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'Unwarranted' Deference to Regions Could Hurt Electricity Consumers, FTC Says in Comments to FERC on Wholesale Power Market Design

The Federal Trade Commission (FTC) has warned that giving too much deference to state and regional interests, including discriminatory “native load” preferences, will lead to harmful variations in market design both within and between regional wholesale electricity markets. In comments submitted to the Federal Energy Regulatory Commission (FERC) on June 27, 2003, the FTC noted that such variations could threaten many of the benefits competition brings consumers.

“Unwarranted discrepancies in market design between regions may diminish economies of scale and geographic scope for multi-region suppliers, while providing little benefit to consumers,” staff from the FTC’s Bureau of Economics and the Office of General Counsel said. Specifically, the FTC staff was referring to the fact that “pancaked” rates for transmission users supplying power across more than one region, inconsistent methodologies for calculating available transmission capacity, or transfer capability, and discriminatory transmission line-loading relief (TLR) policies have all increased costs for consumers by precluding their access to the lowest cost sources of supply.

The filing cautioned against “native load” preferences that are biased in favor of incumbent transmission users who own both generation and the transmission system in regional markets that do not have independent transmission operations. Regarding the TLR issue, FTC staff said, “Bias in curtailment could dampen or eliminate the investment incentives of entrants that are more efficient than incumbent firms. This would harm customers by leaving more of the market supplied by higher-priced suppliers.”

The FTC comments also noted that electricity suppliers who operate in multiple geographic regions will face increased operating and marketing costs when there are significant differences in market rules for those regions. “When regulatory costs disproportionately disadvantage more efficient firms, higher-cost firms continue to serve the market, and customers are likely to face higher prices than would otherwise prevail.”

The FTC, an independent administrative agency whose primary mission is to safeguard consumer interests, urged FERC to continue its progress toward competitive wholesale markets. “The FTC staff has supported efforts by FERC and the states to introduce increased competition in electric power markets where appropriate, because effective competition is likely to benefit customers through lower prices, improved reliability, increased customer choice of products and services, and greater innovation.”

The filing can be found at www.ferc.gov in Docket No. RM01-12-000 or contact EPSA’s Douglas Austin at daustin@epsa.org, or (202) 628-8200.