Any Department of Energy (DOE) initiative seeking to imposemandatory reliability standards in the electric industry would alsohave to tackle the issue of competition to be effective, theFederal Trade Commission (FTC) says.

“We believe that efforts to address reliability, withoutconsidering competition aspects of the economic performance of theelectric power industry, may not be successful given thetechnological 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 addresscompetition concerns could be more problematic” than the currentvoluntary approach for ensuring reliability of the grid.

The FTC submitted its comments last week in response to a DOEnotice of inquiry. The DOE is considering a proposal calling forFERC to initiate a rulemaking to establish mandatory electricreliability standards.

“The importance of this linkage” between reliability andcompetition has been “well illustrated by recent events inCalifornia,” and documented in reports by FERC and the CaliforniaIndependent System Operator (Cal-ISO), the FTC noted.

“The reports indicate that flaws in market rules, protractedentry delays and lack of price signals on the demand side of themarket [were] all major contributors to both the reliabilityproblems and the high prices experienced in California,” accordingto the agency.

Failure by the DOE to broaden its reliability proposal toinclude competition issues would result in more Californias, theFTC warned. “The linkages between reliability and competitionissues are likely to be just as strong in areas of the countryoutside of California because the technologies that largelydetermine these relationships are the same nationwide.”

Lastly, the FTC pointed out that a DOE proposal seekingmandatory reliability standards could turn out to be moot, givenFERC’s ongoing RTO-formation process. “[R]eliability is alreadyprominent on the list of minimum characteristics and functions forwhich an RTO [would be] responsible.” If RTOs are implemented inall areas of the nation and have large geographic scope, “the needfor a separate reliability organization with mandatory rules may begreatly reduced or eliminated,” the agency said.

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