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FTC: Reliability, Competition Go Hand in Hand

January 15, 2001
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FTC: Reliability, Competition Go Hand in Hand

Any Department of Energy (DOE) initiative seeking to impose mandatory reliability standards in the electric industry would also have to tackle the issue of competition to be effective, the Federal Trade Commission (FTC) says.

"We believe that efforts to address reliability, without considering competition aspects of the economic performance of the electric power industry, may not be successful given the technological and market conditions that link these issues," according to the FTC's Bureau of Economics and of Policy Planning. "Indeed, any mandatory reliability system that...does not address competition concerns could be more problematic" than the current voluntary approach for ensuring reliability of the grid.

The FTC submitted its comments last week in response to a DOE notice of inquiry. The DOE is considering a proposal calling for FERC to initiate a rulemaking to establish mandatory electric reliability standards.

"The importance of this linkage" between reliability and competition has been "well illustrated by recent events in California," and documented in reports by FERC and the California Independent System Operator (Cal-ISO), the FTC noted.

"The reports indicate that flaws in market rules, protracted entry delays and lack of price signals on the demand side of the market [were] all major contributors to both the reliability problems and the high prices experienced in California," according to the agency.

Failure by the DOE to broaden its reliability proposal to include competition issues would result in more Californias, the FTC warned. Lastly, the FTC pointed out that a DOE proposal seeking mandatory reliability standards could turn out to be moot, given FERC's ongoing RTO-formation process. "If RTOs are implemented in all areas of the nation and have large geographic scope, "the need for a separate reliability organization with mandatory rules may be greatly reduced or eliminated," the agency said.

Susan Parker

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