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ISOs as Market Regulators The Emerging Debate

Fortnightly Magazine - April 15 1998

due process and scrupulous avoidance of conflicts of interest. Finally, as a matter of simple prudence, ISOs should not impose sanctions such as fines or market preclusion unless these are first approved by the FERC. If ISOs are careful in monitoring and mitigation, those functions should survive legal scrutiny.

The broader question concerns the wisdom, on policy grounds, of using ISOs to address horizontal and vertical market power. Experience in other industries and in other countries has not yielded any persuasive argument why ISOs should not monitor and mitigate market power abuses. In exercising such functions, ISOs would simply use their regulatory authority to ensure efficiency. F

Jeremiah D. Lambert is a partner in the Washington, D.C., office of Shook, Hardy & Bacon LLP. He has served as counsel concerning restructuring of the PJM Power Pool.

The FERC told the PJM ISO to police market power.

PECO Energy complained that the ISO would control bid prices for up to 35 percent of generation in PJM.

1 Speech on Feb. 23, 1998 at EXNET Conference in Washington, D.C., reported in Foster Electric Report, March 4, 1998.

2 FERC Order No. 888, Docket Nos RM95-8-000, RM94-7-001, Apr. 24, 1996, 75 FERC ¶ 61,080, FERC Stats. & Regs. ¶ 31,036, 71 Fed. Reg. 21540 (May 10,1996) mimeo p. 56.

3 Raskin, ISO Market Monitoring and Mitigation, p.2 (paper presented to Harvard Electricity Policy Group, Jan. 29-30, 1998) (hereafter "Raskin").

4 Pacific Gas & Electric Co. et. al., Docket Nos. EC96-19-001, et al., Oct. 30, 1997, 81 FERC ¶ 61, 122, mimeo p. 242.

5 Id. at 247.

6 Id. at 249.

7 Request for Technical Conference and Comments of NECPUC on ISO-NE Market Power and Mitigation Issues, July 16, 1997.

8 Comments of the Maine Attorney General on the ISO-NE Market Monitoring, Reporting and Market Power and Mitigation Proposal dated Dec. 19, 1997, filed Jan. 23, 1998.

9 Comments of the Staff of the Bureau of Economics of the Federal Trade Commission in FERC Docket Nos. ER97-237-00 and ER97-1079-000, Feb. 6, 1998.

10 Ibid.

11 Defined as Atlantic City Electric Co., Baltimore Gas & Electric Co., Delmarva Power & Light Co., Pennsylvania Power & Light Co., Potomac Electric Power Co., Public Service Electric & Gas Co., and three subsidiaries of GPU Inc., those being Jersey Central Power & Light Co., Metropolitan Edison Co., and Pennsylvania Electric Co.

12 Pennsylvania-New Jersey-Maryland Interconnection, Docket Nos. OA97-261-000 et al., Nov. 25, 1997, 81 FERC ¶ 61,257.

13 Supporting Companies' Report on Horizontal Market Power Analysis dated July 14, 1997, FERC Docket Nos. OA97-261-000 and ER97-1082-000.

14 Ibid.

15 Motion to Intervene, Protest and Request for Summary Rejection or, in the Alternative, for Hearings in FERC Docket No. ER97-3729-000, Aug. 13, 1997.

16 Id. at p. 8.

17 Id. at p. 10.

18 Raskin, p. 10.

19 Barker, Tennebaum and Woolf, "Regulation of Power Pools and System Operators: an International Comparison," Energy Law Journal 261, 316 (1997).

20 Walter Werner, The SEC as a Market Regulator, 70 VA. L. REV. 764 (1984).

21 Perot v. Federal Election Commission, 97