While many might say it’s long overdue, FERC last weekauthorized its staff to undertake a “fact-finding investigation”into the wild price volatility and reliability problems that havegripped the bulk power markets over the past couple of summers.

Commissioner William Massey said he was “growing concerned” overthe “shockingly high prices” in the wholesale electricity markets,saying that unless FERC was more “proactive” in getting at thecauses, “the political consensus needed to sustain a market-basedelectricity 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 300or 400 times the off-peak price,” Massey asked. If such priceescalation occurred in the auto or oil industries, the entirenation would be “up in arms.”

“I believe this Commission must do a better job of monitoringand understanding the still-growing electricity markets, and wemust insist on efficient market structures,” he said, urging FERCstaff to “leave no stone unturned” in its investigation. “I expectstaff to report to us what is working and what is not working inelectricity 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 ofdemand responsiveness, absence of standard interconnectionprocedures, high interconnection fees for distributed generation,barriers to construction of new generation/transmission facilitiesand lack of price transparency. Regional transmission organizations(RTOs) will help to remove some of these obstacles, “but theycannot do the full job,” he said.

Chairman James Hoecker put a more positive spin on itsinvestigation. “…[I]t provides a signal to the industry thatwhile certain markets for wholesale electricity have performed welleven under historic levels of stress, that increased demand forpower – a 400% increase in the number of wholesale transactions inthe last four years – [and] new kinds of congestion challenges forreliability…..mean that we cannot and will not rest easy whenpeak-day prices are volatile.”

Specifically, staff has been asked to ferret out “any technicalor operational factors, regulatory prohibitions or rules (federalor state), market or behavioral rules, or other factors [that are]affecting the competitive price of electric energy or thereliability of service.” The Commission has directed staff toreport back with its findings by Nov. 1. It “will then determinewhat steps it might take within its jurisdiction to remedy anymarket behavior, operation, design or structural problems,” theorder said.

The Commission will use the results of staff’s investigation to:1) analyze Section 205 filings involving market pricing or marketrules; 2) institute Section 206 proceedings to modify existingtransmission or power exchange tariffs or agreements, bylaws forexisting institutions or the institutions themselves if FERC findsthey are “adversely affecting’ the efficient operation of acompetitive bulk power market; and 3) help analyze the RTO filingsthat are due later this year.

Susan Parker

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