FERC Chairman Pat Wood III said last week that if the Commission can “get ourselves out of the way, then we can move to a deregulated market” that offers more responsive customer service and more technological innovation. Speaking in Washington, DC, before a meeting sponsored by Cambridge Energy Research Associates (CERA) and Accenture, Wood said he wanted to let the Commission become a “much more distant referee,” and hopes his tenure leads to an “urgency to end the debate” that will lead to full competition within the power market.

Invited to comment on CERA’s new study on energy restructuring (see related story), Wood largely agreed with many of the association’s recommendations, but also voiced concern about some, including the number of wholesale markets. CERA recommends that FERC not force consolidation into four or five markets; Wood, however, expects to see more. “There is an optimal number, probably a single-digit number,” he said, “but it’s probably bigger than five.”

He also believes it will be difficult to expand regional transmission organizations’ (RTOs) mission to “tightly integrate” their operations, especially until a complete structure is in place. But Wood does believe in regional wholesale spot markets, noting there was a need for real-time and day-ahead markets. At the end of the day, he said, they should be voluntary. Wood added that he holds a “strong bias toward customers relying on their own ability to contract for their own supply.”

A desire to stimulate transmission system planning and investment, he said, will most likely fall under the direction of Congress and because of that, he does not think regulations will be adopted to encourage more investment in transmission systems. “Fundamentally, transmission lines are an environmental issue,” he said. “This is a state issue to overcome.” Noting that some advocate a federal agency on transmission infrastructure, Wood said it most likely could not play a “substantial role.”

Explaining that he was “not the biggest fan of price caps,” Wood referred to the California situation, saying, “Nonetheless, when there’s a fire in the kitchen, don’t look at what’s in the bucket, just throw it.” Wood said “some bad signals were sent out about our willingness to go in and mess with the market” during the California energy crisis, but he added that it “was a market out of control. You have to set good markets in the first place…work with the players in the market.”

This week, FERC is releasing a white paper that Wood said “codifies what role we want to play as federal regulators,” because the “toughest thing for us is to make sure that a mitigation tool doesn’t dampen the signals. In the West, they’re not out of the woods yet…I do think, at the end of the day, a lot of innovations are being done on reducing customer demand,” suggesting that one idea would be to use price-responsive demand as a structural measure to encourage demand being taken down.

Among the types of structural change within the competitive marketplace, Wood advocates damage control price caps. “What’s the value of lost load for shutting down in the afternoon?” he asked. “We need a demand response regime set up” to address those types of issues. Also, as the country moves to more open markets, Wood wants to see more generator flexibility.

Regarding capacity markets, Wood said he had been “scratching his head” about this issue for several days, calling it a social insurance policy to ensure that power markets are ready “when we need them.” Telling the audience that he was “not necessarily a believer that capacity obligation is required,” he called it the “last big issue I’ve got to resolve.”

With “good policy directives, good investment, you’ve got capacity. Trying to create an additional regulatory mechanism is a little hard for me.” Wood said FERC had gotten “wonderful support from the Supreme Court” in its ruling last week, but he added that the RTO still “needs to be that objective, organized body” on the question of demand. “We should be able to also focus capacity market issues on targeted issues,” and while FERC should maintain oversight on capacity markets, Wood added that he is still not sure regulation is the way to go.

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