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StaffConcept - CONCEPT DISCUSSION PAPER FOR AN ELECTRIC...

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1 CONCEPT DISCUSSION PAPER FOR AN ELECTRIC INDUSTRY TRANSMISSION AND MARKET RULE by the Staff of the Federal Energy Regulatory Commission December 17, 2001 This paper represents the views of the FERC Staff. It is intended to facilitate discussion on RTO policy regarding a standard market design. It discusses questions in two areas: 1. What is our vision for the future of the electric industry, say, 5 or 10 years from now? 2. What functions must be performed to make this vision a reality? In discussing these issues, the paper also addresses issues raised by the Electronic Scheduling Collaborative (ESC) regarding market standardization. 1. WHAT IS OUR VISION FOR THE FUTURE OF THE ELECTRIC INDUSTRY, SAY, 5 OR 10 YEARS FROM NOW? By 2006-2011, electricity will be purchased and sold in both wholesale and eligible retail markets by any willing creditworthy participant. Markets will clear with competitive prices. Competitive prices will function so as to ration existing supplies efficiently in the short run and to elicit adequate technology and infrastructure in the long run, so that there will be no involuntary curtailment of service at market prices. Electricity markets will be both transparent and liquid, and market participants will have opportunities to hedge risks. Although regulation of monopoly service providers will continue, even these monopolies will feel some pressure of competitive market forces. Wholesale electricity markets will have the following characteristics: Wholesale energy-related products, such as transmission and power, will be fully unbundled to the extent that there is no monopoly advantage left due to vertical integration. In other words, anyone will be able to purchase the products and services necessary to buy or sell "delivered" electric energy for themselves, or as a service provider for others.
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2 There will be relatively few barriers to entry and exit, and those that do exist will be as low as is reasonably possible to obtain. There will be no significant barriers to innovation. Market participants will not be able to exercise market power in generation or transmission markets. Ownership or control of physical assets will not convey (will not be allowed to convey) significant market power. Market institutions will exist that maintain market transparency and keep transactions costs low, while affording liquidity for both the short-term and long- term markets. Good market-driven price signals will exist to support well-planned investment in new generation and new transmission when and where they are needed, and in a timely manner (before shortages occur). Buyers will receive accurate and timely price signals and will have the ability to react to them, so that they can make rational and efficient choices in the amount of energy they consume at any given point in time. As a result, demand will be responsive to market price changes.
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