FERC Filings
SUPPLEMENTAL COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: INVESTIGATION OF TERMS AND CONDITIONS OF PUBLIC UTILITY MARKET-BASED RATE AUTHORIZATIONS
THERE IS NO IDENTIFIED PROBLEM FOR THIS “SOLUTION”
At the technical conference, the Commission staff suggested that the refund condition proposed in the November 20th Order was intended only for short-term use, to address market power pending implementation of other mitigation measures, yet to be determined as part of standard market design. However, it is unclear where market power concerns might exist for this summer. According to NERC’s Ten Year Reliability Assessment, generation is expected to be adequate to cover demand in all regions of the country this summer, although reserve margins are predicted to be tight in certain areas. The Northeast is already served by well-developed and well-functioning markets (PJM, New York and New England), with well-established market monitoring protocols and market power mitigation measures in place. The entire Western U.S. is functioning under intensive market power mitigation procedures already put in place by the Commission. Furthermore, in the Southeast, utilities remain integrated and are largely making bundled retail sales from rate-based generating plants. In the Midwest, there are significant new generation supplies because the Commission allowed the market to function during the brief period of high prices several years ago. Parties were able to respond to the situation based on commercial practices through the exercise of contract rights.
In regions where centralized spot markets do not exist, wholesale electric transactions occur through bilateral contracts between sophisticated buyers in established markets, where numerous counter-parties and a variety of hedging mechanisms are available to deal with price volatility. Applying a refund condition to bilateral contracts is a very slippery slope. Contracts signed between sophisticated participants in well-established wholesale markets should not be subject to “buyer’s remorse” if the buyer later has second thoughts. Clearly a one-sided, open-ended opportunity for buyers to challenge contracts will create needless uncertainty and litigation, increasing costs and risk.