FERC Report Finds Bulk Power Market Flaws
California may have gotten the short end of the power stick last
summer, but according to a FERC staff report, it may just have been
a matter of degree days separating other regions of the country
from a similar fate.
The report released this week by the Federal Energy Regulatory
Commission staff on bulk power markets in the Northeast, Midwest,
Southeast and Texas, following one released earlier on California
and the West (see NGI, Nov. 6), finds widespread bottlenecks,
transmission and generation constraints, balkinization and
inadequacies and congestion in the partially deregulated market.
The only region the study gave good marks to was ERCOT, which is
wholly within Texas, and over which FERC has little jurisdiction.
The report found the Texas system is adding sufficient generation
and transmission and "the ERCOT area is much less likely to
encounter the sharp price spikes that have been experienced in
In the Northeast, while PJM has had a "relatively smooth"
transition, the New York and New England ISOs have suffered a
number of problems, which have required price intervention to
contain. In New England FERC found the "lack of a workable
congestion management system is a cause of significant cost to
market participants without conveying a meaningful price signal to
which the market can react." The FERC staff said the ISO's
procedures for fixing the system have a long timeline.
Through its market structure, rules and software, New York has
effectively insulated itself from other northeastern markets, which
"exacerbates already tight supplies in New York," and affects the
broad wholesale market as well.
Price caps may be a way of life for the New England and New York
ISOs during a lengthy transition. The report suggests the Northeast
systems could save time and money if they shared the cost of
developing a common system. FERC could set out standards for common
practices and require common software or simply require a single
northeastern RTO. The report also reviews the Commission's options
regarding price caps for the near term.
The Midwest, including ECAR, MAIN, MAPP, and SPP, is dominated
by vertically integrated transmission providers with "weak economic
incentives to provide access to transmission services to third
parties and strong incentives to favor their own services."
Currently all bulk power transactions are bilateral, with no
central clearing site. The Commission has verified individual
complaints of barriers to transmission access from market
participants, but a lack of data from transmission providers
"prevents an assessment of whether markets are functioning
Transmission operators have told FERC they are unable to provide
export and import and peak load data for their systems. Because of
this "it will be difficult for the Commission to monitor and react
to market inefficiencies and problems, particularly in the active
summer months, within a time frame in which quick action could be
taken. This points to a gap in existing regulations regarding what
information should be retained and made public in real-time to
ensure that the market runs transparently and efficiently."
The Southeast, with low power costs and vertically-integrated
utilities which have retained their generation assets, essentially
is not open to a bulk power market, nor to independent power
producers. "IPPs face significant difficulties in obtaining access
to transmission facilities in the Southeast," FERC's report said. A
shortage of generation and transmission facilities simply increases
the prices customers pay, so the utilities have no incentive to
expand. In Florida state law rules out IPPs not dedicated to retail
Further, "there is no clearinghouse for electric power prices in
the Southeast.Traders continue to learn prices by using
telephones..price transparency is reduced because the markets have
a limited number of hubs for forwards and futures contracts."
The Tennessee Valley Authority (TVA), in part because of federal
law and in part through its own actions, "has acted as a bulwark
against the development of competitive energy markets in the
Southeast." The TVA, "critically situated between the southern and
Midwest markets," and with 30,000 MW of generation, 29,000 MW of
peak load, 2,500 miles of transmission facilities, poses a large
The staff report suggested FERC should standardize information
maintenance and reporting by transmission providers and require
them to file tariff provisions outlining a pro forma
interconnection process that could be used by the Commission as a
template for regions that do not, as yet have an agreed upon
Also, FERC "may choose to direct staff to conduct formal
investigations into entities about which a pattern of complaints
has emerged." The report also suggested FERC reduce the advantages
of network service over point-to-point service by requiring that
native load be served under the same tariff provisions as other
transmission services. This would eliminate current incentives for
vertically integrated transmission owners to favor their native