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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

can be achieved.

Are you concerned about the pace of RTO formation?

There's no question the commission envisioned that RTOs would be up and running a lot sooner, and in more regions, than has been the case to date. But I am pleased with the recent developments of well-considered RTO plans from all regions of the country and am committed to moving forward with those Order No. 2000 filings expeditiously.

What other priorities are on the list for FERC next year?

Our other top policy objectives include reforming the hydropower licensing process and examining the regulatory changes needed to accommodate the natural gas industry of the 21st century. [At our October 25 conference, the] discussion included applying open access to LNG facilities, FERC's offshore gathering policy, and how to provide pipelines enough flexibility to meet expected new demand. That process will continue into the new year.

We also look to conclude the staff's fact-finding investigation of the Western energy crisis, conclude rulemakings on generation interconnection and affiliate code of conduct standards, and work through market-based rate issues.

Solid South

Dixie: Still Independent

-An interview with Jim Sullivan, President, Alabama Public Service Commission

Is FERC's proposed standard market design perceived as beneficial or detrimental to Alabama?

SMD will spawn winners and losers, but there are four major differences in SMD that have never occurred with any other industry restructuring. First, we believe that SMD will adversely affect customers in low-cost states. That's why we see such uproar in the Southeast and the West. Second, there are clear indications now that SMD will usurp long-term state regulatory authority-with the noticeable exception of Texas. That's simply not right. Third, SMD appears to favor power marketers and IPPs [independent power producers]-perhaps in an effort to alleviate their financial troubles-while penalizing the customers of vertically integrated companies. Fourth, SMD pointedly shifts costs to retail customers and away from those who caused the cost to be incurred. In other words, SMD, instead of eliminating subsidies, appears to create them and places that burden on retail customers.

I believe SMD, in its current form, is the most detrimental regulatory proposal I have ever seen… SMD is a FERC-created effort to fabricate an artificial national market. Our wholesale markets in the Southeast are functioning well, but if FERC's plans are forced upon us, then our markets could deteriorate to the same level as those in other areas of the United States.

What exceptions in the SMD should be made for your region?

Let's explore SMD within reasonable boundaries of logical application here in the Southeast. First, what's wrong? My colleagues around the Southeast have identified no particular constraints in transmission, have not complained about generation shortages, and seem pleased with just and reasonable rates that vertically integrated companies have provided for our ratepayers. I understand that FERC claims recurring inequities regarding market power and transmission access; however, no evidence has been provided to validate those assertions in our jurisdiction…

With that said, and to be prudent and fair, a responsible state regulator should look at the FERC SMD NOPR and