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Flexibility is key as FERC moves toward a final rule.
Fortnightly Magazine - April 15 2003

Flexibility is key as FERC moves toward a final rule.

Since the Federal Energy Regulatory Commission (FERC) released its vision last July to standardize the rules governing U.S. bulk power markets, the nation's reaction to this standard market design (SMD) could safely be called swift and fervent.

Industry and stakeholders alike have commented on the commission's proposal. FERC deserves praise for its willingness to listen and respond. Since the original SMD proposal was released, FERC has made several statements that it plans to alter certain aspects. Most recently, the commission declared that the final SMD would not contain the provision that new transmission construction would derive from a competitive procurement process.

EEI, on behalf of its member electric companies, has been among those who have taken a keen interest in the SMD proposal. We have voiced, and will continue to voice, our opinions on this effort. If properly implemented, SMD will lead to greater price transparency and more robust wholesale electricity markets. In the end, this will benefit every electricity consumer.

In January, we presented FERC with our second set of comments on the proposed SMD. We identified the "big picture" issues-regional flexibility, state cooperation, regulatory certainty, infrastructure enhancement, participation by non-jurisdictional entities-and then outlined the goals we felt needed to be achieved within each. Our thoughts on these are listed below. We believe meeting these goals will enable the commission's proposed SMD to achieve its full potential.

Increase Regional Flexibility

Among other things, the current wholesale market is made up of transmission systems, generation resources, non-jurisdictional facilities, state regulation, regional planning institutions, and regional transmission organization (RTO) mechanisms. These vary significantly from one region to the next.

Given that regional differences are too significant to be ignored, the commission should accommodate these variations through a flexible market design and not look upon these variations negatively as a departure from standardization. This will help move SMD forward in all regions in the most expeditious manner.

With respect to regional variations in SMD implementation schedules, we're encouraged that the commission is now considering our suggestion that each region be allowed to propose its own implementation schedule. We're also encouraged that the commission has given the Seams Steering Group-Western Interconnection time to resolve various issues among the three proposed Western RTOs.

There are, of course, many other areas where regional flexibility is necessary, especially in transmission pricing, congestion revenue rights, and resource adequacy. Rather than prescribe a one-size-fits-all regime for each of these critical issues, each region should have the flexibility to meet a set of goals and principles in the manner that makes the most sense for that particular region.

Engage the States

If stakeholders must contend with opposing federal and state views on SMD, it will be difficult to move the process forward. Getting the states on board, therefore, is crucial. We urge the commission to continue its state outreach efforts.

Outreach alone, however, will not be sufficient to gain state support for SMD, especially on such critical areas as resource adequacy and transmission planning. To arrive at constructive approaches to these