The most significant factor affecting future electric competition in the West is the sputtering development of the electric market structure. This structure, both physical and financial, is beset by its complex composition – a collection of entities comprising state and federal regulators, federal agencies, public power, municipalities, industry associations and private companies all simultaneously operating to meet instantaneous customer demand.
This structure requires an extraordinary amount of coordination and distinguishes electricity from any other commodity, making the development of a competitive electric wholesale market particularly difficult. Regulators – focused on the theme and promise of competition – did not fully consider the complexity of this process or the laws of physics and set up unworkable markets – or none at all.
This competitive theme camouflaged what, in substance, was increased and incomplete regulation. These regulatory efforts produced real world problems and reinforced movement toward even greater regulation. The difficulties of many companies and the higher prices charged to California consumers can be traced to the imperfect market structures California created and regulators are now trying to correct through re-regulation.
This re-regulation goes beyond California to most of the Western states. When compounded with the significant role public power plays in the West, the development of a robust competitive electric wholesale market will be slowed at best.
Public power owns approximately half of the generating and transmission resources in the Western grid. They are not regulated by the Federal Energy Regulatory Commission
(FERC) and therefore aren’t required to comply with federal regulations concerning competitive market structures or operations. Although they currently participate in the interstate market, they can do so without regulatory interference, making the development of independent transmission organizations particularly challenging.
The FERC should support regional transmission organizations (RTOs) such as our proposed WestConnect RTO. WestConnect, encompassing roughly the Southwest, recognizes regional differences and state authority and complies with the FERC’s requirements for RTOs. Public power is a part of it, and it is designed to interact effectively with other RTOs – addressing the so-called “seams” issue – while providing a firm structure to enhance the competitive generation market.
As long as incomplete or unworkable themes continue to mark our industry and competitive power markets, the threat of re-regulation and potential loss of customer choice will loom over every regulatory proceeding.
