NE) to institute a locational installedcapacity market (LICAP), Bill Berry,ISO-NE's Chairman of the Board,asserted that the organization is com-mitted to "doing what's right for endusers."

That involves "working together"so that "fairly priced" power is avail-able to large and small consumers, he

ELCON WinterWorkshop

Electricity stakeholders lookingmore closely at the new EnergyPolicy Act of 2005 seem to see

more questions than answers.For instance, consumer groups,

including ELCON, had long opposedrepeal of the Public Utility HoldingCompany Act (PUHCA), the majorfederal consumer protection statute forthe utility industry, because of predic-tions of an onslaught of utility mergers.Now the merger restrictions in PUHCAare gone, repealed with the new law.But, Bob Shapiro, an energy attorney

New Energy LawChanges Rules

Session DebatesConsumer Focus InOrganized Markets

The Energy Policy Act of 2005directed a five-agency task force tostudy the status of competition in

wholesale and retail electricity markets,and ELCON was one of the few groupsinvited to meet with task force members.They include representatives from theFederal Energy Regulatory Commission,Department of Energy, Department of

Continued on page 5

Continued on page 4

2

Acrucial part of the recentlyenacted Energy Policy Actof 2005 was repeal of the

Public Utility Holding CompanyAct or PUHCA, which was enact-ed in 1935 in conjunction with theFederal Power Act. Utilities havebeen trying to repeal PUHCA for morethan 20 years.

Consumers have always opposed thateffort. I'll go a step further and state thatI know of absolutely no bona fide con-sumer group that has ever supportedPUHCA repeal. And, it's not becausePUHCA was really that good at consumer

protection. It's just that when it came toconsumer protection, PUHCA was virtu-ally all that we as electricity consumerscould rely on as a federal statute.

What did PUHCA actually do? Well,I think it's easier to describe whatPUHCA was supposed to do. PUHCA'sprimary purpose was to ensure that theutility that served your local communityand its homes, businesses and factories,was, in fact, devoted to serving that com-munity. PUHCA placed restrictions on autility's ability to participate in other busi-nesses or industries. That made sense,since for years each utility's revenue wasregulated by the state's public servicecommission. Each commission examinedhow much a utility had invested and howmuch it was spending and decided whateach utility could charge to receive a justand reasonable rate of return. Utilitiescould make profits -- and almost all of

them did. For years utility stockswere regarded as a very goodinvestment because they rarelywent down and almost always paida substantial dividend.

PUHCA was supposed to ensurethat utilities didn't take those profits

and invest them in risky, nonregulatedventures. That would equate to takingratepayer money and -- basically -- gam-bling with it. If the gamble lost, ratepay-ers would have to pay more money.

PUHCA also was intended to restrictutility mergers. To ensure that utilitiesfocused on their local ratepayers, the lawrequired that in order for two utilities tomerge they had to be located in the sameregion. And, when they merged, the newutility had to have one interconnected sys-tem.

But, since PUHCA was at least asmuch a securities bill as a consumer pro-tection act, enforcement was given to theSecurities and Exchange Commission.Through the years enforcement ofPUHCA was not always a priority at theSEC, and, in fact, for the last 20 years theSEC had wanted the Act repealed.

Let me digress for a second to statethat I am certainly not opposed to corpo-rate mergers -- in the utility industry orelsewhere. Some mergers serve a validpurpose in achieving economies of scale,offering consumers better products andmore innovation, and providing a higherrate of return for shareholders. But, therehave also been mergers where the resultwas just the opposite, with fewer benefitsfor consumers and a lower rate of returnfor shareholders.

When the SEC examined utility merg-ers, they seemed to forget about the con-sumer protection requirements in federallaw. For example, the SEC approved onemerger that basically said that Columbus,Ohio, and Tulsa, Oklahoma, were in oneregion. Ditto for Chicago andPhiladelphia. And many mergers were

The Chairman’s View

PUHCA Is Dead -- Long Live PUHCA!

By GaryKajander, ELCONChair

Continued on page 7

Little Savings Seen from Expansion Of PJM Market

Anew study by PJM alleging thatconsumers have saved dramatical-ly as a result of the organization's

expansion is undermined by the fact thatthe savings "have benefited only theshareholders of the big incumbent utili-ties," according to ELCON President JohnAnderson.

PJM claimed in a press release on thestudy that wholesale customers are savingmore than $500 million a year from theorganization's expansion. "But what thestudy really demonstrates is simply thatlarger power pools produce more efficien-cies than smaller pools -- and we'veknown that since PJM was founded in1927," Anderson said.

The study also pointed out that PJMwas not deregulated but rather re-regulat-ed. "An old form of regulation was simplyreplaced by a new form of regulation,"Anderson noted.

"Utilities and utility-run organizationslike PJM should stop patting themselveson the back by paying for studies that tellthem exactly what they want to hear," hesaid. "The consumers I talk to in PJM arenot happy with the governance process,they are not happy with the services, andthey are not happy with the prices."Consumers are asking where the savingsare, where the innovation is, and where theconsumer focus is, he said.

The PJM pricing mechanism denieslarge and small retail consumers the fullbenefit of the expanded pool's fuel diversi-ty and prevents consumers from hedginglong-term risks -- two benefits the old reg-ulatory regime provided, Anderson said.

In related comments filed at FERC,ELCON cited the experiences of two man-ufacturers in PJM. Lehigh Cement "hasexperienced significant electric powerincreases in all of the deregulated marketsin which it operates" while Ameristeelnoted that "PJM's market design" was onefactor "adversely impacting powers at asite in New Jersey.” E

Enforcement of

PUHCA was not

always a priority

at the SEC.

3

No additional major electricity orenergy legislation was enacted atthe end of 2005 despite activity

in House and Senate energy committeesto explore legislation to lower fuel costsin the wake of high gasoline and naturalgas prices.

The House passed the Gasoline forAmerica's Security, or GAS, Act,designed to increase capacity for refiningoil, but similar legislation lost on a tievote in the Senate Committee onEnvironment and Public Works. Noeffort was made in the House or Senate toadd any provisions on electricity, and thatbill now seems unlikely to progress anyfurther in the legislative process.

There were efforts in the Senate todraft an energy bill as a follow-up to theEnergy Policy Act of last summer. Aspart of that exercise, some had proposedlanguage mandating or encouraging theuse of efficient dispatch or economic dis-patch in determining the order in whichpower generation facilities are called intoservice. A study of economic dispatchwas ordered in the previously passedenergy bill, and the Department ofEnergy asked for no additional legisla-tion until that study is complete. Thequestion is now likely moot, since legis-lation is unlikely to be considered.

Also failing as Congress closed outits first session were efforts to open the

Arctic National Wildlife Refuge(ANWR) to exploration for oil. Earlierin the year congressional leaders madethe decision to separate the ANWRdebate from the energy bill and to pursuelegislation for ANWR exploration as partof the budget process. The budget recon-ciliation bill -- the legislation that con-tains the statutory language necessary toeffect budget cuts -- cannot be filibus-tered in the Senate, and thus only 50votes, not 60, would be required for pas-sage. However, in the budgetary processthe House, which had approved ANWRseveral times earlier, voted down newANWR language as part of the budgetreconciliation process, and efforts to addANWR to the defense appropriations billfailed in the Senate. The issue will like-ly be revisited in 2006. E

small. It is hard to find any consumerswho find any benefits in the restructuredmarkets."

Anderson said ELCON members stillfavor increased competition in wholesaleand retail markets. "The problem is thatthese markets are not promoting compe-tition -- they are simply engaging in a re-regulation of the wholesale market-place."

ELCON members "are not asking fora return to traditional regulation," heexplained. "But they are finding thatprices in traditional markets are general-ly lower than prices in organized marketsthat have a similar fuel base and genera-tion profile. That does not speak well forthe Organized Markets."

ELCON's solution is to start with thesix pre-conditions to competitive mar-kets as contained in ELCON's SpecialReport, "Problems in the OrganizedMarkets" (first released this past spring):

Independent RTOs (or ISOs) withnon-discriminatory stakeholderprocesses;

Priority number one for ELCONmembers in 2006 is fixing orga-nized markets, according to

ELCON President John Anderson. "Weexpected to find robust wholesale mar-kets that provided power at lower pricesaccompanied by better service and moreinnovation," Anderson said. "Instead weare finding more rules, more regulation,and, in fact, higher prices."

ELCON conducts an internal surveyof its membership at the end of each yearto determine priorities for the followingyear. A strategy session follows thequestionnaire so that ELCON memberscan discuss the results and agree on pri-orities.

"This year there was a near unani-mous consensus that our number one pri-ority was to address the numerous defi-ciencies and inefficiencies that our mem-bers are finding in the so-calledOrganized Markets," Anderson said."Just because market operators say thereis competition does not mean that there iscompetition. Competition should pro-vide benefits to all consumers, large and

No Year-End Electricity Bill Enacted

ELCON Sets Priorities for 2006Energy-only markets without sec-

ondary revenue streams providing

capacity payments;

Elimination of entry barriers to price-

responsive loads;

Increased and effective market moni-

toring and market power mitigation;

Adequate transmission infrastructure

capable of supporting a competitive

wholesale market; and

Resolution of the current differences

between Federal and State regulators

regarding jurisdiction.

"I don't know of any consumer groupthat is finding benefits in the newlyrestructured markets," said Anderson. "Allof the studies purporting to show such ben-efits have been undertaken and paid for byincumbent utilities or by the OrganizedMarkets themselves. Regardless, theirvested interest in demonstrating such ben-efits is obvious. Consumer views and con-sumer objectives have been overlookedand they shouldn't be. Rectifying that sit-uation is probably ELCON's number onepriority for the next year." E

4

Highlights of ELCON’s Winter Workshop

with the firm of Chadbourne and Parke,speaking at ELCON's workshop, had adifferent take on the effects repeal.

"The real players on mergers now arethe state commissions," he observed."We don't know if there will be moremergers, although there is near certaintywe will see new investors."

Similarly, Shapiro said many PublicUtility Regulatory Policies Act (PURPA)issues are unresolved. The EnergyPolicy Act removed the languagerestricting utility ownership of a qualify-ing facility (such as a cogeneration unit)

to no more than 50 percent, but in manyregions state commissions must approveany ownership change, he noted.

In other examples, he said rulemak-ing on new efficiency standards mustdeal with what some see as contradictorydirectives in the statute. Some see thelanguage grandfathering the mandatorypurchase and sale requirements forcogeneration facilities (under Section210) as ambiguous about facilities thathave changes in ownership. On the latterpoint, he said he believes continuedoperation of the facility, not the owner-ship, will be the governing factor.

Sam Kwan, an energy tax attorneyfrom Chadbourne and Parke, observedthat renewable energy producers are the"biggest winners" in the tax provisions ofthe new energy law. He also noted thatmanufacturers could benefit from sever-al new provisions, including one givingtax benefits for coal-fired boilers usingadvanced technology and another givingtax credits from utilizing gasification. E

It came as no surprise to the attendeesat ELCON's Fall Workshop inWashington when Bill Berry,

President and CEO of the New EnglandISO, stated that "natural gas has a dis-proportionate impact on electricityprices."

Berry observed that almost all newgeneration installed in New Englandsince 1999 is gas-fired, changing thegeneration portfolio from 15 percent gas-fired in 1999 to 30 percent gas-fired in2004. Given the increase in natural gasprices over the same time period, gas-fired generators are no longer the low-cost option they were planned to be butare now the fuel "on the margin."

Berry said he believes that over thelong term reliance on natural gas will bereduced. He cited increases in demandresponse, conservation and efficiency, inaddition to more fuel switching andgreater use of renewable energy sources.He also said he hopes government poli-cies will encourage greater explorationof gas, increased pipeline capacity, andmore facilities to handle Liquid NaturalGas. E

The North American ElectricReliability Council (NERC)expects FERC to name it the

national electric reliability organizationas specified in the recently enactedEnergy Policy Act, according to RichardSergel, NERC's new president and CEO.He said the appointment could be madein February.

Speaking at ELCON's FallWorkshop, Sergel said NERC is "unique-ly qualified and independent."

He emphasized that the new organi-zation needs to have standards in effectimmediately to ensure reliability. NERChas 90 standards in effect today butexpects to have more than 200 in fiveyears, he said.

These standards, especially the onesfor compliance audit and enforcement,must be "done uniformly" becauseregional differences would have an anti-

competitive impact, he said. The ulti-mate objective is to create "a system thatis more reliable than it was before." Hestressed that penalties against utilities forviolating standards should not be passedthrough to consumers.

Bill Berry, Chairman of NewEngland ISO, added that the 2003Northeast-Midwest blackout made evi-dent how "fragile" the grid is, showingthat was "not designed to handle the cur-rent load."

Emphasizing the need for "indepen-dent and experienced" grid managers,Berry said that the goal should be, "We'renever going to lose the grid." E

The Price Effect of Gas

NERC Said to Be Ready To Assume Reliability Role ELCON FebruaryWorkshop Scheduled

Rules ChangeFrom Page 1

ELCON's Winter Workshop formembers, scheduled Feb. 8 inMiami, will focus on competition

problems that members are encounteringin restructured wholesale power markets.Many believe these problems have keptprices at higher levels than in non-restructured markets.

Guest speakers at "The Fork in theRoad: Choosing the Right Path forFuture Power Markets" include SusanCourt, director of FERC's Office ofMarket Oversight and Investigations,which has regulatory oversight overwholesale electricity markets; TomWelch, vice president of external affairsfor PJM; and Ron McNamara, vice pres-ident of market management for MISO.

Afternoon speakers will be stateindustrial representatives Eric Robertson(IL), Bob Strong (MI), and DaveKleppinger (PA), and Pa. consumeradvocate Sonny Popowsky.

While the workshop is for ELCONmembers only, manufacturers consider-ing ELCON membership may request aninvitation. Call 202-682-1390 or emailelcon@elcon.org for details. E

Highlights of ELCON’s Winter Workshop

Massachusetts. He said ISO-NE has "noaccountability" and is focusing onencouraging new capacity through theestablishment of capacity markets whileignoring "the transmission problem."According to Rogers, "New England hascapacity, we just can't get it where wewant it to go."

Although ISO-NE's implementationof locational capacity markets (LICAP)has been stayed temporarily by FERC,Berry has been a strong supporter ofthem. He told the workshop that LICAP"will help provide generation whereneeded, identify supply and demand inspecific areas, and more accuratelydemonstrate the value of capacity." Hecriticized increased reliance on demandresponse -- a proposed alternative tocapacity markets -- as impractical, partlybecause consumers get price signals toolate and cannot respond in real time.

"We believe capacity markets willwork," he explained, "because we believemarkets will work."

Rogers disagreed, stating that imple-mentation of LICAP would translate intorate increases of 21-24 percent for resi-

dents of Eastern Massachusetts from2005 to 2010.

Rogers explained that whereasFERC's objective is to have LICAP pro-posals create incentives for new genera-tion where demand exceeds supply, NewEngland does not need new baseloadgeneration. He said his analysis showsNew England needs some peaking unitsand improved transmission.

He also asserted that ISO-NE has nostakeholder process, and consumers'questions and complaints about LICAPwere not included in the decision makingprocess.

A contrasting view of ISO objectiveswas put forth by Ron McNamara, VicePresident of Market Management for theMidwest ISO (MISO). He said MISO'sfirst objective is "to work with stakehold-ers." He emphasized that "market solu-tions" are preferable to planning or othersolutions and that "long-term contractsare the foundation of market operation."

"Capacity," he said, "is not a real-timeconcept -- energy is. The market shouldprovide investment signals," implyingthat regulatory formulas such as LICAPmight be counter-productive to the devel-opment of sound markets.

And, perhaps preaching to the

ELCON choir, McNamara told the work-

shop that LMP "should not be the deter-

minant of market price, especially the

long-term market price." E

5

said. Berry made the remarks atELCON's Fall Workshop, "U.S. PowerMarkets: The Next Generation," inWashington, DC.

He said running an Organized Marketsuch as an ISO or RTO means dealingwith the "Four G's" -- Generation, Gas,Grid Reliability, and Governance. EachISO has the choice to do nothing, re-reg-ulate, or create capacity markets, he said.Cost projections in New England show arelatively equal price impact on con-sumers with each option, but the first twooptions do not provide a market-basedsolution, he said.

A political reality of running anOrganized Market is that residential cus-tomers cannot be exposed to high pricevolatility, he added.

Berry's claim that ISO-NE has a con-sumer focus was questioned by anotherspeaker at the workshop, Joe Rogers,Assistant Attorney General for

Consumer FocusFrom Page 1

Clockwise from top left: 1) Joel Gilbert (left),Dave Meade, Praxair (center), Chip Perkins,Perkins Consulting, with Apogee/ELCONawards for market competition; 2) JohnAnderson, ELCON President (left), wife MaryJo Anderson, Gary Kajander, ELCONChairman, recognizing Anderson’s 25 yearswith ELCON; 3) Marc Yacker, ELCONGovt./Public Affairs VP (left), Bill Berry, ISO-NE (center), Jim Rouse, Praxair; 4) JohnHughes, ELCON Technical VP (left), SamKwan, Chadbourne and Parke, Bob Shapiro,Chadbourne and Parke

6

ELCON urged FERC to require anyelectricity reliability organization (ERO)created under the new Energy Policy Actto be organized on a "top-down" basis toassure maximum reliability and minimalregional differences. The comments werefiled as part of a FERC technical confer-ence on implementing the ERO section ofthe Energy Policy Act of 2005.

The comments included 10 specificrecommendations, most of them focusingon governance and process issues.

ELCON emphasized that "deference ordelegation from the ERO to the regionsmust not be an excuse to preserve somemarket advantage, allow opportunisticbehavior, perpetuate a balkanized grid, orotherwise preserve the status quo." The

"fragmented lines of authority" that existbetween the current National ElectricityReliability Council (NERC), the regionalcouncils, RTOs and transmission owners"must be eliminated and clear lines ofauthority must be developed," the com-ments said.

ELCON strongly opposes the currentNERC draft Delegation Agreementbecause it would grant regional entitiescomplete authority to develop regionalvariances without real ERO oversight.ELCON opposes the NERC draft

Standards Program because it would allowregions to have their standards develop-ment process "pre-approved" by the ERO-- allowing standards to bypass an EROstandards-development process.

ELCON also expressed concern thatgiving any regional entity the authority todevelop its own standards with little EROoversight would result in standards "withlittle consistency between regions -- evenif there are not substantial regional differ-ences." The comments warned that "sig-nificant deference to the regions will notresult in a strong, top-down ERO" but inessence "simply codifies today's statusquo."

All electricity stakeholders should beallowed to participate equally in a newERO and no "membership" categoryshould be established, ELCON said.Membership implies that non-membersare not treated equally. ELCON's state-ment noted that industrial users "bear thebrunt of power outages," the case in pointbeing the 2003 blackout that caused sig-nificant financial loss for manufacturersthroughout the country.

Because representation and votingstructure are so important, ELCON rec-ommended that the ERO be organized, alleast initially, around NERC's relativelynew, nine-Segment Ballot Pool structure,even though end-user representation isinadequate. ELCON's comments urgedthat "over time, the end users' representa-tion must be increased."

ELCON representatives have partici-pated in nearly every aspect of the NorthAmerican Electric Reliability Council(NERO) for many years, and ELCON staffwere part of the Working Group thatdeveloped the legislative language thateventually created the new ERO.

Flawed Market DesignAfter 10 years of experience in restruc-

tured -- and supposedly competitive --U.S. electricity markets, retail rates out-side the footprints of organized marketsare in most cases substantially lower thanthe rates paid in restructured states,ELCON and other industrial groups saidin joint comments to the new interagencyElectric Energy Market Competition TaskForce.

Worse, rates in traditionally regulatedstates are increasing at a much slower pacethan rates and prices in structured areas,the industrial users said.

This "striking situation" shows that thepromise of restructuring has not material-ized, but that fact should not be taken as anindictment of competition, the industrialswrote. They added that they still believereal competition can produce real benefitsto consumers if implemented correctly.

The groups urged the task force toevaluate features of the existing day-twomarket design of the organized markets(based on locational marginal pricing) anddetermine why it has inhibited 1) the for-mation of an integrated forward and spotmarket that promotes bilateral contractscapable of sustaining long-term invest-ment and 2) market entry by price-respon-sive load. In particular, the groups urgedthe Task Force to examine what preventsintegrated forward and spot markets "asthe foundation of a competitive wholesalemarket platform."

Buyers and sellers of electricity needto be able to negotiate bilateral contractsthat provide forward price discoveryreflecting market fundamentals, and thecontracts should provide means for gener-ators to recover fixed costs and ensurelong-term generation adequacy, the indus-trials said.

ELCON Activities Before The Federal Energy Regulatory Commission

Fragmented lines of

authority between

NERC, regional

councils, RTOs, and

transmission owners

must be eliminated.

7

The Task Force includes representa-tives from the Federal Energy RegulatoryCommission, Department of Energy,Department of Justice, Federal TradeCommission, and Rural Utilities Serviceof the Department of Agriculture. E

Chairman’s ColumnFrom Page 2

approved despite strong consumer opposi-tion.

So, in recent years I think the existenceof PUHCA as a consumer protectionstatute may have been more symbolic thanreal. And in that way, the repeal ofPUHCA may have come with a silver lin-ing.

The new Energy Policy Act includes anumber of replacement provisions thatshould prove beneficial to consumers. Itis now clear that regulators at FERC and atstate public service commissions havecomplete access to the books and recordsof utilities and any of their subsidiaries.The possibility of utilities using fundsfrom regulated businesses to subsidizerisky or unprofitable unregulated busi-nesses is minimized. The Act clarifies andstrengthens FERC's ability to examineutility mergers as well as the sale of cer-tain generation facilities to ensure thatsuch actions are in the public interest.And, the law includes new language giv-ing FERC explicit authority to investigateand take action if there is evidence of mar-ket manipulation. Some people arealready calling these new provisions thePublic Utility Holding Company Act of2005.

From the perspective of an electricityconsumer, I regret the passing of thePUHCA that was a major consumer pro-tection statute. But from that same per-spective, I say "job well done" to Congressand "long live the new PUHCA."

Gary Kajander is Manager, EnergyProcurement, for Monsanto

law), FERC mentioned that a rulemakingon competitiveness standards would beforthcoming. Then it dismissed Alliant'sfiling on procedural grounds, stating thatAlliant had not given sufficient notice toQFs and potential QFs in its service areaof its intent to be exempted fromPURPA. Alliant has since notifiedELCON that it does not intend to re-file,but instead will participate in the upcom-ing rulemaking. E

purchase-and-sale obligations only whencompetitive markets are established.Several tests were included in the law tohelp FERC determine when those com-petitive markets exist.

Within weeks after the Energy PolicyAct was enacted, Alliant, a Midwesternutility with facilities in Iowa andWisconsin, petitioned FERC to berelieved of its PURPA obligations.Alliant's filing alleged that the utility, byvirtue of its operating within theMidwest ISO (MISO), was in fact buy-ing power from QFs in a competitivewholesale market and thus should nolonger be required to purchase powerfrom cogenerators and other alternateenergy suppliers. (Specifically, Alliantdid not want to be obligated to purchasepower from two new wind energy facili-ties about to begin operation in its ser-vice area.)

ELCON coordinated filings fromvarious PURPA supporters, includingindependent generators, renewable ener-gy producers and industrial cogenerators,challenging the claim that a competitivemarket exists in Alliant's service territo-ry. ELCON's own brief asked FERC toconsider the issue generically and not ona case-by-case basis.

FERC took two actions consistentwith the recommendations in ELCON'sbrief. First, in a press release announc-ing a rulemaking for efficiency standardsfor QFs (as required by the new energy

ELCON President John Andersoncommended the Federal EnergyRegulatory Commission for tak-

ing steps to address transmission conges-tion through pricing reforms. Even with-out seeing the actual wording of the pro-posal, Anderson indicated he believesFERC was on the right track when theCommission declared in a press releasethat "the proposed rules will benefitenergy customers by bolstering power-grid reliability and lowering costs fordelivered power by reducing transmis-sion congestion."

High electricity costs owing to trans-mission congestion can contribute todecisions to downsize U.S. manufactur-ing facilities, Anderson said.

The new rules as described by FERCare consistent with requirements in thenew Energy Policy Act, according toELCON. The Commission has stipulat-ed that any new transmission qualifyingfor an incentive rate must improveregional reliability and reduce conges-tion. "We believe that the law also saysit should reduce costs," Anderson noted.

Consumers have worried that a blan-ket rule granting higher rates of returnfor new transmission could upgradetransmission -- and cause higher pricesfor consumers -- where improvementswere not needed, Anderson said.

"We all know where the problemsare," he said. "There have been numer-ous studies identifying points of conges-tion, and in regions employing locationalmarginal pricing (LMP) those congestedareas are made very clear on a daily basis(though LMP doesn't alleviate the prob-lem -- it just identifies what was alreadywell known)." E

Cogenerator CaseFrom Page 1

ELCON CommendsFERC For ExploringPricing Reform

FERC found Alliant

had not given QFs

adequate notice that it

wanted to be exempted

from PURPA, and it

promised a new rule

on competitiveness.

WHAT IS ELCON?

• DATE ORGANIZED: January 15, 1976

• WHO WE ARE: The Electricity Consumers Resource Council (ELCON) is the

national association representing large industrial consumers of electricity.

ELCON was organized to promote the development of coordinated and rational

federal and state polices that will assure an adequate, reliable and efficient sup-

ply of electricity for all users at competitive prices. ELCON's member compa-

nies come from virtually every segment of the manufacturing community.

• MEMBER COMPANIES: Air Liquide • Anheuser-Busch Companies, Inc. •

BOC Gases • BP • Bunge Corp. • Chevron • Corning, Inc. • DaimlerChrysler •

Delphi Automotive Systems • E.I. du Pont de Nemours & Co. • Eastman

Chemical Company • ExxonMobil Power and Gas Services, Inc. • Ford Motor

Company • General Motors Corporation • Honda • Honeywell • Intel Corporation

• Monsanto Co. • Occidental Chemical • Praxair • Procter & Gamble • Shell Oil

Products • Smurfit Stone Container Corp. • Solutia, Inc. • Tate & Lyle •

Weyerhaeuser

• FOR MORE INFORMATION CONTACT: ELCON, 1333 H Street, NW, West

Tower, 8th Floor, Washington, DC 20005, 202/682-1390, fax: 202/289-6370.

E-mail: ELCON@ELCON.ORG or on the Internet: WWW.ELCON.ORG

Learn moreabout

ELCON and our activities

at our web site,

www.elcon.org

The ElectricityConsumersResource Council

The West Tower1333 H Street, NW, 8th FloorWashington, DC 20005

PRE-SORTEDRATEUS POSTAGE PAID

WASHINGTON, D.C.PERMITNO. 5725