Perspective

Proper authority and market monitoring and mitigation could make the system work.

 

In the last few years we have watched appalled as the western U.S. electricity markets collapsed, taking with them the solvency and viability of several very large participants, including the California Power Exchange (PX).

In August, we watched in disbelief as blackouts spread almost instantaneously through New York, Canada, and the Midwest, leaving millions stranded without electricity for hours and days. There is a common thread. Today the Federal Energy Regulatory Commission (FERC) lacks clear statutory authority under the Federal Power Act (FPA) to do the tasks most policy-makers expect it to do: (1) regulate markets (though it has authority to regulate prices);

(2) ensure the reliability of the electric transmission system; and (3) ensure the adequacy of the nation's supply of generation. Moreover, the combination of the physical development of the system on a multi-state regional basis, and constitutional limitations, make it impracticable to assume states can effectively provide that authority.

Technology and economics have moved the industry far beyond the point where the state/federal division of 1935 can work. When there is less-than-robust demand response and unequal bargaining power between buyers and sellers, market behavior rules are required, but regulators need to have the right authority to craft effective rules. That authority does not currently exist for FERC in the Federal Power Act (FPA), and the issue of federal pre-emption makes it impracticable to assume states can effectively provide that authority.