OMOI turns on the lights at FERC

Findings show those without wholesale markets shortchanged

FERC knew it was operating in the dark during the California crisis and Chairman Curtis Hebert started the wheels turning to crank up a market-monitoring operation.
     Today it's big.
     The Office of Market Oversight & Investigations has a significant team and they gave a formal presentation to the commission in January for many reasons but showed off what they can do and how well they're plugged in.
     Chairman Pat Wood was pleased and proud of what has unfolded on his watch. He called the OMOI report "everything I've dreamed of."
     FERC picked those wonderful months from Jan 1 2002 to midyear last year to see how the real market compared with a well-functioning, competitive market.
     Wood's hope was that the intense report could help states in measuring the costs of policy decisions.
     He sees the product as a way to locate solutions to problems that stick out and he hoped that the staff would find "some low-hanging fruit" to get important market improvements with little effort.
     And some of the findings are fascinating.
     A big one is that 67% of our population is served by organized electricity markets that are either operating or forming.
     The South sticks out like a sore thumb.
     The areas without markets have high concentration of ownership such as TVA, Southern and Entergy while concentration of generation ownership is low in regions with markets.
     Customers had lots of options in organized markets compared with the marketless folk.
     PJM stood out as having all the options including bilateral contracts price index, a real-time exchange, day-ahead exchange, ancillary services markets, capacity market, active physical day-ahead ICE (Intercontinental Exchange) market, futures trading, financial transmission rights and virtual bidding.
     Of all of that, in Southern's footprint only, the bilateral contracts price index is available and maybe a physical day-ahead market although the graph is unclear whether that's only available in Entergy's market.
     The Pacific Northwest has the same two options as Southern's "market."
     Other differences between the market haves and have-nots were volatility and price visibility. Volatility was higher without markets, the study showed, but when PJM added a futures market long-term price transparency improved dramatically.
     Only PJM has that option. Bottom line for electricity is that during the period:
     • ISO New England successfully set up a day-ahead market;
     • The New York ISO refined pricing and fixed market rules while adding a successful virtual transaction product;
     • PJM opened a successful spinning reserve market and improved its financial transmission rights auction process;
     • The California market eased with 6,700 added mw, better hydro conditions and demand moderated compared with 2001;
     • While lots of new, efficient IPP generation was installed in the Southeast but found getting power to markets is difficult. The gas report was less surprising but then gas has a mature wholesale market where GISB and FERC have opened up competition long ago. Gas marketers and consumers don't have a Southern Co equivalent fighting brilliantly against progress to preserve the past and monopoly rent.
     A big gas disappointment was the 0.3% rise in storage from 2001 to 2002. Pipeline investment last year fell to $4 billion from $4.3 billion the year before.
     Another disappointment was the rig count's weakness despite strong price signals. Quicker production of gas through new technology should lead to a step up in drilling, the staff observed.
     Meanwhile the big gas producers are turning to LNG to fill the gap, the staff said.
     Added insight:  OMOI's going to use the report when deciding how to allocate resources "for monitoring regions with organized markets and those without."  

(Story originally published in Restructuring Today 1/23/04)