For Immediate Release
Monday, August 26, 2002           
For more information, contact:     Jen Waller, Communications Coordinator
504-670-2954 or jenwaller@sso.org
www.southerngovernors.org or
Channell Barbour (502) 564-2611 or 502-682-9400 (mobile)           

GOVERNORS PROTECT SOUTHERN ELECTRICITY RATEPAYERS

NEW ORLEANS, La. — Southern governors today voiced strong opposition to the proposed Standard Market Design (SMD) issued by the Federal Energy Regulatory Commission (FERC) to fundamentally change the way the electric transmission system operates in this country and potentially raise electric power costs in Southern states.   FERC's proposed rules would require all electricity transmission owners to make whatever capacity upgrades are necessary to allow generation located in one part of the country to reach distant markets.  They also would require that all ratepayers on the transmission system pay for these upgrades, even if they receive limited benefits of new electricity being generated from the new plants requiring the upgrades — a pricing system called "rolled in" or "socialized" pricing. 

"This means that new electricity generating plants could locate in the Southern states where it is cheaper to operate, make our ratepayers bear the cost of any transmission upgrades needed, sell their power to higher-cost regions and keep the profits for themselves," said Gov. Mike Huckabee of Arkansas.  "The upgrades necessary to accommodate these new plants in our region would cost billions of dollars.  And the Arkansas share of this added cost over the next ten years could be as much as $1 billion." 

After a thorough discussion during their business meeting in New Orleans, the governors passed a resolution stating that FERC should adopt a policy of "cost causer pays," or “participant funding.”  This means that the cost of upgrades or expansions to the electricity transmission grid should be paid by those who cause that upgrade or expansion.  FERC's proposed new policy would instead spread the cost among all ratepayers on that grid.

"This resolution is especially important since FERC proposed the Standard Market Design rule, which would impose a federal, ‘one-size-fits-all’ approach to electricity transmission," said Gov. Paul E. Patton of Kentucky.  

"At this time, Kentucky has the lowest electricity costs in the nation, but FERC's new orders could result in higher rates for consumers and energy-intensive industries in our state.  Higher electricity rates would negatively impact future economic development opportunities in the Commonwealth.” 

FERC issued the 600-page SMD notice for proposed rulemaking on July 31, 2002, to create a single set of rules governing the wholesale electricity industry.  It contains wide-ranging proposals to address the use of the interstate transmission system and to attempt to make the wholesale electricity market more competitive.  Seventy-five days to fully analyze the potential impact of the SMD is insufficient. 

The South would be adversely impacted by FERC's new order for several reasons: 

1) electric power costs in the South are low relative to much of the nation; 

2) most Southern states have opted not to pursue retail customer competition and have retained the traditional utility service area with an obligation to serve consumers; and 

3) because of the abundance of resources, land and transport networks, the South has become a magnet for new power generating resources. 

"One of the primary concerns that we are expressing here today is that the cost for transmission upgrades should fall to those who directly benefit," said Gov. Huckabee.  "Increases in electricity prices in Southern states could harm economic development at the same time as the possible increase in generating plants could negatively impact the environment.  This is truly unacceptable." 

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