Capital Caveats to FERC's New Drive for Market Reform

Abstract

A major new shift in the shape of power deregulation is underway. After the initial recoil to the California meltdown, there now is a relatively informed effort by FERC to learn from, and help avoid, recurrences of the experience. The government is planning to inject itself extensively to assure that „free” markets really produce competitive results. However, the interim period, while these responsive innovations are firmed up, may be full of uncertainties. Federal regulators are about to move in three areas: 1) when market-based rates may be charged by merchant plants as well as what information will be required; 2) how the governance of power transmission can be restructured so that locally imposed physical and economic constraints do not have adverse consumer impacts; and 3) how to rationalize „ring-fencing,” which consists of methods to segregate the risk of state-regulated assets from those operating in the federally regulated wholesale markets.