Energy openness sought

Federal regulator proposes greater scrutiny of electricity market

June 22, 2007|By Paul Adams | Paul Adams,Sun reporter

The wholesale electricity market that determines Mid-Atlantic power prices will be required to operate more in the open and submit to scrutiny from independent watchdogs under rules proposed by the Federal Energy Regulatory Commission yesterday.

The changes being considered could have a direct impact on Maryland, where the Public Service Commission wants to probe whether certain wholesale market rules are hurting consumers.

Baltimore Gas and Electric Co. customers were hit with a 50 percent rate increase this month that critics say is largely a result of deregulation rules that require utilities to buy power from wholesale suppliers.

A chief complaint among utility commissions in Maryland and elsewhere is that wholesale markets operate too secretively, making it hard for regulators to ensure that consumers are getting a fair price and that power suppliers are not manipulating the system to stifle competition and gain profits.

The proposed rules will require grid operators to release certain market data to utility commissions if they ask for it, potentially streamlining what is now a cumbersome process that critics say takes too long to be of any use.

"We just need to do a better job of monitoring the wholesale market to understand its impact on Maryland ratepayers," said Steven B. Larsen, PSC chairman.

Deregulation took substantial authority over power prices out of states' hands and placed it with FERC, which oversees wholesale markets.

The federal agency's action yesterday appears aimed at answering critics who have raised questions about the competitiveness and oversight of those markets.

Those fears were heightened two months ago when Joseph E. Bowring, the chief market watchdog for the Mid-Atlantic power grid, testified to FERC that his independence had been compromised by his bosses at the PJM Interconnection. PJM operates the electric grid and wholesale power market for 13 states, including Maryland and the District of Columbia.

Bowring told regulators that PJM officials had blocked him from issuing critical reports and, on one occasion, prevented him from reporting to FERC that an unidentified power generator had earned $20 million in excess payments as a result of too little competition.

In its proposed rules, FERC wants Bowring and other watchdogs charged with ensuring that electricity markets are not being unfairly manipulated by power companies to become independent from grid operators.

The measure is one state utility commissioners and some consumer groups have been requesting for years without success. FERC is asking industry officials for comment on the proposals.

"I think this is a good step," said Scott Potter, a senior research associate with the National Regulatory Research Institute at Ohio State University.

Potter said FERC should go further and give market monitors greater authority to punish power companies that engage in uncompetitive behavior that hurts consumers.

The rules proposed yesterday would require monitors to report violations to FERC, which has jurisdiction over wholesale energy markets. The watchdogs also would be required to hold regular conference calls with FERC staff and state utility regulators to discuss concerns.

Of equal interest to state regulators are proposed rules that would provide greater access to market data. Such information would provide state officials with a glimpse into how much energy companies are bidding on various power contracts, among other things.

"One aspect of this is that it puts many more cops on the beat," said Charles Gray, executive director of the National Association of Regulatory Utility Commissioners.

The information could be useful to regulators in states as they oversee power purchases by utilities. As part of deregulation, BGE and other utilities buy their power through a wholesale auction process overseen by state regulators.

More market data could help regulators design better auctions, leading to lower prices, some argue. At the same time, it could help regulators do a better job of preventing utilities from gaming the system.

In Maryland, critics of deregulation have raised questions about whether Constellation Energy Group Inc., BGE's corporate parent, is earning excessive profits from its power plants. Constellation took title to BGE's former power plants as part of deregulation and is the utility's largest supplier of electricity.

Lawmakers have ordered the PSC to examine Constellation's profits from its Maryland power plants. That data has historically been difficult to get, but some see FERC's proposed rules as a small step toward making such information easier to piece together through public sources.

Constellation denies it is earning an excess return on its Maryland power plants. But like most power generators, it has argued that sensitive market data should be kept secret because it would aid competitors.

FERC has historically sided with power companies when it comes to releasing detailed data on power transactions. The rules proposed yesterday would keep the identities of market players secret and require a lag time before the data is released. Critics say that doesn't go far enough to prevent abuses.

"If we're going to get to a place where wholesale markets operate without manipulation, we need transparency," said Potter, the Ohio regulatory researcher.

FERC issued its request for industry comment on the same day that members of Congress were asking the General Accountability Office to study whether PJM and other regional grid operators are delivering benefits to consumers.

Sens. Joseph I. Lieberman, an independent from Connecticut, and Susan M. Collins, a Maine Republican, raised their concerns in a letter to the agency.

paul.adams@baltsun.com

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