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<br />~~ .. <br />~ w,~~ <br />~~' American Puhlic Power Association ^ <br />FEBRUARY 2007 <br />® FERC Authority to Ensure <br />~ Effective Wholesale Competition <br />^ <br />® Federal electricity policies should promote effective competition supplemented by effective <br /> regulation as necessary in wholesale electricity markers for the benefit of consumers and the <br /> well-being of our economy, and to do so in ways that recognize the regional diversity in those <br /> markets. "To do this, the Federal Energy Regulatory Commission (FERC) must use its new <br /> and existing authorities under the Federal Power Act to, among other things: allow market- <br />. based rate sales only by sellers that cannot. exercise market power, requiring cost-based rates <br /> and/or mitigation measures if needed; ensure transparent market information; remedy <br /> market power abuses in a timely manner; address the rising costs and accountability problems <br /> that exist in organized markets run by Regional Transmission Organizations (RTOs) and <br /> Independent System Operators (ISOs); and ensure long-term access to power supply and <br /> transmission rights in all regions. <br />Because of continuing problems that. members of the .Arrrerican Public Power ASSOC1aClon <br />(APPA) have experienced in regional wholesale power markets (especially markets in <br />RTO/ISO regions), APPA has instituted the Electric Market Reform Initiative (EMRI) to first <br />. assess and then address market failures and other serious challenges facing public power <br />systems across the country. In February of 2007, a series of studies commissioned by EMI2I <br />assessing the situation in RTO/ISO run markets were released. These studies indicate that. <br />there arc: indeed significant problems in these rnarkets that need to be addressed by FERC. <br />Congress can also play a role in addressing these problems by working with FERC to ensure <br />. that electricity markets are functioning properly. <br />~ '1 1 <br />Despite congressional and FERC actions intended to create effective competition in <br />wholesale electricity markets, the results have been disappointing. The Energy Policy Act of <br />. 1992 opened wholesale markets to independent power producers, which in turn underscored <br />the need for open access by these new market participants to the bulk transmission lines <br />largely owned by vertically integrated investor-owned utilities. In 1996, FERC issued its Open <br />Access Transmission Tariff (OATT) regulations to address this issue. Subsequently, FERC and <br />some electricity industry stakeholders pushed for an even more aggressive model that would <br />. structurally separate transmission from generation -that of RTOs or ISOs. (Please refer to <br />APPA's primer "Understanding Electricity Markets" for a more detailed discussion of <br />RTOs/ISOs, which may be found on APPA's website at v,~~w.APPAnet.org.) Several regions <br />adopted this model and instituted RTOs/ISOs to operate their bulk transmission systems. <br />Also during the 1990x, over 20 states restructured their retail electric markets. However, the <br />. trend of states restructuring their retail markets ended after the western electricity crisis of <br />2000-2001. <br />As RTOs/ISOs have developed, they have instituted centralized bid-based (i.e., auction) <br />markets that make transmission and generation available to the highest bidder. As these <br />www.APPAnet.org continued <br />