Concerns about SMD

Summary of Concerns with FERC’S Proposed

Standard Market Design (SMD)

 

·          Forces all electric utilities throughout the US into a risky restructuring experiment

 

Utilities must turn over all transmission assets to an “independent transmission provider” regulated by FERC.  Utilities and state and local regulators would lose their ability to ensure that firm retail loads are served reliably.  Utilities must compete for access to transmission that was built to serve their customers’ needs, reducing reliability, increasing cost, and possibly discouraging utilities from investing in new transmission.  Extremely complex day-ahead and real-time and auction markets are unnecessary and overly expensive in many parts of the US.  No competitive model for the wholesale market has yet been proven to work, especially when supplies are tight.

 

 

·          Creates new problems with market power

 

FERC’s approach creates numerous new gaming opportunities for parties that can monopolize new energy and transmission markets.

 

 

·          Exposes consumers to volatile “boom and bust” cycles of generation investment

 

Utilities and regulators are generally expected to rely on “independent power producers” or “merchant generation” to meet new resource needs.  The all-merchant-plant approach relies on the notion that new plants will be built when justified by short term market prices.  Unfortunately, we have seen that this approach does not ensure new capacity is built in advance of dire need.  Also, the market capitalization of merchant generators has fallen 86 percent in the last fourteen months, and many merchant power plants have been cancelled.  The financial resources of utilities may be needed to get new capacity built, but FERC proposed rules create serious financial risks for utilities contemplating such commitments.

 

 

·          Shifts many elements of retail rate-setting from states to FERC

 

Under current law, all retail electric rates (and terms and conditions of service) are set by state regulators under state law.  Many components of retail rates (new generation, new transmission, treatment of demand-side bidding) are shifted entirely to FERC, which either means pre-emption of state authority or conflict that leads to investment paralysis.

 

 

·          Undermines new utility resource investments

 

Numerous features of SMD create cost recovery uncertainties for traditional utility investments in new supply, energy efficiency, and transmission.  In each case, utilities may be required by FERC to take actions that are in conflict with state and local regulations and statutes.  Those conflicts and uncertainties are more likely to lead to under-investment.

Alliance of State Leaders Protecting Electricity Consumers