CAEM Submits Electricity Market Policy Recommendations to FTC

Offers Six Principles for Restructuring Efforts

Washington, DC:  The Center for the Advancement of Energy Markets today announced that it had submitted to the Federal Trade Commission (FTC) its recommendations on the FTCs inquiry into the Nation's experience to date with competitive retail access to electricity service. CAEM welcomes the FTCs involvement in the restructuring debate and believes that it is appropriate that the agency take a greater and more active role to craft competitive energy markets.

The Center's comments warned that the current developments in the electricity markets threaten to freeze the Nation's energy market rules into an unworkable "half-way" house of both regulation and competition, which could adversely affect wholesale and retail markets and market participants by:

• Jeopardizing the industry's ability to ensure reliable energy supply;
• Undermining the ability to manage price volatility in order to offer customers predictable, affordable prices; and
• Skewing investment decisions in needed infrastructure projects for years to come.

Such a result could jeopardize the enormous progress that has been made since the chronic energy shortages of the late 1960s and 1970s -- just as the benefits of retail liberalization of energy markets are beginning to be realized.

Said Center founder and President Ken Malloy, The Nation's energy markets are at a crossroads. It has become painfully clear that efforts to revise traditional utility-type markets for electricity and natural gas, while relatively successful in some areas, have created or exacerbated problems in others. We need to decide once and for all if competitive markets are better suited to increase consumer welfare over the long run than regulated markets. I say the answer is a resounding yes  and we need to devote more resources and intellectual capital to get there sooner rather than later.

The Center's comments proposed six principles that should guide retail restructuring plans:

1. Freedom to hire; freedom to fire: retail regulation should give customers the power to choose their energy suppliers, and give suppliers viable opportunities to serve their customers.
2. Freedom to use; freedom to release: consumers must be empowered through the availability of modern meters and real-time pricing, to profit from their willingness to conserve.
3. Freedom to access the energy delivery networks: customers and suppliers must be assured non-discriminatory access to all aspects of the network (including appropriate information resources), with far greater standardization of tie-in and operating rules than has traditionally been the case, and subject to active regulatory oversight.
4. Transform the power system from “islands” to “interstates”: there must be incentives that encourage and regulatory mechanisms that allow the integration of energy delivery networks on a regional and national basis.
5. Reward, don't penalize, efficient, low-emission usage of fuels to generate electricity: Today’s environmental rules tend to create a competitive preference for older, higher polluting facilities. Such competitive advantages for high emission sources should be eliminated. and the ability to trade emission credits expanded to allow more robust and liquid markets.
6. Encourage the development of price-risk management tools. Current pricing difficulties have been exacerbated by the lack of adequate price-risk management tools and the failure to use those tools that are available in the market. These problems should be remedied in all retail restructuring plans.

The FTC opened its inquiry recently in response to a request from the Chairman of the Energy and Commerce Committee of the United States House of Representatives, W. J. “Billy” Tauzin, and Representative Joe Barton, Chairman of the Subcommittee on Energy and Air Quality, who asked the Commission to examine various state retail competition programs and describe those features that appear to have resulted in consumer benefits and those that have not, as well as to look at the possible need for federal legislative or regulatory action.

The Center for the Advancement of Energy Markets is a not for profit corporation founded in May of 1999 to develop a market-oriented vision for solving the commercial and policy challenges posed by technological and policy changes affecting the Nation’s energy markets. The Center works with consumer, corporate and public policy decisionmakers to encourage the crafting of market-oriented solutions to energy problems.

For further information, contact Ken Malloy (703-250-1580 or kmalloy@caem.org) or Jamie Wimberly (202-483-4443 or jwimberly@caem.org). For questions regarding the comments themselves, questions may be directed to Philip M. Marston, Esq. (703-548-0154 or pmarston@caem.org). For email inquiries, please reference “FTC Comments” in the subject line.