FERC Filings
SUPPLEMENTAL COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: INVESTIGATION OF TERMS AND CONDITIONS OF PUBLIC UTILITY MARKET-BASED RATE AUTHORIZATIONS
EPSA IS WILLING TO ACCEPT INTERIM MARKET INTERVENTIONS DESPITE THE NEGATIVE CONSEQUENCES
EPSA would support a decision by the Commission, in an effort to alleviate concerns over unacceptable volatility in wholesale markets, to impose a $1,000/megawatt bid cap on all electricity sales for a defined period of time. While such a bid cap would dampen price signals for new investment, demand responsiveness and the development of hedging products, it will provide a backstop to limit price volatility this summer. However, the Commission should keep in mind that while below-market price caps may provide short-term comfort, they have profound long-term consequences, including a continued shortage of needed generation infrastructure, an inefficient mix of base-load and peaking resources, minimal demand responsiveness and a muted demand for risk management tools. It is well-established that price-responsive load is an important part of a well-functioning market—the Chairman’s Strawman even declares that demand response and technological innovations such as distributed generation can solve market power problems in a way that is more potent and lasting than mitigation rules. Furthermore, the Chairman states that “state and federal policies to promote price-responsive demand will help customers reveal their own true willingness to purchase energy, which may be the most potent market power mitigation measure.” While studies have shown that load responds to prices far above $1,000, the $1,000 bid cap, for an interim period, is a reasonable proxy for demand response.
In addition to a nationwide bid cap, the Commission should focus its attention on localized transmission constraints and the problem of “load pockets.” One interim solution to the problem of load pockets would be to consider approaches to motivate certain units to provide a call option at a competitively bid price. Such call options should be limited to an interim period.
Finally, if the Commission is committed to the idea that it must implement refunds, it is critically important that it define specific events that will trigger initiating refunds, and that any conditions be time-bound to ensure transactional finality. Otherwise, sellers could no longer rely on the finality of any transaction because of the risk of a later challenge by buyers or third parties. The risk of undertaking wholesale transactions would escalate dramatically, reducing or even eliminating market participants and market liquidity.