News 
2007
| Statement: June 21, 2007 | 
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| Docket Nos: AD07-7-000 and RM07-19-000 | |
Chairman Joseph T. Kelliher's statement on wholesale competition in regions with organized electric markets
"One of the principal focuses of Commission electric regulatory policy currently is
strengthening competition in wholesale power markets. This order proposes a
package of important regulatory reforms designed to promote effective competition.
Competition is national policy in wholesale power markets. That was reaffirmed by
the Energy Policy Act of 2005, which was the third major federal law in the past 25
years to embrace competition as national policy.
In the wake of the Energy Policy Act, the central question facing the Commission is
not whether competition is sound policy. That question has been asked and
answered three times by Congress, as recently as two years ago.
The central question is what can the Commission do to make wholesale markets
more competitive? We act to answer that question today.
I want to draw the distinction between competition and deregulation. Deregulation
is not and has never been Commission policy or federal policy with respect to
wholesale power markets. Deregulation is the absence of regulation, and wholesale
markets and wholesale power sales have never been unregulated. The character of
our regulation has changed, but we never stopped regulating.
It is also important to recognize that the Commission has never relied solely on
competition to assure just and reasonable wholesale power prices. Instead, we rely
on a mixture of competition and regulation. Today, we propose to change the
mixture between competition and regulation with our package of reforms.
The wholesale power market is a dynamic market, subject to rapid and significant
changes. For that reason, the Commission must constantly consider changes in
regulatory policy in reaction to market changes.
Commission policy must reflect the realities of the markets we regulate. Wholesale
power markets are not national, they are regional in nature, and there are significant
differences among the regions.
One difference is structural. There are two basic structures, the organized markets
and the bilateral markets. These structural differences are likely to persist. I see no
reason why the Commission should attempt to impose a preferred market structure
on wholesale markets. Both the bilateral and organized market structures can
support competitive markets. Organized and bilateral markets have different
strengths and weaknesses, but both face challenges.
Competition remains national policy, yet we have different wholesale market
structures. To me, that means we have a duty to act to strengthen competitive
markets in both the organized and bilateral markets.
Earlier this year, we initiated a high level review of the state of competitive
wholesale power markets in both the bilateral and organized markets. We invited
the participation of a broad range of experts and stakeholders. We identified the
challenges facing competitive wholesale markets, and reviewed workable solutions
that are within the Commission's jurisdiction.
This competition review is a major initiative and a top personal priority. But it is only
the latest step in a continuing process of regulatory reform. A few months ago, we
took another major step when we reformed the Open Access Transmission Tariff
(OATT). The primary goal of OATT reform was to prevent undue discrimination and
preference in transmission service. But it had an important secondary goal of
promoting competition, especially in bilateral markets.
The package of reforms we propose today concentrate on the organized markets.
That is not because we think there are no competitive challenges in the bilateral
markets - there are. It is because we are already acting to address those challenges
in other proceedings, namely OATT reform and our collaborative efforts with our
state colleagues on competitive solicitation and market access. Bilateral markets
have their own challenges, in particular transmission access, generation entry,
market access, and market transparency.
In this proceeding we propose reforms that address the distinct challenges that face
organized markets. We need more effective demand response. The lack of effective
demand response results in higher wholesale prices, greater price volatility, and
larger generation capacity additions. Competitive wholesale markets require a
strong energy infrastructure, and long term contracts are an important tool to
achieve and maintain a strong infrastructure. We advance specific proposals in both
these areas, and seek comment on a number of key issues.
There is also a need to clarify Commission policies with respect to market monitoring
units in the organized markets. Up to this point, the Commission has had a very
flexible approach towards market monitoring. We have accumulated enough
experience to make decisions and properly define the role of market monitoring units.
It is important to recognize that it is the Commission's duty to police wholesale
power markets and prevent market manipulation and the exercise of market power.
It is our responsibility to prevent unjust and unreasonable rates. In the wake of the
Energy Policy Act, we now have enforcement authority to properly police wholesale
markets and are exercising that new authority. Market monitors can play an
important supporting role as we discharge our legal duties.
The Commission held a conference on April 5 to examine the role and structure of
market monitoring units. There was a broad recognition of the need for sufficient
independence, as well as the need for accountability. The ANOPR proposes specific
reforms to assure adequate independence by market monitoring units. We also
propose greater information sharing to state commissions.
Another proposed reform relates to RTO governance and accountability. It is
important that RTOs and independent system operators (ISOs) have good
governance. The Commission has placed great emphasis on independence by RTO
and ISO boards, and there is no doubt RTO boards are now independent of market
participants. However, there are persistent questions as to whether members and
stakeholders have access to RTO boards, and whether RTO boards and management
are sufficiently responsive to the concerns of members and stakeholders.
In order to address these concerns, the ANOPR proposes to require some form of
direct access to RTO boards by members and stakeholders. We do not prescribe the
exact form this access may take, and recognize that there is more than one way to
assure this access. The ANOPR proposes two approaches that could provide such
access, the hybrid board and a board advisory committee composed of member
representatives. We seek comment on these approaches.
We recognize there is more than one way to assure RTO accountability and are open to other approaches.
While competition remains national policy, we recognize that competitive markets
face challenges. My personal view is that competition is the correct policy, and that
competition can deliver the greatest benefits to consumers - when combined with
effective regulation. We are acting to establish the best possible mixture of
regulation and competition on behalf of customers."
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