Also, the Commission has approved certain applications from natural gas suppliers for exemptions from the incremental pricing provisions of the Natural Gas Policy Act, to permit competitively priced sales to large industrial boiler fuel users, when such sales are in the public

interest.

Finally, there are impediments preventing some suppliers from remaining competitive by virtue of long term gas supply contracts that do not contain provisions to reflect current market prices, that

is market-out provisions, or do contain high minimum take-or-pay

requirements.

. Fazin. Electrical transmission is the key to future wise

energy development of a volatile production environment and will be the kes to the survival of a competitive utility industry. What can FERC or to facilitate electrical transmission between sources and demands?

Mr. Sousa. I agree with your assessment of the importance of the Nation's electric transmission system. The FERC is, of course, interested in doing what it can to encourage transmission facility development and use in an economically efficient manner. As evidence of this interest, the FERC initiated a two-year experiment among six electric utilities in the Southwestern United States to test the effects of modified regulation of certain wholesale transactions of those electric utilities under our jurisdiction. The objectives were to determine the effects of current and alternative regulatory practices on the efficiency of bulk power exchanges and on the competitiveness of the market in which these exchanges occur. Part of the experiment was the provision of transmission services, wheeling, by each electric utility to all participating electric utilities.

The FERC recently initiated a comprehensive review of current regulations on wheeling and transmission access through the issuance of a Notice of Inquiry (NOI). Specifically, Phase I of the NOI deals with FERC regulation of coordination transactions and transmission service. Written comments were obtained and in addition, a public hearing was held in September 1985 to give interested parties further opportunity to present their positions. Regarding the transmission service issue, the NOI expressed concern whether there exists an adequate supply of

transmission services and flexibility in rate design to encourage more competitive facility uses and access thereto. The views and comments that were submitted are under review and analysis by the FERC staff.

Commission authority for requiring electric utilities to interconnect or to wheel power is established under Sections 202(b), 210, 211, and 212 of the Federal Power Act (FPA). In addition to this authority, the FERC can provide incentives for utilities to invest in new transmission capacity and to provide additional transmission services through rates allowed for transmission service under its authority in FPA Sections 205 and 206. Other than pricing, the FERC has little or no control over the planning, licensing, and construction of electric transmission lines. State and local authorities directly influence the siting and certification of transmission facilities. Nevertheless, the FERC remains concerned about the progress of utility installations of these facilities. Last year the FERC was briefed by the North American Electric Reliability Council (NERC) on the adequacy and reliability of the Nation's bulk electric power supply system.

Additionally, the

FERC staff periodically attends certain meetings of other coordinating groups within the nine Regional Reliability Electric Councils and the National Association of Regulatory Utility Commissioners (NARUC) in order to keep apprised of significant impediments to reliable transfers of power between sources and loads where there is a potential for economic savings and other benefits.

However, impediments to the addition of transmission capacity can continue for years with mounting losses in savings from foregone economy power transfers. The incomplete 500 kilovolt transmission loop around Washington, D.C., is a case in point. This loop was originally scheduled

for service in the mid-1970's. Only late last year did the Puk Electric Power Company receive its Certificate of Publta cunYAHIAHKA and Necessity from the State of Maryland for a aftitual pufriul of th‡* loop. Completion of this loop will provide an inuidade of supfa&imatelj 650 megawatts in power transfer capability Batean the Falafidsly law cost coal-fired generation to the west and Flie Righer at all-fled generation in the east. The FERC has no difarf or other duthaFT+2 to influence this long delayed outcome,

By improving the transmission sysram's sapah11117 ti le feammalla assume that transmission access by all suppliers and nustumeid alii For example, there has been a conflautag need for auté vianamiston acability between the Pacific. Torwest and bal,fufuka an

SEGS II PROJECT

Mr. Fazio. Will FERC give a prompt and reasonable interpretation

of the law regarding certification for the Luz Engineering solar thermal/

natural gas plant proposal?

Mr. Sousa. I recognize the concerns of Luz Engineering Company and Blount International, Ltd. in obtaining a prompt resolution of the issues raised in their application seeking certification of the SEGS II project as a qualifying small power production facility. I will do everything I can to expedite consideration of this application by the Commission.