July 15, 1998

The Honorable Jim Hoecker
Chairman
Federal Energy Regulatory Commission
Room 11A
888 First Street, N.W.
Washington, D.C. 20426

Dear Mr. Chairman:

I am taking the liberty of writing you to seek your assistance in understanding events affecting electricity markets, their impact on consumers, and the advisability of proposed federal restructuring legislation. I appreciate your response to my recent letter concerning transmission loading relief procedures, and your ongoing assistance in helping me and other members comprehend changes in the industry and their potential impact on consumers.

I am greatly concerned about the volatility exhibited in recent weeks in electricity markets, particularly in the Midwest. As you know, a good many states have adopted retail competition plans, other are deliberating, and Congress has been debating the issue. A number of federal deregulation proposals are pending before Congress, and there may yet be legislative activity during the remaining weeks of the session.

Only last week, two consumer groups issued a study predicting residential consumers could face sharp price increases if competition were not introduced with adequate protections ("The Residential Ratepayer Economics of Electric Utility Restructuring", released by the Consumer Federation of America and Consumers Union). Yesterday, a Wall Street Journal article titled "June Surge in Electricity-Trading Prices is Raising Questions About Deregulation", reported that "some market players wonder if the problems suggest the industry isn't ready for retail deregulation" and cited a complaint regarding price spikes filed with the Commission by an Indiana industrial consumer.

Other news accounts included reports of alleged market manipulation by certain market participants, as well as the apparent failure of at least one or more brokers to meet their contractual obligations. In one case, an Illinois municipality was apparently caught up in a spiral of supply defaults and, as a result, faces potential liability. Spot prices were reported to have peaked at $7,000 per megawatt hour, although there is little firm information regarding how much energy changed hands at such prices or what, if any, impact this might have on residential or industrial consumers. Moreover, I am concerned that flaws in the operation of the transmission system may have contributed to difficulties in moving power between regions, and that the system may be overtaxed by the volume of transactions. The United States has enjoyed the most reliable transmission system in the world, and ensuring its continued soundness is just as important as ensuring that consumers are not harmed, directly or indirectly, by price gouging resulting from poorly structured markets.

If Congress is to make sound decisions regarding electric restructuring legislation, it must have a clear understanding of current market conditions. In order to assist members of Congress in understanding these events, I would appreciate your answers to the following questions, and would also welcome any additional information you believe is relevant to the matter. I would appreciate your response by July 31, 1998, even if it is only in preliminary form.

Thank you for your continuing assistance.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

cc: The Honorable Tom Bliley, Chairman
Committee on Commerce

1. Please outline your understanding of the course of events leading to supply curtailments and price surges in electricity markets during the week of June 22, including any gaps in your understanding of relevant factors.

2. Are you considering initiating, or have you already begun, an inquiry into these events? If so, please describe the purposes, scope, and timetable for completion of any such proceeding.

3. Are you seeking or participating in any such proceeding undertaken by another organization?

4. Do you consider the price spikes and supply shortages in the Midwest during June to be a one time event, or might they recur? Are you concerned about the remainder of the summer, and what are the factors affecting near-term market stability? If you think a recurrence of market turbulence is possible, do you believe changes in market structure or regulation may be needed?

5. Are you aware of any complaints alleging market manipulation or conflicts of interest involving regulated utilities or other market participants?

6. What if any direct or indirect effects on consumers resulted, or may yet result, from the price and supply disruptions in the Midwest in late June? Are residential consumers more or less vulnerable than industrial consumers, in terms of price increases and reliability of supply?

7. What if any effects did this market volatility have on public power entities and their consumers?

8. Do you foresee any lessons to be drawn from this experience for state or federal legislators deliberating the merits of electric restructuring legislation? How would more widespread retail competition affect market stability in the future, and how would residential consumers be affected? Are markets ready to make a smooth transition to full retail competition now, and should Congress pass legislation to compel states to adopt competition?
   
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