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Commission Watch

Assimilating the best of the regulated-utility and merchant models.
Fortnightly Magazine - August 2004

merits of various concepts. The MAP is specifically designed around selected structural changes that recognize the crucial importance of state commissions, and that are technically feasible, cost-effective, and have the greatest potential to save customers money.

Indeed, perhaps the most significant lesson from the SMD experience is that the changes needed to eliminate the most obvious impediments to well-functioning markets require a cooperative effort between FERC and the state commissions. Requiring an all-inclusive economic dispatch protocol or an RFP process for long-term competitive procurement clearly implicates state interests because they are part and parcel of ensuring that retail customers receive the lowest-cost power consistent with reliability requirements. On the other hand, it is equally clear that FERC does have the authority to require a given utility to implement a state-approved economic dispatch or RFP program as structural remedies to prevent possible vertical market foreclosure.

Similarly, equal and fair access to transmission, which is vital to realizing the benefits of well-functioning markets and competitive procurement, requires clear and consistent FERC policies. But FERC should neither undertake a policy nor implement a remedy unless there are very good reasons for its belief that doing so will provide clear benefits to wholesale competition without harming native load customers.

The MAP recognizes this important federal-state partnership. It does not amount to a federal push to impose retail competition in jurisdictions that don't want it and don't see its benefits; and it does not infringe on the authority of state commissions to set rates for bundled retail service. Rather, it builds on the vertical model, relies on state commission involvement, is consistent with continued state retail rate regulation, and keeps its focus precisely where there is no federal-state tension-on simple, understandable, and cost-effective ways to make customers and competition better off.

Moving Forward With a MAP

The MAP combines the best elements of the VIU and merchant models in a cost-effective manner. If adopted, the MAP would improve transmission expansion, add transparency to the procurement process, create access to short- and long-term markets, and provide additional revenue sources to load-serving entities. It also would avoid distracting litigation and costly uncertainty, and, hopefully, get federal and state regulators back to working cooperatively in the consumers' best interests.

The Market-Access Plan: A Breakdown

How to spread the benefits to all players.

By adopting some straightforward and state-friendly changes that build on existing regulatory structures and frameworks and that are technically feasible, utilities and merchants can offer their customers the greatest potential to save money. The following initiatives strike an appropriate balance of interests.

Create Accessible Short-Term Markets

  • Establish a formal mechanism to include merchants in economic dispatch. Seek approval from state regulators to retain a portion of the annual savings.
  • Offer parking services in order to mirror day-ahead and real-time market structures. This is an important service for merchants that rely on point-to-point service and must identify a specific delivery location to reserve transmission. The transmission provider would assess a parking fee for this service.
    The amount of parking service available would be defined in advance and would not