Power markets need certainty like never before, competitive suppliers tell federal regulators

Washington, D.C., Nov. 18, 2002 – There has never been a more critical time to resolve doubts about the future of wholesale power markets and implement as many common characteristics as possible among various regions, according to a federal filing Friday by the Electric Power Supply Association (EPSA) and other power supplier groups.

“It would be a mistake for policy-makers at all levels to become complacent with a near-term excess of generating capacity, built on the promise of fair competition and market certainty,” said Electric Power Supply Association (EPSA) President Lynne H. Church. “If the Federal Energy Regulatory Commission (FERC) fails to act in an expeditious way, it may be sowing the seeds of a much more serious power crisis down the road, with developers financially unable to respond to future demand projections.”

“Even now, with Ontario as just one example, we’re beginning to see the lessons of the California power crisis ignored,” Church said. “This political whipsawing that accompanies ever-changing regimes is a clear recipe for more disaster.”

In an initial 100-page joint filing on FERC’s SMD initiative, EPSA and a broad array of regional allies told the commission it is on firm legal ground and has “no reason not to move quickly to adopt a final rule.” Of utmost importance, the associations said, is the commission’s insistence on a single, non-discriminatory means for buyers and sellers to access the nation’s interstate power grid.

“Through a single tariff that applies the same terms and conditions to all wholesale transmission facilities, transmission-owning utilities will no longer have an ability to favor their own generation resources,” according to the comments. “With the (network access service) tariff in place, the short-term markets can flourish and ensure the liquidity, transparency and risk-management tools needed for robust markets.”

The associations said the proposal also contains a number of other critical components. These include: the development of financially binding spot markets, supported by a proven market-based approach to determining transmission congestion costs; minimum requirements for market design and operation to help facilitate transactions; independent operation of the grid and markets to more properly align market incentives; and a long-term adequacy program that, if properly designed, ensures adequate reserves.

The filing also identified a number of areas where the commission’s proposal needs to be improved.

“As proposed, there is a high likelihood that price mitigation in the short-term markets will undercut the resource adequacy requirements, discouraging load-serving entities from signing the longer-term contracts needed to support a resource adequacy requirement, and thereby forestalling the necessary investment in new generation or in maintaining the viability of existing generation,” Church said.

The associations also expressed concerns about the nature of the SMD’s market mitigation components.

“As was proven in California over the past two years, intrusive price intervention distorts price signals, which then inhibits market operations, delays investment in needed infrastructure and hampers the transition to fully competitive markets,” according to the filing. “For this reason, a resource adequacy program is an integral and necessary component for any market-mitigation strategy.”

EPSA and the other power supplier groups urged the commission to remedy such shortcomings and then adopt the SMD as a final rule as quickly as possible.

A complete copy of the 100-page filing will be available on the EPSA Web site at http://www.epsa.org.

EPSA is the national trade association representing competitive power suppliers, including independent power producers, merchant generators and power marketers. These suppliers, who account for more than a third of the nation’s installed generating capacity, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.


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