[BETA] Fortnightly

The Federal Energy Regulatory Commission (FERC) Mega-NOPR1 covers four topics:

1) The FERC's jurisdictional powers to implement wholesale open access

2) The FERC's proposal for electric utilities to recover "legitimate and verifiable stranded costs" from departing wholesale customers (a small fraction of all stranded investment), and its belief that states should ensure recovery on retail bypass (the much larger share)

3) A range of measures to implement wholesale open access

4) Market power in generation.

Let us focus on access and generation market power.

Opening Transmission

to Wholesale Access

The FERC begins by zeroing in on the biggest single drawback of a vertically integrated electric utility industry: "[M]arket power through control of transmission is the single greatest impediment to competition. Unquestionably, this market power ¬ can be used ¬ to block competition ¬ [or favor] a transmission owner's own generation."

The FERC also notes that control of transmission can unfairly depress purchase prices from neighbors who have no alternative outlets.

The guts of the proposals are set out in pages 87 through 138: "[To] ensure that all participants in wholesale electricity markets have nondiscriminatory open access to the transmission network, transmission owners must offer nondiscriminatory open-access transmission and ancillary services to wholesale sellers and purchasers of electric energy in interstate commerce. This will require tariffs that offer point to point and network transmission services2 ¬ [that] would be valuable to customers such as municipals, cooperatives, and municipal joint action agencies that supply the long-term firm power needs of members with multiple loads that are wholly or partly within a single transmission system."

To further this aim, the FERC proposes "functional" unbundling:

"[A] public utility's uses of its own transmission system for the purpose of engaging in wholesale sales and purchases of electric energy must be separated from other activities. ¬ The proposed rule does not require corporate unbundling (selling off assets to a nonaffiliate, or establishing a separate corporate affiliate to manage a utility's transmission assets) in any form, although some utilities may ultimately choose such a course of action."

Building on its ruling regarding American Electric Power Corp.'s transmission tariffs,3 the FERC requires public utilities to offer terms and conditions "comparable" to those the host utility implicitly uses (including ancillary services) in setting tariffs for its own wholesale customers.

The FERC recognizes that the transmission provider may have an effective monopoly of some ancillary services (e.g., scheduling and dispatching). Thus, it should offer the following ancillary services as separate components of the transmission tariff:

s Reactive power (em can come from the transmission provider or customer, if feasible. (In England and Wales, reactive power is currently priced on a regional basis, and we hope it will be possible to create a market based on bids.)

s Load following (em supplied from the transmission provider or customer, if feasible. (In both England and Wales and in Norway, load following is provided on a competitive market basis.)

s Loss compensation (em offered by the transmission provider, or by the transmission customer taking less power out of the system or putting more in

s