FERC would relax price caps—sending rates skyward—to encourage customers to curtail loads.
Bruce W. Radford is publisher of Public Utilities Fortnightly.
About four months ago, at a conference at Stanford University’s Center for International Development, the economist and utility industry expert Frank Wolak turned heads with a not-so-new but very outrageous idea.
Wolak, who serves as chairman of the Market Surveillance Committee of the California Independent System Operator, suggested if regulators really want electric customers to curtail load during shortages or emergencies to aid reliability or boost system resources, they should simply remove all bid caps, price caps, and other similar market controls. Let the price float free—maybe even as high as $100,000/MWh in a single extreme peak hour, which translates at the retail level to $100/kWh.
Now there’s the way to get some demand response.
Wolak suggests that allowing such inflated prices at the wholesale level, and then passing them along at retail to ratepayers, offers the best and perhaps only way to cure market abuses and curb market power exercised by monopoly power producers.
“Without the active demand-side participation enabled by charging final consumers prices that reflect hourly wholesale prices, electricity suppliers will face a final demand that is virtually inelastic … and implies significant opportunities for suppliers to exercise unilateral market power.”