Reviewing FERC's omnipotence over markets.
Market players like Calpine say standard market design (SMD) and RTO issues "while laudable and important objectives … will do little to enhance wholesale competition if contract sanctity is not assured."
These market players, understandably, will never again want to repeat the experience of having billions worth of long-term contracts challenged, as in the Western power crisis. In fact, some experts worry that allegations of market manipulation, as in California, will become the normal pretext when a buyer realizes he has overpaid and does not want to honor the contract.
Perhaps in an effort to restore confidence in wholesale energy markets, and to deal with an increasing number of contract disputes, FERC has proposed to change the standard of review that must be met to justify proposed changes to market-based rate contracts for wholesale power. At present, FERC determines whether to allow one party or another to abrogate on a case-by-case basis.
But what standard should apply? If two parties stipulate between themselves on what it would take to nullify the deal, should that stipulation bind FERC when a third party complains that the rate is unconscionable, or when the commission opens its own inquiry under Section 206 of the Federal Power Act? In other words, can a clause in a contract usurp the absolute authority given to FERC by Congress? The industry is in deep disagreement.