[BETA] Fortnightly

The commission tacks a new name onto a familiar concept.

By now it is old news that the Federal Energy Regulatory Commission (FERC) on April 28 back-pedaled on standard market design (SMD), even renaming it the "wholesale power market platform." But SMD is far from dead, as some had wished. Instead, it is merely toned down, bowing to political furor and regional differences.

Listen to Edward Krapels, director of gas and power services at Energy Security Analysis Inc. "It's easy to be an immediate critic of FERC, but I think at the highest level they had to do what they did. I don't think they had much choice." Indeed, FERC gave in to political pressure, "because the political community just was saying no to SMD, and that was just a fact they had to contend with"-not only from state commissions and the Senate, but even within the administration. "I don't think there was a lot of interest in turning the SMD into something that alienates the president from some of his constituents" Krapels believes. "I just don't think people believed in it enough to make it something they wanted to fight for."

In agreement is Mary Anne Sullivan, partner in the energy group of Hogan & Hartson, and former general counsel of the Department of Energy from 1998 to 2001. "I think they recognized that they had made a mistake, they had pushed too hard, and if they continued to push in the direction of SMD their authority was going to be cut off by the Congress," she says.

Sullivan believes FERC Chairman Pat Wood recognized from the beginning that the industry was evolving toward a market-based approach, but that approach was largely the product of voluntary action taken under Order 888 and Order 2000. "What FERC erred in doing was trying to force that evolution when they didn't have the key stakeholders, most notably the state commissions, on board, and when the trauma of the California crises was so fresh on everybody's mind," Sullivan says.

Kiesling's Questions

Lynne Kiesling, senior lecturer in economics at Northwestern and director of economic policy at the Reason Foundation, had raised questions about the proposed SMD in a November 2002 report, SMD in Wholesale Electricity Markets: Can FERC's Proposed Structure Adapt to the Unknown? Kiesling characterizes FERC's white paper as a "mixed bag" and says the recognition of the importance of regional variation is good. "In talking to folks of various affiliations, I always have had the impression that there is a widespread belief that regional variation is needed, but where do you draw the line?" she asks.

The white paper has moved in a good direction, Kiesling says, because the one-size-fits-all approach is not going to work, given how heterogeneous and diverse our economy and geography are.

Sullivan does give FERC credit for holding a series of regional conferences prior to issuing the SMD. "They knew the opposition was out there, and I guess they just did not gauge its depth. I also think they suffered a little bit from the theoretician's fervor for perfect