6.6. ERMUSR 01-11-2005 - Laserfiche WebLink

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organized markets to bid their marginal costs of production. In fact, bids into the market. at tunes can be quite inconsistent with that theor}~, instead being based on a more practical consideration of what. the market will bear. APPA members believe that the resulting prices, even with market price mitigation schemes in place, are oRen substantially higher than marginal costs ~~~ould produce. 'I he resulting higher prices not only affect hovers in the RTO's organized markets (and in longer term bilateral rnarketsj, but all transmission customers, because these prices are used to derive the Li~IPs that are then used to price transmission congestion. These cosl_s might be easier to bear if RTOs ~~~ere generating overall savings to APPA members located in RfOs and their electric consumers. APPA members, ho~~ever, are not seeing such savings. This results from a dumber of factors, including the implementation of the LIMP/FIR regime for pricing congestion, ~~~hich renders their current bilateral long- The bottom illle IS that term contract arrangements more difFicult and expensive. It is also RTOs have not resulted difficult or impossible to avoid participating in the RTO's spot IIl r8teredUCtI011S t0 markets, if only to clear supph~/demand imbalances, ~~~hich exposes APPA members to the ~°olatile pricing in those markets. Of course, the electric consumers some price increases in the last few years have been dt.~e to factors APPA members serve, beyond any R'f0's control, e.g., increases in fuel paces for nauzral 8nd the aSSOClated gas, coal and rail transportation. But the bottom line is that R~I'Os COStS keep rlSlltg. have not resulted in rate reductions to the electric consumers APPA members serve, and the associated costs keep rising. 'hhe very fact that RTOs must employ extensive mitigation measures and overall price caps in their markets calls into question the existence of efI~ective wholesale competition. All in all, it is not a pretty picture. R"I~Os must review their operations with both aline-tooth comb and a consumer orientation. ~~'hat RTO functions actually benefit consumers, and can they be carried out in a more cost-effective manners Do the costs of creating markets for every last possible product exceed the benefits that would accrue to end-use consumers from creating those markets? Would it be better to allow certain products to be contracted for bilaterally or to maintain cost-based pricing for those products, especially if the associated market power concerns are so severe that elaborate mitigation and monitoring schemes would he required These are the types of questions that an en tit~~ with accountability to customers would ask. RTOs must address all of these subjects to rein in their costs, and FF.I:C must make RTOs accountable Cor their costs to their customers and elecU°ic consumers. The Commission's September 1G, 2004, Notice of Inquiry in llockct No. R~104-12-000 is a tentative first step in this direction, but 16 Restructuring at the Crossroad: FERC Electric Policy Reconsidered