Federal Energy Regulatory Commission (FERC)

At its open meeting on Jan. 18, 2007, FERC unanimously approved settlements with five electric utilities for a total of $22.5 million and other considerations. This action answers some important questions that energy market participants have been asking. In particular, it helps market participants connect some important dots regarding the regulatory landscape in which they must operate, but it also raises important questions that market participants would like answered.

Part way through the Feb. 27 conference on electric competition, it was so quiet you could hear a hockey puck slide across the ice. No, hell had not frozen over. Rather, it was Commissioner Marc Spitzer, who had found a clever story to ease the tension and allay fears that FERC somehow might want to undo the sins of the past, and give up its dream of workable markets for wholesale power.

While maintaining its stance as the most sophisticated competitive electricity market in the country, PJM still faces several challenges, all of which are augmented by its expanded footprint. Most prominent is the RTO’s plan to implement a new reliability pricing model. Further, parts of PJM are ailing from transmission congestion issues that limit access to abundant, cheap power sources in the region.

For a front-line perspective on FERC’s policy direction, we asked one of the industry’s most prominent policy representatives, David K. Owens at the Edison Electric Institute, to provide his take on FERC’s competition conference and Order 890.

The D.C. Circuit once observed that the Mobile-Sierra doctrine is “refreshingly simple.” In fact, however, the doctrine has become incredibly nuanced and complex over time. In two concurrently issued decisions, the court has discovered new prerequisites to the initial application of the doctrine, changed the independent “public interest” review standard into a presumption, and has jettisoned that presumption entirely when contract prices are too high as opposed to too low.

Despite overwhelming theoretical and empirical evidence, we aren’t seeing more DR when it is needed most—during emergency periods. The reasons boil down to two obstacles, both of which must be addressed before widespread DR implementation can move forward.

In the minds of many policy-makers, DR has become associated with rate shocks, rate volatility, unpredictability, and loss of control over energy costs—the very things DR was designed to overcome. What can be done to change this?

Is it possible to go back to the way things were? Nostalgia for the old regulated model seems to be waxing of late, particularly in Virginia. The 70-percent rate increases in Maryland last year at the expiration of price caps—part of the transition to electric competition—has become the calamity that some state regulators fear most. Several utilities are pushing for re-regulation.

John D. Chandley, Principal, LECG LLC: Bruce Radford’s “An Inconvenient Fact” provides a helpful critique of a fundamental element of open-access transmission reform, one of the most important rulemaking cases affecting electricity regulation at FERC.

Cynthia Bogorad, Spiegel & McDiarmid, Washington: From my perspective representing transmission-dependent utilities, I am very sympathetic to the underlying concerns that appear to be driving the TDAs’ proposal. However, the TDAs’ proposal is not the answer.

After pleading with Congress for so many years, and then at last winning the requisite legislative authority to impose mandatory and enforceable standards for electric reliability, to replace its legacy system of voluntary compliance, NERC finds itself at a curious juncture. It wants to slow the transition.