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FERC’s Market-Power Test: First, Do No Harm

Why a new market-power screen—accounting for the relationship between customers and suppliers in the wholesale marketplace—is a necessity.

Fortnightly Magazine - April 2005

the relationship between contestable loads and those competitive generation resources in the market place to serve them. Consequently, it evaluates an applicant on the basis of the actual state of competition in a given market. By using this screen, the commission will gain a much more accurate assessment of whether an applicant really does or does not possess market power.

The result will be a wholesale market place where power plants are used more efficiently, where valuable signals are sent when new plants are needed, and where the consumer, the economy, and the environment all benefit from more efficient use of power.

EEI supports FERC's objective of developing competitive wholesale markets. We firmly believe that the development of such markets will lead to the lowest possible energy costs for customers. We also strongly support the commission's effort to prevent the abuse of market power in those markets.

But instead of helping competition, the commission's new screening process could end up harming it, by preventing the majority of utilities outside of RTOs from competing in the deregulated wholesale marketplace. The result will be markets with fewer supply options and less liquid energy prices.

Unfortunately, the early results of FERC's screening for market power indicate that this already may be happening.