A no-holds-barred interview with the electric industry’s chief architect of wholesale electric market design.
Where Is Super-FERC?
Sweeping revisions to Order 888 are needed before true wholesale competition can take place.
There’s been a lot of talk in the industry about new super powers for market enforcement, conferred by Congress on the Federal Energy Regulatory Commission (FERC) in last year’s energy legislation.
Even FERC Chairman Joseph T. Kelliher, at several conferences, has waxed ecstatic about them, saying, in effect, that FERC is ready to go after the market manipulators wherever they are.
Certainly, the new powers appear impressive. The Energy Policy Act of 2005 (EPACT 2005) expands FERC’s civil and criminal penalties, makes market manipulation unlawful, and allows FERC to initiate investigations (public or private) on its own initiative or after third-party complaint, to name just a few items.
With powers like those, one might expect that FERC by now would have captured scores of energy criminals and masterminds—that the markets of the U.S. energy industry once again are safe for trading.
But this hasn’t been the case entirely. Many believe that FERC still labors at a disadvantage.
Like the kryptonite that rendered Superman powerless, some believe that lack of clarity in the 10-year old Order 888 has rendered FERC powerless to detect wrongdoing in markets governed by the pro forma Open Access Transmission Tariff (OATT).
The revelation that the OATT doesn’t prevent abuse may not be news to readers. Chairman Kelliher admitted as much in his statement early last year on reforming Order 888: “In the past, the commission has concluded that the OATT no longer prevents undue discrimination and preference. That conclusion was reached as long as five years ago in Order 2000, the RTO order. I think what we are really doing here today is picking up where the commission left off five years ago with Order 2000.”
FERC’s Notice of Inquiry (NOI) initiated last year (RM05-25) asks a host of questions on various aspects of the OATT, and some concern areas that generators and transmission customers have been complaining about for many years, such as transmission pricing, the obligation to expand capacity, joint transmission planning and joint ownership, rollover rights, imbalances, and more. (See the January 2006 Commission Watch, “Tariff Tinkering,” by Bruce W. Radford, p. 27, for an overview of the issues involved.)
Much of the problem with the OATT is the lack of prescription. “Public utilities have come to differing interpretations of their OATTs and differing conclusions about what is necessary to comply with the commission’s rules,” Kelliher said. One sore spot for many market participants has been how utilities calculate available transmission capacity (ATC)— the heart of the issue, as utilities have been allowed to pick whatever method they prefer.
Some utilities filing responses to FERC’s NOI on Order 888 argue there is no problem, or one of such limited scope that major reforms are not needed.
The Edison Electric Institute (EEI) in reply comments wrote: “The comments submitted in response to the NOI did not present evidence of widespread undue discrimination that would warrant sweeping reforms to the commission’s pro