“I think we are at the critical moment in the development of our energy markets and energy infrastructure for the future economy of this country,” FERC Commissioner Nora Mead Brownell said last week. “This is an economy made competitive in part by its access to cheap and reliable power.”

Many people are in a “state of denial” regarding the power market because the lights are on and people are feeling relatively good. Because of this, she said many people are asking “why should we change?”

Looking closer, Brownell, who spoke at Platts Day of the Trader conference in New Orleans, said there are numerous indicators and problems that are affecting the industry. “We see an increased number of discrimination complaints, stranded generation, which cannot deliver lower cost competitive power because they can’t get access to transmission systems.” The market also is suffering from power quality disturbances, increased inefficiency in the grid, no capital and low credibility. “We are seeing no capital for anything, which has enormous long term implications for this country, long-term implications that I don’t think anyone is thinking about.”

Brownell added that FERC sees a place in the industry for traders because they play an important role. “We believe that in a real market there is opportunity for many players and many business models, business models that add value to the market.” She said the Commission has two objectives, one for the past and one for the present: settling California refunds from the crisis two years ago and putting together its Standard Market Design (SMD).

Brownell said some Wall Street people told her FERC should just get the California situation over with. “Someone from the utility [segment] said…it doesn’t make any different whether it is right or wrong, just get it done because you know you’re going to court. We are cleaning up markets from two years in the past, and let me tell you that’s difficult.”

She said that while it would be wonderful to “wave a magic wand” and have it all taken care of, “it is important that we get it right. The bottom line is there are people who are innocent in that market. We need to be clear, we need to learn lessons from that market.” At the end of the day, Brownell said she wants to be able to stand up and “look customers in the eye, look market participants in the eye, look Wall Street in the eye, look Congress in the eye and say, we understand what happened here.”

The commissioner noted that Wall Street also wishes that SMD would be “done tomorrow.” However, she said some people on Wall Street have told her that there are a lot of reasons why they won’t invest back into California even after SMD is in place.

She said FERC also needs to be ready to react faster in the future to happenings in the marketplace so that the California situation is not repeated. “We need to be up and operating quickly,” Brownell said. “We need to find the bad guys and take them out and hang them in the parking lot; let it be painful and obvious.” She said FERC would likely only have to do it a few times before companies clamped down on traders. In order to speed up FERC’s reaction, Brownell said the idea is to have FERC people on the ground around the country to market monitor.

Speaking on SMD, Brownell said it is a “clear set of rules” that assures transaction costs will go down while allowing for transaction transparency. She added that contrary to popular belief, SMD “does not replace long-term bilateral contracts.”

The commissioner said SMD is not about the aggregation of contracts. “I have said quite outspokenly that I believe in the sanctity of contracts and I don’t want to do anything that would compromise them.” She added that SMD is also not a “Trojan horse” for retail choice. “It’s about creating wholesale markets that add value, that will allow those that go to retail choice to perhaps operate more effectively.

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