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FERC's Market Design: The End of a 'Noble Dream'

How state opposition cowed the feds and turned a powerful rule into just a set of talking points.
Fortnightly Magazine - February 15 2003

ties (consulting, etc.), while 21 percent came from finance and 6 percent from an information technology background. A cursory review showed less diversity of experience on RTO boards than for traditional utilities.


Wants market monitoring (MM) staff at RTO or ITP to function as contract agent of FERC, and be funded through a mechanism that remains separate from the RTO/ITP funding protocol. "It is simply not reasonable to expect the MM to be accountable to the FERC and independent of the RTO, under a framework in which the MM is selected by the RTO, contracts with the RTO, has its budget set by the RTO, has terms of payment controlled by the RTO, and has its invoices paid by the RTO."


State regulators warn that FERC policy already is taking a "toll" in Kentucky, as retail rates there are likely to rise in tandem with the tens of million of dollars in extra administrative costs incurred annually at the Midwest ISO. "With an annual operating budget approaching $70 million, a capital budget of more than $30 million, and a staff of 210 people, MISO is clearly not an inexpensive undertaking."

Kentucky also is a party to a legal appeal in the federal courts (Midwest ISO Trans. Owners v. FERC, Case Nos. 02-1121, 02-1122, D.C.Cir.) that seeks to overturn a FERC ruling that rejected a settlement between MISO and the Kentucky PSC that would have saved the state's native load customers from paying MISO administrative costs.


State opposes the new resource adequacy requirement (RAR) contained in the SMD. It argues that FERC's plan for a 12 percent margin, as measured against retail "load," cannot work, because in states that have moved to retail access, the retail supplier no longer has any captive load. Maine PUC says that retail suppliers could avoid FERC-imposed penalties for failure to maintain the required margin simply by exiting the market prior to "real time," in effect ignoring the RAR rule entirely.

The PUC proposes instead to adopt a structure that it calls a "central buyer model," whereby the RTO/ISO/ITP determines the capacity required for the market as a whole through an auction, and then buys the commitments needed to provide that product for the relevant period. There would be no direct link between any particular load and any particular capacity; that would be "impractical and illogical," the PUC says.


Says states lack access to data needed to make market-monitoring work on all levels. Notes that PJM has a 6-month moratorium on release of MM information to state regulators, and then can release only the fact of market abuse-not the identity of the culprit. Says New York has a three-month moratorium, while New England keeps information confidential for seven days. By contrast, the Midwest ISO prohibits all state regulatory access to MM information, forever. "This situation is unconscionable," says Ohio.


As the PUC explains, ERCOT lacks a day-ahead energy market (DAM) and in the past has tried to manage congestion on a zonal basis (as California