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- Title
TIME FOR A DAY 1.5 MARKET: A PROPOSAL TO REFORM RTO-RUN CENTRALIZED WHOLESALE ELECTRICITY MARKETS.
- Authors
Kelly, Susan; Caplan, Elise
- Abstract
This article presents a proposal to reform the current "Day-Two" electricity markets operated by certain regional transmission organizations (RTOs). The proposed reforms are intended to restructure these RTOs to maintain their demonstrated consumer and economic benefits, which we think arise primarily from RTOs' "Day-One" transmission-related functions (including the elimination of utility-by-utility transmission rate "pancaking" in favor of a region-wide rate structure that better supports a regional power supply market). At the same time, our proposed reforms seek to deemphasize the role of RTO- run centralized power supply markets and provide support for a stronger bilateral power supply contracting regime. Since eliminating the centralized dispatch and financial transmission rights that RTOs currently employ could create significant transitional difficulties for many load-serving entities (LSEs), however, this proposal incorporates features of both the Day-One and Day-Two models. Accordingly, we have dubbed our proposal the "Day 1.5" RTO model. The central goals of our proposal are to moderate and reduce volatility in electric power prices and to reduce the opportunities for gaming available in the current RTO-run spot markets, while preserving the acknowledged regional transmission benefits that RTOs provide and promoting a more stable electricity supply environment that might better support development of new generation and demand response resources. We hope to accomplish these goals without the need for locational capacity markets, elimination of price caps on RTO-run short-term energy market prices, or other such mechanisms that we fear will further increase prices to consumers without concomitant benefits. Consumers are already very likely to face increased electricity prices in the coming years, given increasing infrastructure requirements, rising fuel and construction costs, and the need to comply with future carbon regulation. Our proposal is an attempt to ensure that consumers get fair value for their dollar in the form of needed new infrastructure and reliable service. This article is divided into five sections, including this synopsis. The second section provides an introduction to the issues, including a review of the major changes in wholesale electricity markets over the past fifteen years and a description of the basic features of RTOs. The third section considers the structural requirements for competitive wholesale power markets and examines whether competition has in fact been achieved in RTO-run markets, reviewing the results of a recent set of studies commissioned by the American Public Power Association (APPA) examining various aspects of these markets. The fourth section summarizes the Federal Energy Regulatory Commission's (FERC) statutory responsibility to ensure just and reasonable wholesale electric rates. The fifth and final section presents possible features of a Day 1.5 RTO market model.
- Subjects
ELECTRICITY; ELECTRIC utilities; POWER resources; ELECTRIC power; CONSUMERS; POWER transmission; PRICES; TRANSMISSION mechanism (Monetary policy); UNITED States. Federal Energy Regulatory Commission
- Publication
Energy Law Journal, 2008, Vol 29, Issue 2, p491
- ISSN
0270-9163
- Publication type
Article