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Regulators' Forum: A Fight Over Market Design

FERC's attempt to standardize markets have some state regulators up in arms.
Fortnightly Magazine - November 15 2002

FERC's attempt to standardize markets have some state regulators up in arms.

The fight over standard market design (SMD) looms large as regulators face the coming year. Passions are heightened on the subject-and everyone has an opinion.

In these pages, takes SMD and other questions right to the top policymakers in six states-Alabama, California, Massachusetts, Michigan, New York, and Texas-for a snapshot of what the thinking is on hot topics. And of course we included the man of the hour, FERC's chairman Pat Wood.

Presidents Jim Sullivan of Alabama and Loretta Lynch of California take off the gloves regarding SMD and leave us with some memorable words. Pat Wood, in his gentlemanly way, simply says "We are listening."

Meanwhile, the states that have moved forward with retail restructuring and RTO (regional transmission organization) development in some form, embrace SMD. As far as the chairmen of New York, Maureen Helmer, and Massachusetts, Paul Vasington, are concerned, FERC merely is catching up to what they already had the foresight to do.

Some issues touch all regions, as the regulators discuss fears over affiliate cross-subsidizations, the need for better customer service, and difficulties replacing aging infrastructures.

Furthermore, insiders at various commissions tell that because of recent events in the energy industry, such as energy marketers like Dynegy and Aquila leaving the business, commission staffs throughout the United States are left with some new difficulties. The exit of the power marketers have left utilities without their intermediary, and have forced utilities to increase their merchant role to include both the retail and wholesale aspects of doing business. So, instead of having marketers manage acquisition of commodities, the utilities now are entering supply contracts with producers themselves.

That has led to more interest on the part of commission staff in understanding and dealing with price-risk management and cost pass-through.

But outside of perhaps the chief economist, many commission staff members have a lot to learn about the new realities of doing business. Also, the greater role on the part of utilities to make deals themselves naturally results in more work for commission staff, and often the staff is too small for the new workload due to downsizing from deregulation. So, on many levels, the next year promises to be interesting for utility regulatory commissions. hopes you enjoy reading this year's Regulators' Forum.

BLIND TRUST?

FERC: A Bet on Markets

How are you promoting the SMD with state commissions?

We are undertaking an unprecedented outreach effort to explain our proposal and hear people's concerns. . . The feedback we are getting from state regulators is a critically important part of our effort to finalize the rule. We must achieve a state-federal partnership and realize the full benefits of effective wholesale competition. So we are reaching out and listening to state commissions and trying to build consensus with them on how we can make markets work for the customer.

We've extended the comment period and scheduled additional public meetings to allow everyone to fully review and comment on the SMD proposal. We will further refine the rule, based on

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