FERC's Pat Wood questions $1000 wholesale price caps

FERC's Pat Wood questions $1000 wholesale price caps

FERC Chairman Pat Wood understands that for demand response to work, prices at times have to reach fairly high levels, he told the Eastern ISO-RTO conference.
     "It must be well understood in advance that for those energy markets to work in the long run and support needed investment, prices at times will have to reach very high levels," he said.
     Customers and regulators need to plan for these risks responsibly, he added, and regulators can't give a get-out-of-jail-free-card if the system is to work.
     One solution is for load serving entities to get long-term contracts.
     The chairman questioned the $1,000 price caps as being not high enough for the system to work.
     Demand response, said Wood, is "the golden dream, the silver bullet."
     "Nonetheless it's difficult to give up on capacity products in the absence of sufficient demand response, the vicious cycle continues," he added.
     He called it "a vicious, semi-regulated cycle."
     He sees the $1,000 wholesale price caps as not high enough to allow the system to work.
     The chairman recognized that capacity markets "are here. They're not the endgame.      They're a transition device we may need to bridge [the move] from bundled to unbundled across the country."
     Wood called the issue the last in SMD that was "fingered but not figured out."
     He's leaving that issue for the audience to work out and for him to read about in the Houston Chronicle.
     He'll move to Houston after his term is up June 30.
Wood praised the ISO-RTO concept as a unique way of squelching vertical market power in an industry that's largely privately owned.
     His favored way of dealing with market power is the independently owned grid firm as the end state, "but we have to start from where we are."
     The RTOs have not been free and customers have complained about the costs.
     In an effort to get good data FERC is going to revise its public cost reporting for utilities and RTOs by a NOPR due out soon.
     He focused the audience on the need to explore the benefits as well as costs of regional dispatch groups.
     DOE is studying costs and benefits and has found, Wood said, the benefits have been "under-examined."
     He cited "increased reliability of the system, improved generation and transmission investment efficiencies, facilitating and making risk products management tools available -- I couldn't agree more."
     He added:
     "Calculating the costs is easy," but estimating the benefits of risk management tools, evaluating the benefits of poor investments that were made, good choices that were avoided [and] risk shifting from customers to investors.
     What will he find in Houston?
     Wood checked the PUC website and learned he'll be able to choose among 16 power suppliers "including one enticing option that's 100% Green-E windpower."
     "Let freedom ring," he urged.

Originally published in Restructuring Today on May 16, 2005

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