House Committee Chairs Say RTO Markets "Underachieve"; Amount to "Mere Administrative Constructs"; Will Examine Effectiveness of RTO Markets in Changing Power Industry

"[T]he competitive electricity markets -- particularly the organized wholesale markets -- continue to underachieve," when it comes to addressing the changing electricity industry, U.S. House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Energy and Power Subcommittee Chairman Ed Whitfield (R-KY) wrote in a letter to FERC Chairman Norman Bay in a letter initiating a review of the markets in light of industry changes.

Upton and Whitfield said the RTO markets underachieve as, "a result of pervasive and persistent problems within their respective regulatory frameworks."

"We have previously communicated many of these concerns to the Commission, ranging from an inability to provide accurate price signals to a lack of fairness and transparency in governance structures and stakeholder processes. Despite continued best efforts by the Commission and among the independent system operators (ISOs) and regional transmission organizations (RTOs) to address these issues and adapt to changing market conditions, the restructured wholesale markets have, in many ways, become mere administrative constructs that are continuously 'tweaked' through the regulatory process. Such inefficiencies have impeded the efficient deployment of capital and prevented consumers from realizing the potential benefits that competitive markets should yield. With some of the organized markets seemingly ill-equipped, and in the absence of comprehensive reform, it is difficult to see how these markets will be able to adapt to new market forces, technology advances, changing consumer expectations, and shifts in the regulatory and policy landscapes," Upton and Whitfield wrote

Upton and Whitfield commented, "The electricity sector is transforming due to many shifts driven by market, regulatory, and technological developments. All the while, consumer expectations continue to evolve on how electricity is generated, transmitted, and distributed around the country. Electricity is vital to the country’s economic and national security, and as the market advances, it is imperative that we are prepared for 21st century challenges. We look forward to closely examining these issues and having a formal hearing in the coming months."

"Given the evolution of the electricity sector and the attendant challenges and opportunities presented, we believe participants in the electricity sector, as well as consumers, may be better served by Congress - rather than the courts - taking a more comprehensive review on many of these issues," Upton and Whitfield wrote

Upton and Whitfield noted recent court cases (EPSA-demand response, Talen-state capacity) in which the Supreme Court narrowly affirmed FERC's jurisdiction over matters "directly affecting" wholesale rates, but in which the Court emphasized the limited applicability of its holdings, "carefully choosing not to opine on whether other products, technologies, or programs may 'directly affect' wholesale markets."

"But rather than providing greater clarity to future jurisdictional questions, we are concerned that, in an evolving electricity sector, distinguishing between wholesale and retail will become increasingly difficult, resulting perhaps in more litigation of this nature," Upton and Whitfield wrote

Upton and Whitfield posed five questions to FERC to better understand the current state of electricity markets:

• Have the competitive markets fared as expected since restructuring began over 20 years ago, particularly in terms of market efficiency, capital investment, reliability, electricity rates, and consumer impacts?

• Are the competitive markets equipped to promote, integrate, and adapt to new technologies, new products and services, and state and federal policy changes?

• What is the Commission’s view as to how non-FERC jurisdictional federal and state actions, such as the federal production tax credit or state renewable energy mandates, impact the operation of wholesale markets generally, and, specifically, in terms of impacts on reliability, resource and technology neutrality, and wholesale power prices?

• How do new technologies, programs, incentives, and policy changes at the state and federal levels affect the jurisdictional “bright line”? Is that line becoming increasingly blurred as a result of such changes?

• Does the Federal Power Act continue to be well-suited for today’s electricity sector? Is it well-suited for the electricity system of the future?

The committee plans to hold an introductory oversight hearing in the coming weeks.