Frontlines

Deck: 
Critics say FERC's filed rate doctrine is wrong for the times.
Fortnightly Magazine - July 2004
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Frontlines

Critics say FERC's filed rate doctrine is wrong for the times.

It's quite remarkable how the Federal Energy Regulatory Commission (FERC) has been able to pound a square peg into a round hole. With not much more than a wink and a smile, FERC has taken a depression-era law meant for monopolies-the Federal Power Act (FPA)-and has made it serve double duty as a foundation for competitive power markets.

Yet FERC's reinterpretation, for all its good intentions, may prove inadequate in the long run to define and support full-fledged energy markets.

Here's the gist of it:
If an electric utility wants to go off tariff and sell wholesale power at market-based rates (such as the clearing price in a regional spot market), then it need only convince FERC that it lacks market power in generation and transmission. Once it leaps that hurdle, then a mere filing of an umbrella tariff, coupled with later-filed quarterly reports (with numerical details on the actual market sales prices) will satisfy the requirements of FPA section 205. That section requires FERC to find that wholesale power rates are "just and reasonable."

But what happens if the market later behaves in strange ways? What happens later if the utility continues to sell into the regional spot market, but the clearing price climbs higher than anyone could have imagined at the time FERC had certified the utility as free of market power?

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