A Critique of the Resource Adequacy Requirement Proposed in FERC's SMD NOPR
30 April 2003
By Hamish Fraser
The Federal Energy Regulatory Commission has stated that the development of structurally competitive electricity markets is its long-term goal but that because of two significant structural flaws, it cannot rely on the interaction of supply and demand in all instances to ensure that prices are competitive and thus just and reasonable. The structural flaws are the lack of price-responsive demand, and generation concentration in transmission-constrained load pockets. The Commission has prescribed a series of mitigation measures intended to compensate for the structural flaws it has identified. In this article, the author proffers that these proposals are only "band aids" that will mitigate the symptoms but not work toward solving the problems. Mr. Fraser further contends that any mitigation measures should be designed to sunset quickly, but the FERC's proposed Resource Adequacy Requirement (RAR) appears to have no exit strategy in place.
In this article Mr. Fraser discusses the three primary reasons why the RAR proposals will not work. First, it appears participants could circumvent these rules as presently written. Second, certain aspects of the proposal, such as the proposed consequence of forced curtailment of the load of a non-compliant load-serving entity, are unimplementable. And third, important parts of the rules could be ineffectual; for example, certain violations of the RAR would go unpenalized. Mr. Fraser argues that if FERC implements an RAR, it should not be the one proposed in the NOPR.
This article is republished with permission from Electricity Journal, Volume 16, Issue 3, March 2003, Copyright (c) 2003 Elsevier Science, Inc., http://www.elsevier.com/locate/tej. All rights reserved.
