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Did FERC's market power ruling go too far?
Fortnightly Magazine - August 2004

How do they avoid allegations of favoritism as they go about their duties as control area operators in making dispatch decisions both for local merchant plants and their own proprietary generation, where there is no independent grid coordinator?

In our "Commission Watch" section on p. 26, Larry Eisenstat, the outside counsel for Duke Energy and partner with law firm Dickstein Shapiro, and his colleagues outline a plan for vertically integrated utilities that face this problem:

"We propose a market-access plan that does not advocate sweeping changes; it instead builds on existing frameworks with structural improvements that are technically feasible, cost-effective, and politically practical. The result assimilates the best of the [vertically integrated] and merchant models; benefits the industry investment climate," writes Eisenstat.

Furthermore, former FERC Chairman Curt Hébert Jr., in his first public appearance since stepping down as head of the commission, gives his analysis and proposes ideas on participant funding for transmission expansion projects-especially the upgrades required to accommodate new merchant plants that seek to interconnect with the grid (see p. 40).

Certainly, while these plans will be debated by the industry, the fact that regulated utilities are dialoguing and making an effort to improve on the current structure is a positive step in the right direction. Let's hope they get a fair hearing.


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1) Deducts too little in general for native load, and thus overstates uncommitted capacity available for market;

2) Wrongly relies on an average of native load in the "pivotal supplier analysis," which again tends to understate such obligations;

3) Offers a false hope for utilities that fail the screen, since virtually all traditional utilities with native load are doomed to fail the Delivered Price Test, which FERC has set up as a secondary safe harbor. A cursory read of the final order shows how these arguments are but a few of many that FERC rejected. Some utility executives say FERC did give utilities the greatest concession of all-the ability to rebut the results of the market screen.