Comment Filed on Competition Task Force Draft Report to Congress

Lynne Kiesling

On Friday the Mercatus Center filed a public interest comment, written by myself and Michael Giberson (the full comment in pdf form is at the link at the bottom of the page), on the Electric Energy Market Competition Task Force Draft Report to Congress.

The Draft Report to Congress on Competition in the Wholesale and Retail Markets for Electric Energy (Report) provides a high quality overview of the current state of wholesale and retail electric competition in the United States. The Report describes well both the current status of restructuring and the continuing uncertainty about the regulatory rules that will govern the industry in the future. The Report also usefully draws out the critical nature of the link between retail and wholesale markets, and explains how retail rate policies cause that link to malfunction.

While the Report accomplishes much of the task it was assigned, it misses two points, both closely connected to the malfunctioning retail-wholesale market link:

* The most significant shortcoming of the Report is a failure to recognize that advances in electronics and communication systems are dramatically reshaping the potential for demand response. As policymakers have repeatedly recognized, activating consumer demand will encourage conservation, reduce consumer bills, mitigate market power in wholesale and retail markets, and enhance power system reliability. The Report should emphasize that the technology is increasingly available to support active consumer participation in markets, and such participation would promote retail and wholesale competition.

* A second significant shortcoming of the Report concerns the too-brief discussion of capacity payment mechanisms. The Report overlooks the problematic justifications and troubled history of capacity payments in the electric power markets operated by Regional Transmission Organizations and Independent System Operators. The underlying market problems that produce the justification for capacity markets result directly from the lack of active consumer participation in markets. However, recent federal regulatory action appears oriented toward permanently enshrining capacity payment systems in RTO market designs. Given the growing potential for active consumer participation in markets, these capacity payment constructs are likely to become just another further regulatory impediment to the emergence of retail competition. The Report should highlight the potential of advances in technology to activate demand and complete the missing link between wholesale and retail markets as an alternative to continued exploration of capacity payment mechanisms.

Addressing these two deficiencies in the Report will help present a full picture of the state of retail and wholesale competition in power markets.

3 thoughts on “Comment Filed on Competition Task Force Draft Report to Congress

  1. Is there a fear factor that is preventing the electrical distribution monitoring systems from being implemented at the consumer level? I can imagine the nightmare scenarios that the executives in the power industry envision: system failures out in the field causing mayhem, customers being able to manipulate the monitors to their benefit, luddites wanting 99.9% reliability/uptime before even considering implementation.

    There is some interesting technology available for home networks that utilizes the power lines in a house. If the power companies could ever gain a significant toehold into delivering ISP services, then implementing “smart” meters would be fairly simple.

  2. Many Views on Competition in Electric Energy Markets

    Michael Giberson As Lynne noted, we have written a comment on the Electric Energy Market Competition Task Force Draft Report to Congress. [ Report PDF. ] About 45 comments have been posted online at FERC, and naturally I am curious…

  3. I agree that the technology is available and improving and becoming more econmical. That, however, is not the issue.

    DSM has not achieved its potential largely because the customers have not viewed the inconvenience as being worth the cost savings, which have always been limited to a fraction of the real savings. Until regulators are willing to allow residential customers to be exposed to the full range of market prices and customers are offered the full savings their demand shifting produces, the full potential of DSM will not be realized. Even then, the demand shifting may well be sub-optimal, if customers perceive that the inconvenience is not worth the savings.

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