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The Empire Strikes Back

Will FERC's market solution wipe out state commissions?

Fortnightly Magazine - September 1 2002

One might say, when it comes to FERC, some state public utilities commissions' lack of faith is disturbing—to paraphrase Lord Vader. It's also necessary, as any journalist would tell you.

The FERC NOPR on standard market design (SMD)—which completes the "trilogy" of regulation on wholesale markets, as chairman Pat Wood described it—had some state PUCs blasting the NOPR even before its July 31 release.

One might call it a small rebellion. PUC commissioners from 15 states, including Alabama, Arkansas, California, Georgia, Idaho, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, South Carolina, Oregon, South Dakota, Washington, and Wyoming, joined to fight FERC's SMD. These PUCs believe in their hearts that FERC's SMD is a "massive takeover" of state authority (see Public Utilities Commissions: Re-regulate or Re-engineer? By Branko Terzic, p. 12).

In fact, many industry experts readily agree that the SMD is a power grab-but the real question is whether it is a legal one. If it is-then what is to happen to PUCs?

FERC does propose establishing a single flexible transmission service that incorporates oversight that once was in the state commissioners' sole discretion-and courts have affirmed FERC's authority. FERC will be exercising jurisdiction over the transmission component of bundled retail transactions, aka native load.

Not to mention that FERC's proposed role for state regulators is to participate in Regional State "Advisory" Committees that would oversee a particular RTO, or independent entity. The fact that they use the word "advisory" does say much about how much PUC authority will be retained.

Meanwhile, the SMD has revitalized the pro-deregulation movement. Many energy executives have told me that with all the SEC and FERC inquiries, ratings downgrades and asset sales, they had almost given up on the idea of electric competition, until SMD. Naturally, most people at this point are still thinking the document through-but questions remain whether FERC politically can pull off the SMD.

To those of you just coming off a summer vacation, wanting to get up to speed on all things SMD, I direct you to our August 2002 SMD primer issue, as well as contributing legal editor Lori Burkhart's News Analysis on page 36 in this issue, covering the fine points of the NOPR. Not only that, but with the numerous utility executives, academics, consultants, and analysts that have already submitted articles on the subject, our readers can depend on a steady stream of SMD material in the Fortnightly for the next year.

FERC: Opening Markets While Protecting Regulated Utility Assets

Some state commissions have painted FERC's SMD plan as one that will open the nation's markets to more volatile prices like those seen during the California crisis. In fact, Washington Governor Gary Locke stated at the time of the SMD release, "There is no need for a central market that can be manipulated by unscrupulous traders." Of course, had he read the FERC plan at the time, he would have known that SMD calls for less reliance on spot markets.

Even while the FERC seeks to standardize energy markets,