Reaffirming its commitment to perfecting the competitive wholesale power market, the Federal Energy Regulatory Commission last Thursday unanimously approved a final rule to strengthen organized transmission markets as Chairman Joseph T. Kelliher noted the long history of bipartisan support for the competitive power market and expressed the hope it will be continued by a new administration.
Primary components of the final rule are the incorporation of demand response mechanisms into the operations of regional transmission organizations (RTO) and independent system operators (ISO), including provisions allowing the market to operate up as well as down with price increases that reflect supply shortages (RM07-19, AD07-7).
"This final rule is one of a series of reforms FERC has taken to promote competition in wholesale power markets," Kelliher said at the Commission's regular open meeting Thursday. He stressed that the move to competition in wholesale power markets over the last 25 years "is national policy...settled policy. It has always been bipartisan," directed by both Republican and Democratic lawmakers and presidents. "Every U.S. president since Jimmy Carter has accepted competition as being the basis for wholesale regulation of electricity in the United States. I believe it is the correct policy for this country.
"We're in the midst of a very interesting election, and energy has played a very large role in this election...Both candidates found time to talk about clean coal policy and climate change policy...and even hydrokinetics came up in the past week,...and gasoline prices, of course. One subject has not come up and that's competition: whether competition is the correct policy for the U.S. government...I'm hopeful it's not because they haven't noticed that there are wholesale electricity markets. I think it's because they view it as settled national policy.
"From our point of view it is settled national policy; it's the law. Since it is settled policy our duty is clear, and that is to promote more effective wholesale competition and to seek steady improvement in wholesale power markets."
Commissioner Suedeen G. Kelly, a Democrat from New Mexico, agreed. "Competition in electricity has been and remains a national bipartisan policy," she said, while backing the final rule generally as continuing FERC's efforts to improve the organized competitive market. She described her reservations as "relatively small." Regarding how to proceed with implementing scarcity pricing provisions, she recommended that ISOs and RTOs allow enough lead time in implementing those provisions so that the demand response infrastructure can be developed to enable customers to respond to higher prices. Kelly also said she feared allowing hybrid boards for ISO/RTOs would jeopardize their independence, and she is concerned with removing MMUs from tariff administration and mitigation.
Kelliher said the Commission had taken up this final rule now because "the lack of effective demand response was a key weakness," in the operation of the competitive markets. The rule includes enabling the bidding of demand response into the market and calls on RTOs and ISOs to reform pricing. "Prices that do not reflect the value of electricity in a shortage can harm reliability, impede demand response, discourage new entry of demand response and generation resources and block innovation. In some circumstances, these market rules can increase the risk of reliability problems and produce price volatility and market uncertainty," the chairman said.
The new rules, however, incorporate specific market power mitigation and allow RTOs and ISOs to propose other means of mitigation. In another area the final rule concludes that there are no fundamental problems or barriers to long-term contracts. It includes, however, posting requirements to improve transparency with respect to contracts.
Market monitoring reforms include definition of the role of market monitors and clarification of the respective roles of the Commission and market monitors in enforcement. Other aspects of the rule address the boards of directors of the RTOs and ISOs.
The final rule directs each RTO and ISO to adopt or implement the following:
Long-term Power Contracting
Strengthen Market Monitoring
The rule applies to organized market regions or areas in which an RTO or ISO operates day-ahead and/or real-time energy markets. The following come under that heading: PJM Interconnection LLC; New York Independent System Operator Inc.; Midwest Independent Transmission System Operator Inc.; ISO New England Inc.; California Independent Service Operator Corp.; and Southwest Power Pool.
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