Southeast states say FERC trying to revive grid plan

WASHINGTON, Feb 3 (Reuters)

Nine Southeast governors on Tuesday told the Bush administration that they are worried that the Federal Energy Regulatory Commission (FERC) is making a "backdoor" attempt to enact controversial power grid rules even though legislation stalled in the Senate would bar them.

FERC in 2001 proposed its "standard market design" which would require utilities to combine their grids into super-regional networks with independent operators.

Southeast lawmakers, led by Republican Sens. Richard Shelby of Alabama and Trent Lott of Mississippi, inserted language in the comprehensive energy bill that would bar FERC from pursuing such plans before 2007.

Now, Southeast officials say FERC is trying to revive its market design proposal through a series of rulings that if finalized would make it difficult for the region's utilities to operate without joining the regional groups.

For example, FERC last year issued a preliminary order that would require giant utility American Electric Power Co. Inc. to join the mid-Atlantic power grid over the direct objections of Virginia and Kentucky.

In a letter sent to administration officials as well as Republican leaders of the House and Senate energy committees, the states warned that FERC could use the decision as a precedent to preempt state laws that run counter to its plan.

"We remain extremely concerned that FERC is aggressively moving forward with a series of actions which will coerce Regional Transmission Organization participation, preempt state law and exceed the commission's own statutory authority," the letter said.

The letter was signed by the governors of Arkansas, Georgia, Missouri, Mississippi, Louisiana, Kentucky, South Carolina, North Carolina and West Virginia.

FERC Chairman Pat Wood has said that roughly 40 percent of the nation's grid -- including giant swaths of the Southeast and West -- are not in organized groups. A FERC spokesman was not available to comment on the letter.

The states also raised concern over FERC's decision this year to consider changing the way it measures U.S. utilities' ability to unfairly tilt supplies on their home turf.

An original proposal unveiled in 2001 would have stripped utilities that fail the test of their ability to sell wholesale power at market-based rates unless they agreed to combine their transmission assets into super-regional groups.

"This proposal appears to be an attempt to coerce the utilities in the Southern region to join" regional groups, the letter said.

FERC in November 2001 put three huge utilities -- Southern Co. , American Electric Power Co. Inc. and Entergy Corp. -- on notice that they would fail the test if it was finalized. Since then, about 70 firms have failed FERC's review.

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