Frontlines

Did FERC's market power ruling go too far?

Will utility executives and proponents of electric competition mark July 8, 2004, as a dark day? That was the day the Federal Energy Regulatory Commission (FERC) said it would make no changes to the extremely contentious "interim" screen-the one it adopted back in April to measure market power in electric generation.

I say "dark" because the market-based sales now put at risk are the financial lifeblood of some utilities, especially those of the multi-billion-dollar, vertically integrated variety. Those that fail FERC's market-power test will be forced to sell their excess generation at cost-based rates-a "death penalty," according to some utility CEOs.

And to make matters worse, some advocating open markets still question whether the new test will improve competition in wholesale power transactions.

FERC's new market-power test, the critics say, offers no real incentive for utilities to join a regional transmission organization (RTO). That's because RTO membership no longer provides a safe harbor-an exemption from having to pass the market-power screen.

But FERC has said that even if utilities fail the new screens they can point to membership in an RTO (or ISO) as evidence that their market power has been mitigated. And Jon Ecker, president of Energy Velocity, agrees at least in principle when he says, "The protections provided in structured markets such as RTOs generally result in markets where prices are transparent and attempts to exercise market power are mitigated."