FERC Proposes New Market Rate Reports

By Published On: October 9, 2004

The Federal Energy Regulatory Commission this week proposed amending rules for market-based rate reporting to boost market oversight. The change announced October 6 would involve establishing guidelines that define types of events that trigger changes in reporting requirements, which must be reported within 30 days. ?This rule change would eliminate the current option of delaying reporting of such events until submission of market-based rate seller?s updated market power analysis,? FERC stated. There is a 30-day comment period for the proposed rule. The commission also revised its strategic plan to include the prompt recovery of prudent expenses to safeguard reliability, security, and safety. Federal regulators also say they will work with other agencies to improve infrastructure security and work with states to support programs for customer demand-side participation. Commission chair Pat Wood said during the October 6 meeting that reliability is a top priority for FERC. During the meeting, staff presented a report stating that the creation of regional transmission organizations (RTOs) is cost-effective. The report specifically estimated that an RTO would increase a customer?s bill by $2.31 a year on average. However, the report held little interest for the California Independent System Operator, since the agency filed to become a stand-alone RTO last June. While acknowledging that every potential RTO confronts varied circumstances that could affect costs in different ways, regional organizations provide ?real and tangible benefits,? Wood said. According to the report, studies show that the creation of RTOs lowers costs by between 0.5 percent and 2 percent. The report also cited the elimination of rate pancaking, regional planning, innovation, and lower generating costs as potential benefits of regional organizations. Though both start-up and operating costs are higher for RTOs, the report concludes that increased efficiency and economies of scale will allow for the specified benefits to materialize. The report made a distinction between two types of RTOs: ?Day One? and ?Day Two.? Under the former, the system operator?s functions ?include open-access transmission service, congestion management, ancillary services, and interregional planning,? with estimated initial investments of between $50 million and $70 million and operating costs in a similar range. ?Day Two? RTOs are similar but also involve ?the operation of a bid-based, security-constrained market with economic dispatch, locational pricing, and financial transmission rights or capacity markets,? as well as start-up and operating costs of more than double the amount required for ?Day One.? Commissioner Wood stated that ?Day Two? markets ?bring a lot of reliability.? The study included RTOs with higher costs but concluded that learning from those cases could help avoid higher costs down the road. As for those who have different cost estimates, commissioner Nora Brownell said, ?The public is disserved by misinformation from people who frankly do not want to restructure.? Given what it considers the low cost and established path of creating RTOs as reported, the commission hopes to facilitate discussions about RTOs with industry representatives and states.

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