Fickle behavior by LSEs threatens to destabilize organized markets.
Guillermo Israilevich, M.B.A and Ph.D., is a manager with Bates White LLC, an economic and litigation consulting firm in Washington, D.C. Although Dr. Israilevich has testified on issues related to market power and capacity markets, the opinions in this article are not sponsored by any market participant. Contact Dr. Israilevich at firstname.lastname@example.org.
It is naive to think that energy services can be obtained for free. But the recent withdrawal of Duquesne Light Co. from PJM, along with market-reform proposals presented by industrial consumers and public power utilities to address what they believe is an absence of just and reasonable prices in wholesale energy markets, are nothing more than attempts to obtain free electric services—especially generating capacity needed to ensure reliability.
Not all industrial consumers are dissatisfied with organized competitive markets. FERC has received numerous comments in support of the current market-based approach, including one submitted by the COMPETE coalition together with 81 other parties—which included industry experts, Nobel laureates and such large customers as Wal-Mart.
Nevertheless, to the degree policymakers begin accepting proposals from parties opposing competitive market constructs like PJM’s, wholesale electricity markets might turn down a perilous path of reduced reliability and higher costs. The end result would be a return to the old and onerous paradigm of vertically integrated utilities that these same customer groups so vigorously wished to escape in the early 1990s.