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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

to establish our basic right as a governmental regulator to the same kinds of documents that are available to the market participants…

In term of corporate responsibility, we are reviewing our affiliate abuse rules for affiliated companies in order to strengthen them so that we can more accurately either prevent or detect affiliate abuses and gaming among affiliates… And we are coordinating more with other entities like the FTC and the CFTC to ensure that what Enron caused in California and nationally does not happen again. Namely, Enron came to California and pushed through a restructuring law on the argument that electricity was a commodity. Then Enron went to the CFTC and said, "Oh no, electricity is a service-you shouldn't regulate it like a commodity"' So there was no regulation. And I think that is a cautionary tale that both state and federal regulators need to be prepared for, and girded against, in the future… Just like Lord Voldemort in the Harry Potter novels, the deregulationists are not dead; they are just husbanding their strength.

What is the issue of most concern to California?

My personal view is that we not let our guard down against the reemergence of the Lord Voldemort of deregulation and the federalization of regulation-that it will be back in various permutations. We must recognize why the electric and natural gas markets were regulated in the 1930s to begin with. It's because the exact same thing happened in the teens and 20s, where electric and natural gas companies held the economies of the nation over a barrel. They withheld power and drove the price up and acted like cartels…

However, I still believe we are in the eye of the hurricane and I'll tell you why. As the Enrons and the Williams of the world have gotten out of the trading business, the merchant banks have stepped in. JP Morgan now has an energy trading business and some of the other merchant banks, like Morgan Stanley. Standard and Poor's-a supposedly neutral rating agency-has filed pleadings at the FERC against the assertion of regulation by California. So as the banking and Wall Street communities step in to make a buck, I am very concerned about the ability of the state to protect our citizens.

Cautiously Optimistic

Michigan: Willing to Try

An interview with Laura Chappelle, Chairman, Michigan Public Services Commission

Is FERC's proposed SMD perceived as beneficial or detrimental to Michigan?

Overall we are very supportive and optimistic that it will move forward…Obviously, there are going to be things in there that we will recommend-either will be changed or fleshed out a little differently… But we do think overall this is the direction that we have to move. I don't think you can move to a more regional wholesale market without having these very needed common rules of the game in place. So we fully support FERC in efforts to do this.

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

Michigan as a peninsular state has unique situations that we are looking at. But specifically we'll