The four “specific and narrow” issues regarding wholesale power markets in Regional Transmission Organization regions that the Federal Energy Regulatory Commission has asked for comments on in its Advance Notice of Proposed Rulemaking (ANOPR) are mere “trees,” while FERC has “missed the surrounding forest fire,” the American Public Power Association said.

In comments filed on the ANOPR in FERC Docket Nos. RM07-19-000 and AD07-7-000, APPA asks FERC to address the “core issue” of whether RTO-run centralized markets are producing unjust and unreasonable rates in violation of the Federal Power Act (FPA).

While the Commission asserted in the ANOPR that Congress has mandated wholesale competition as federal policy, APPA argues this is no reason to forego examining RTO rates. APPA notes that FERC “conflates two very different things in the ANOPR: past Congressional actions it claims were intended to foster more competition in wholesale markets generally, and RTO market design.” Congress has never spoken by statute to the specific market designs that RTOs now use, and it even included anti-standard market design provisions in the legislative proposals that led to the Energy Policy Act of 2005. “The Commission therefore cannot point to Congress’ blessing of RTO market designs to avoid any searching inquiry of them,” APPA said.

APPA supplements in its comments FERC’s highly selective history of competition in the electric utility industry set out in the ANOPR, including with its comments an affidavit from Dr. Kenneth Rose, a consultant and senior fellow at Michigan State University’s Institute of Public Utilities.  Rose provides additional information to complete that history, and includes with his affidavit a study on the relationship between fuel prices and wholesale electricity prices. Rose concludes that in assessing the prices RTO-run centralized markets produce, FERC should not assume that high natural gas prices alone explain high electric power prices.

APPA also attaches to its comments a second affidavit from Edward Bodmer, an industry financial expert, demonstrating that certain incumbent sellers into the PJM market are making profits that are well above: 1) what they would make under a regulated cost-of-service pricing regime, and 2) what they would make in a competitive market. Other sellers have lost substantial sums and have either left the market or remained afloat due to administrative RTO pricing mechanisms. At the same time, retail consumers are paying substantially more for their power. APPA says “this overall state of affairs is inconsistent with competitive market outcomes.”

APPA said FERC’s ANOPR also overlooks research studies APPA previously conducted and filed in Docket No. AD07-7-000 that dealt in great detail with various aspects of RTO market design and performance, as well as many statements and comments made by public power systems and other load-side interests in that docket. All of these items in the AD07-7-000 record underscore the need to undertake a thorough review of RTO-run centralized markets and their potential for manipulation, APPA said.

“Taken together, APPA’s submittals, the statements of its members, and the statements and submittals of other customer-side interests cast substantial doubts on the Commission’s continued belief that in RTO markets, ‘wholesale competition benefits customers by providing more choice, spurring innovative services and technologies, shifting risk away from customers, improving efficiency, and providing incentives for cost reductions and for the construction of new resources,’” APPA said.

To respond to the ANOPR’s specific inquiries about the “four trees,” APPA in its comments relies in part on the responses to a survey it sent to its members:

Demand Response: APPA and its members have long supported rate designs and other measures that show retail customers the economic costs of their consumption decisions at the time they make them. But APPA fundamentally disagrees that the prices RTO-run centralized markets produce, and to which consumers would respond under the measures the Commission proposes, are just and reasonable. Therefore, exposing retail customers directly to these prices violates the FPA’s consumer protection mandate. APPA responds point by point to the Commission’s demand response proposals, and asks for clarification that the Commission does not by those proposals intend to interfere with the local decision-making of public power communities regarding retail access.

Long Term Power Contracting: APPA notes that the design and operation of RTO-run centralized markets have resulted in many stumbling blocks to a healthy bilateral market for long-term power supply in and near RTO regions. Among other things, APPA suggests that the Commission instruct the Market Monitoring Units (MMUs) of each RTO to perform in-depth studies of bilateral contracting practices in their regions, as a basis for recommendations to bolster long-term contracting.

Market Monitoring Policies: APPA believes that the specific form of an MMU (external, internal or hybrid) is less important than the market monitoring “rules of the road.” MMUs should have: the ability to report (without fear of retribution or loss of future income) directly to an RTO’s board and the Commission; sufficient resources and training to carry out their duties; full and complete access to RTO computer information systems and staff; and a clear mission to protect wholesale and retail customers from the exercise of market power and payment of unjust and unreasonable rates.

Responsiveness of RTOs: APPA strongly supports more direct access by RTO stakeholders to RTO boards. APPA comments on both the stakeholder advisory committee and hybrid board options, providing recommendations as to how to make each of them as effective as possible.