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Proper authority and market monitoring and mitigation could make the system work.
Fortnightly Magazine - September 15 2003

such power to FERC, based on the House version of the Energy Act this year. 19 The current provision would permit FERC to act only if states have failed to certify generation for a significant period of time. If inadequate transmission facilities turn out to have been a factor in the recent blackout, as many believe likely, one might expect the conferees to tilt toward even greater FERC siting authority. This would be easier to swallow than a grant to FERC of power to ensure "resource adequacy"-an area more seen as within the exclusive purview of the states.

In any event, with both the unpleasant memories of the West Coast meltdown in 2000 and the Eastern Blackout of 2003 in the minds of conferees returning to hash out an energy bill, the time may have come for significant electricity industry legislative reforms. Those most likely to emerge may well be reforms that build on successes in other industries, such as enforcement powers already in place for commodities and securities markets, and federal eminent domain for interstate energy delivery facilities.

  1. Here and elsewhere, we simplify somewhat because of space limitations.
  2. Under the "filed rate doctrine," courts cannot examine a rate that FERC has approved or permitted to be in effect. Cf., Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246 (1951). Thus there is no relief other than that which the commission can provide in such a regulatory regime. It is not clear whether this doctrine is or should be still valid in a market rate structure. The potential of having to pay all damages suffered by all parties who lost as a result of market manipulation is an effective death sentence to most market participants, and a more serious disincentive to manipulation.
  3. 7 U.S.C. 1, et. seq. ("the CEA").
  4. 15 U.S.C. 78a, et. seq. (the "'34 Act").
  5. See, e.g., 15 U.S.C. 78j and SEC rule 10(b)(5).
  6. Even so, of course, there has been enough litigation under each act to make clear that there will always be market participants who see an opportunity for profit large enough so that the golden rule is abandoned in favor of the golden calf. Regulation of conduct is still required. And the experience in the electric markets in which one of the prevalent market models was the "one to many" market of the sort operated by Enron On Line left some of the market traders with very heavy positions, which in turn made it highly profitable to engage in wash trades or other shenanigans to move the market, given the "mark to market" accounting in use.
  7. There are a series of memoranda on the issue, beginning Aug. 4, 1998, and continuing through the fall. These are available on the Cal-ISO Web site in the archived documents of the Stakeholder Board,, including reports on the ISO's tariff compliance project. This under-scheduling laid the groundwork for the Enron "Fat Boy" bidding strategy response by the generators.
  8. The Cal-ISO identified this "flaw in one of the market rules," providing the opportunity for "strategic bidding" in a