FERC to Probe Power Price Volatility, Reliability
While many might say it's long overdue, FERC last week
authorized its staff to undertake a "fact-finding investigation"
into the wild price volatility and reliability problems that have
gripped the bulk power markets over the past couple of summers.
Commissioner William Massey said he was "growing concerned" over
the "shockingly high prices" in the wholesale electricity markets,
saying that unless FERC was more "proactive" in getting at the
causes, "the political consensus needed to sustain a market-based
electricity policy in the long term" could be eroded.
Some price volatility is to be expected in the power market,
"but what about volatility that is measured by a factor that is 300
or 400 times the off-peak price," Massey asked. If such price
escalation occurred in the auto or oil industries, the entire
nation would be "up in arms."
"I believe this Commission must do a better job of monitoring
and understanding the still-growing electricity markets, and we
must insist on efficient market structures," he said, urging FERC
staff to "leave no stone unturned" in its investigation. "I expect
staff to report to us what is working and what is not working in
The "impediments to well-functioning markets," Massey noted,
could be numerous - the continued presence of market power,
sub-optimal market size, overly complicated market rules, lack of
demand responsiveness, absence of standard interconnection
procedures, high interconnection fees for distributed generation,
barriers to construction of new generation/transmission facilities
and lack of price transparency. Regional transmission organizations
(RTOs) will help to remove some of these obstacles, "but they
cannot do the full job," he said.
Chairman James Hoecker put a more positive spin on its
investigation. "...[I]t provides a signal to the industry that
while certain markets for wholesale electricity have performed well
even under historic levels of stress, that increased demand for
power - a 400% increase in the number of wholesale transactions in
the last four years - [and] new kinds of congestion challenges for
reliability.....mean that we cannot and will not rest easy when
peak-day prices are volatile."
Specifically, staff has been asked to ferret out "any technical
or operational factors, regulatory prohibitions or rules (federal
or state), market or behavioral rules, or other factors [that are]
affecting the competitive price of electric energy or the
reliability of service." The Commission has directed staff to
report back with its findings by Nov. 1. It "will then determine
what steps it might take within its jurisdiction to remedy any
market behavior, operation, design or structural problems," the
The Commission will use the results of staff's investigation to:
1) analyze Section 205 filings involving market pricing or market
rules; 2) institute Section 206 proceedings to modify existing
transmission or power exchange tariffs or agreements, bylaws for
existing institutions or the institutions themselves if FERC finds
they are "adversely affecting' the efficient operation of a
competitive bulk power market; and 3) help analyze the RTO filings
that are due later this year.