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AMERICAN
<br /> PUBLIC
<br /> i • RP ►,. TM
<br /> ASSOCIATION
<br /> Powering Strong Communities
<br /> ISSUE BRIEF January 2017
<br /> Wholesale Electricity Markets and
<br /> Regional Transmission Organizations
<br /> Summary Wholesale Markets Overview
<br /> In the U.S.,roughly five billion megawatt hours of electricity are In regions not controlled by an RTO,wholesale sales are
<br /> sold at the wholesale level,i.e.,sold to a utility or other entity conducted bilaterally,through direct contact and negotiation,
<br /> reselling that energy to residential,business,or industrial cus- through a voice broker,or through an electronic brokerage
<br /> tomers.There is no single national market for these wholesale platform,such as the ICE.They also have forums that serve to
<br /> electricity sales.In some regions,these sales are conducted bilat- create robust bilateral markets in these non-RTO regions.For
<br /> erally,through direct contact and negotiation,through a voice example,the Western Systems Power Pool provides a standard-
<br /> broker,or through an electronic brokerage platform,such as the ized power sales agreement that provides for a liquid wholesale
<br /> Intercontinental Exchange(ICE).In other regions,specifically power market with transparent price information reported
<br /> in the Northeast,Mid-Atlantic,Midwest,California,and Texas, through multiple indices. Generally,these regions are where
<br /> there are wholesale electricity markets operated by large entities "traditional vertically integrated utilities" (i.e.,utilities owning
<br /> known as regional transmission organizations(RTOs) and generation,transmission,and distribution facilities)continue
<br /> Independent System Operators(ISOs)—collectively referred to to operate. (Some RTOs are also predominantly categorized by
<br /> as"RTOs."Bilateral transactions can also occur in RTO regions, vertically integrated utilities as discussed below.)
<br /> but through separate settlements and in compliance with corn- Conversely,RTOs are relatively new creations,formed as
<br /> plex RTO rules.These RTO markets provide for the wholesale some state and local regulators changed retail electricity markets
<br /> sale of electric energy(both day-ahead and real-time purchases), rules to encourage or require traditional vertically integrated
<br /> as well as ancillary services.Some RTOs also operate capacity utilities to sell their generation facilities and give retail utility
<br /> markets. customers the ability to purchase power from other generators.
<br /> Public power utilities,state utility commissions,consum- As a result,private utilities were forced to purchase their power
<br /> er-and low-income advocates,and industrial electric power on the wholesale market. (Most states exempted not-for-profit,
<br /> customers have raised significant concerns about RTO-run locally governed public power utilities from these requirements,
<br /> wholesale electricity markets,which do not function as we though for unrelated reasons these utilities generally must make
<br /> traditionally think of markets functioning,but are rather highly wholesale purchases of power).This"deregulation"was intend-
<br /> complex and opaque administrative constructs.Such concerns ed to apply to the sale of electricity and related products,such
<br /> initially revolved around high and volatile prices.More recently, as energy management,beyond traditional utilities,and spur
<br /> the leading concerns have been the cost and effects of manda- competition.In fact,many utilities simply sold their generation
<br /> tory markets for capacity run by some RTOs.The American facilities to a parent holding company that continued to sell the
<br /> Public Power Association(Association or APPA)has developed majority of electricity purchased by the utility's customers.
<br /> detailed proposals for both long-and short-term solutions to the Meanwhile,at the federal level,RTOs were authorized by
<br /> problems in these markets.It has also developed a policy pro- FERC in 1996 to"remedy undue discrimination in access to the
<br /> posal to more immediately address issues with capacity markets. monopoly owned transmission wires that control whether and
<br /> In addition,the Association strongly supports congressional to whom electricity can be transported in interstate commerce."
<br /> oversight of Federal Energy Regulatory Commission(FERC) (FERC Order No. 888,April 24, 1996.) RTOs have function-
<br /> market policies including,but not limited to,the problems as- al control,but not ownership,of the transmission system in
<br /> sociated with capacity markets and lack of transparency in RTO their"footprint."They provide non-discriminatory access to
<br /> dealings. Congress needs to delve into the intricacies of FERC transmission lines to sellers and purchasers of electricity and
<br /> policies to ensure fairness. eliminate rate"pancaking"(charging multiple transmission fees
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