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FERC to Probe Power Price Volatility, Reliability

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 electricity markets."

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 order said.

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.

Susan Parker

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