[Congressional Record Volume 149, Number 136 (Tuesday, September 30, 2003)]
[Senate]
[Page S12186]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    NOMINATION OF JOSEPH KELLIHER TO THE FEDERAL ENERGY REGULATORY 
                               COMMISSION

  Mr. WYDEN. Mr. President, earlier this year, I announced my intention 
to object to any unanimous consent request for the Senate to take up 
the nomination of Joseph Kelliher to the Federal Energy Regulatory 
Commission. I did this because at the time, Mr. Kelliher had not 
convinced me that he fully understood the impact of west coast market 
manipulation on northwest ratepayers or the problems that the 
Commission's standard market design proposal could create for the 
northwest electric power grid.
  Today I received a letter from Mr. Kelliher expressing his views on 
these subjects. It is clear from his letter that Mr. Kelliher has done 
his homework about energy issues critical to the west in general and 
the northwest in particular. From opposing a final standard market 
design rule to supporting voluntary regional transmission organizations 
and making market manipulation illegal, Mr. Kelliher's letter reflects 
he now has a better understanding and appreciation of the northwest 
energy markets and transmission systems and the particular challenges 
northwest ratepayers face.
  Based on his letter, I will no longer object to any unanimous consent 
request for the Senate to take up Mr. Kelliher's nomination.
  I ask unanimous consent that a copy of Mr. Kelliher's letter to me be 
printed in the Congressional Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                               September 30, 2003.
     Hon. Ron Wyden,
     U.S. Senate,
     Washington, DC.
       Dear Senator Wyden: I am writing to clarify my views on two 
     issues of importance to you: Standard Market Design and 
     market manipulation.
       You have forcefully stated your opposition to the 
     Commission's Standard Market Design. In particular, you have 
     expressed concern that market rules developed in other 
     regions of the country may not work in the Pacific Northwest, 
     and emphasized the potential economic impact of the proposal 
     on your region.
       I recognize electricity markets are not national, but 
     regional. There are significant differences among the 
     regions--the transmission grids are different, the generation 
     mixes are different, and the market structures are different. 
     There are also significant legal differences--the role of 
     nonjurisdictional utilities such as the Bonneville Power 
     Administration and municipal utilities is more significant in 
     the Pacific Northwest than other regions. It is essential 
     that market rules reflect these important regional 
     differences.
       For these reasons, I do not believe imposition of uniform 
     national market rules on your region is appropriate. I 
     support regional flexibility, and if confirmed by the Senate 
     I would give great deference to the views of your region. 
     Further, I am not convinced there is a need for a final rule 
     on Standard Market Design. A better means of achieving 
     regional flexibility may be through regional proceedings.
       Because of the unique regional characteristics in the 
     Pacific Northwest, I believe any effort to form a regional 
     transmission organization should be voluntary. In my view, 
     the Commission could not successfully mandate the 
     establishment of a regional transmission organization for the 
     Pacific Northwest, nor should it attempt to do so.
       Markets that are subject to manipulation cannot operate 
     properly. For that reason, I believe there is an urgent need 
     to proscribe manipulation of electricity markets. There is no 
     express prohibition of market manipulation in the Federal 
     Power Act. That stands in contrast with the regulatory laws 
     governing other industries, such as securities and 
     commodities. Market manipulation should be expressly 
     prohibited.
       In addition, penalties must be sufficient to discourage 
     market manipulation. Well before the Western electricity 
     crisis I advocated tougher criminal and civil penalties. In 
     my view, the penalties set by Congress in the Federal Power 
     Act are no longer adequate to discourage criminal behavior. 
     They need to be increased.
       The Commission has some ability to address market 
     manipulation absent Congressional action. In my opinion, the 
     Commission has legal authority to proscribe certain market 
     manipulation practices by jurisdictional utilities. The 
     Commission also has discretion to revoke authorization of a 
     public utility to sell power at market-based rates as a 
     remedy for market manipulation. I would support exercise of 
     this authority.
       In the past, you discussed the relationship between spot 
     markets and long-term markets. As you know, in its ``Final 
     Report on Price Manipulation in Western Markets'' the 
     Commission staff concluded spot prices influenced forward 
     prices. As a general matter, I acknowledge there is a 
     relationship between spot markets and forward markets.
       There is no question the Commission has legal authority to 
     reform contracts. In the right circumstances, contract reform 
     is appropriate. If it can be demonstrated that any Pacific 
     Northwest contracts impose an excessive burden on consumers 
     or are unduly discriminatory, or that fraud or duress were 
     present at the time of contract formation, then I believe 
     contract reform would be appropriate. You have expressed your 
     strongly-held view that the just and reasonable standard 
     should govern in contract reform cases. I respect your view, 
     and note there is legal precedent supporting your position. I 
     have not prejudged which legal standard should govern in 
     contract reform cases, and Federal courts have applied both 
     the public interest standard and the just and reasonable 
     standard. As you know, the Commission applied the public 
     interest standard in recent contract reform cases. I have not 
     prejudged whether these cases were correctly decided.
       I appreciate the opportunity to share my views with you on 
     these matters.
           Sincerely,
     Joseph T. Kelliher.

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