5.4. ERMUSR 03-20-2007 - Laserfiche WebLink

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RI'Os/ISOs have fully implemented their bid-based markets over the last several years, costs have substantially increased, the ability of buyers to obtainlong-term sources of power supply has waned and the bureaucracies of the RTOs/ISOs have grown. At the same time, in both RTO and non-RTO regions, many believe that certain stakeholders have exercised market power and have engaged in market manipulation that has not. been adequately addressed either by the RTOs/ISOs or by the FERC. Iiz the last few years, FERC has begun to recognize that greater oversight of RTOs/ISOs and the markets they run is needed. One example of FERC's increased scrutiny is the December 16, 2005 Final Rule on RTO, ISO and public utility (investor-owned utility) accounting, which APPA supported as a first step toward ensuring greater RTO cost effectiveness and accountability to customers. However, FERC needs to exercise even more rigorous oversight of RTOs and ISOs and the markets they run. FERC must also complete the implementation proceedings needed for net-buyer utilities in RTO regions to access long-term power supply sources using long-term financial transmission rights, as contemplated in the Energy Policy Act of 2005 (EPAct 2005). Following is an overview of several of the major initiatives FERC has undertaken to address some of the problems in wholesale electricity markets. Market Based Rates and Mitigation of Generation Market Power In 2004, FERC adopted two new generation market power "screens" (criteria used to determine whether or not a generator has market power), and is applying those screens on an interim basis to all public utilities with market-based rate authority. ("Public utility" is the term for investor-owned, for-profit utilities and other generation sellers regulated by FERC under the Federal Power Act (FPA), as opposed to the "publicly-owned" not-for-profit utilities comprising APPA's membership.) Under FERC's interim tnarket-based rate policy, investor- owned utilities, power marketers, and independent power producers that fail either of FERC's interim generation market power screens zntzst either provide more detailed analyses to prove that they do not have generation market power or propose mitigation measures to ensure they cannot exercise such market power. Sellers that fail the screens and cannot show FERC they do not have market power must mitigate their rates or sell wholesale energy at cost-based rates instead of market-based rates. In May of 2006, FERC issued a notice of proposed rulemaking (NOPR) to reexamine its policies for granting public utilities authority to make wholesale sales of electric energy, capacity or ancillary services at market-based rates, as opposed to cost-based rates (which allows for sales based on the actual cost of the power supply plus a reasonable profit margin). APPA has filed comments with FERC on the NOPR, noting that the Commission should "err on the side of caution" in allowing sellers to charge market-based rates because the risk of market power is greater in the electricity market than in other markets, and the ability to sell at these rates is "a privilege, not an entitlement." FERC is currently reviewing all of the comments and will issue new market-based rate rules in 2007. Strengthening the Open Access Transmission Tariff (OATT) In May 2006, FERC issued a NOPR to consider reforms to the OATT regulations issued in 1996 in Order No. 888. FERC believes a number of changes may be needed to ensure open access tariffs fully mitigate the transmission market power of FERC-regulated public utilities. The Order No. 888 OATT is used outside of RTO regions, and attempts to ensure chat access q~~,'; www.APPAnet.org continued