APPA and a wide range of consumer protection groups, on behalf of the
Campaign for Fair Electric Rates (CFER), submitted the following
statement for the record at a March 23 hearing on FERC oversight of
RTO-run wholesale electric markets.
Statement of the Campaign for Fair Electric Rates
Submitted for the Record of the Hearing
Of the Energy and Environment Subcommittee
Of the House Energy and Commerce Committee
Of the U.S. House of Representatives
Held on March 23, 2010
The Campaign for Fair Electric Rates (CFER) is an effort supported by
consumer and public interest groups, industrial organizations, public
power, and national trade associations urging that the Federal Energy
Regulatory Commission (FERC) reexamine and fix the wholesale market
structure of the Regional Transmission Operators (RTOs) covering much of
the country. The goal of the Campaign is to work with Congress to
ensure that FERC fulfills its obligation of providing just and
reasonable rates for consumers.
With deregulation of the electricity industry, came the promise from its
proponents that consumers would realize increased competition and
savings. Instead, the move to "competitive" energy markets has actually
raised costs for consumers. Not only have the RTO-operated markets not
produced rates that meet the just and reasonable standard, these markets
have also not improved the stability and reliability of supply,
transmission congestion, data transparency, market power, governance and
accountability, and other critical outcomes. Therefore, while consumers
must pay these ever higher costs, they have not received in return the
benefits of substantial new infrastructure investments and stable power
supply prices.
In spite of a large and growing amount of evidence of the problems and
shortcomings of these markets, FERC has done little to address them. In
late 2007, a joint motion was filed by a group of 41 diverse consumer
advocacy, business, and public power organizations that asked FERC to
undertake an investigation into whether RTO-run wholesale electricity
markets are producing just and reasonable wholesale power prices. FERC
subsequently rejected that motion.
This inaction on the part of the agency with responsibility to protect
consumers was one of the factors leading to the formation of the
Campaign for Fair Electric Rates in early 2008. FERC should be held
accountable to protect the financial interest of the consumer as well as
that of its other stakeholders.
While several organizations have put forward specific market reform
proposals to remedy these adverse outcomes described above, the Campaign
is simply asking that reforms to the wholesale electricity market be
implemented in accordance with the following specific criteria:
1.
A market structure that produces just and reasonable prices, is
fair to all market participants, and shares the benefits of factors such
as fuel diversity and operational efficiencies equitably between
consumers and suppliers.
2. Improved and more timely data transparency and accountability to
consumers.
3. A consumer-focused system that assures reliability and capacity
growth to meet their future electricity needs.
While we still believe that a comprehensive investigation into these
markets would be the best way to illuminate possible solutions and
address fundamental market reforms, the Campaign recognizes that a
number of immediate steps can be taken to provide consumers some relief.
One of these steps is to provide greater transparency on generator
offers to sell power in the RTO markets (often known as "bid data"), the
identities of specific generators making those bids, and the actual
costs of producing that power.
Data Transparency
In addition to a fundamentally flawed market design, one of the problems
contributing to the higher price of electricity in RTO regions is that
the RTO-run centralized wholesale electricity markets are operated by
the RTO under computer-facilitated auction mechanisms, the details of
which are generally known only to the RTOs and their market monitors.
Many of the inputs into the auction program, including generators'
offers to sell power, are not released for months and only then in
masked form. The actual costs for the generators to produce the power
they sell, and whether their bids to sell power are "mitigated" to
address market power concerns, are also known only to the RTOs and their
market monitors.
Unfortunately, the RTO-operated markets in the United States are among
the most conservative in their release of data as compared to other
countries with similar market structures. While the majority of the
RTOs in the U.S. post bid data only in masked form and after a delay of
at least three months, markets in some other countries are more
transparent. For example, the Australian electricity market requires
information disclosure the next operating day and this level of
transparency is viewed as a positive aspect of the market design,
including by private generators.
The timely release of market bid data with generating units identified,
along with the actual operating costs of those units, would greatly
discourage irregular pricing and market manipulation. However,
opponents of transparency in the wholesale electricity markets,
primarily generators selling into the market, often claim that such data
availability would encourage potential collusion among market
participants. This theory contradicts the results seen in other typical
commodity markets which encourage accurate and timely public reporting
of prices. When bidders know that their behavior is transparent, there
should be less collusion and market manipulation. Decreasing the delay
in publishing and unmasking the data should also make it easier to spot
potential problems earlier.
Even though FERC has the authority to require the release of the bid
data on a next day basis, as well as the generators' identities and
costs, the agency has declined to do so. In a recent order, FERC
instead chose to give the RTOs flexibility to determine whether to
release data in a shorter time frame than three months (or a longer time
of four months). It also left to the RTOs to propose whether to reveal
bidder identities, noting that they may "have perfectly rational reasons
to prefer delaying the release of offer and bid data, and to mask
identities"-the question "what are those reasons" needs to answered and
scrutinized. FERC needs to take a more active role in encouraging
transparency of bid and generator cost data, to ensure consumers are
paying "just and reasonable" rates and to protect against possible
market manipulation.
Conclusion
The Campaign for Fair Electric Rates and its allies, listed below,
appreciate the opportunity to submit this statement. As history has
indicated, problems in the wholesale electricity markets are not self
correcting. Numerous reports and recent press regarding episodes of
highly questionable market participant behavior show that the lack of
transparency in the wholesale electricity market has not served
consumers well. While increased data transparency is only part of the
solution, it could have a significant impact on the competitiveness of
these markets and the prices paid by electricity consumers in RTO
regions. On behalf of electricity consumers, the Campaign and its
members stand ready to assist in that effort in any way we can.
CFER Members and Allies Supporting the Statement:
1. American Forest and Paper Association
2. American Homeowners Grassroots Alliance
3. American Municipal Power
4. American Public Power Association
5. Association of Businesses Advocating Tariff Equity
6. Blue Ridge Power Agency
7. Citizen Power
8. Coalition of Midwest Transmission Customers
9. Consumer Federation of America
10. Consumers Union
11. Electricity Consumers Resource Council (ELCON)
12. Illinois Citizens Utility Board (CUB)
13. Indiana Industrial Energy Consumers, Inc.
14. Industrial Energy Users - Ohio
15. Kennebunk Light & Power District
16. Industrial Energy Consumers of America
17. Iowa Association of Municipal Utilities
18. Maryland Public Interest Research Group (PIRG)
19. Michigan Municipal Electric Association
20. Multiple Intervenors
21. Municipal Electric Utilities of Wisconsin
22. National Consumer Law Center, on behalf of our low-income
clients
23. NEPOOL Industrial Customer Coalition
24. New York Association of Public Power
25. Northeast Public Power Association
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
Ohio Hospital Association
Ohio Municipal Electric Association
Ohio Partners for Affordable Energy
PJM Industrial Customer Coalition
Portland Cement Association
Public Citizen
Public Power Association of New Jersey
Public Utility Law Project of New York, Inc. (PULP)
West Virginia Energy Users Group
Wisconsin Industrial Energy Group