No. 235
Tuesday December 8, 1998
Regulation, Law & Economics
Energy Marketers Plan to Make
Restructuring Proposals by Mid-January

The National Energy Marketers Association (NEMA) is working on a new blueprint for electricity restructuring, and hopes to complete it by mid-January.

According to NEMA President Craig Goodman, the plan will be comprehensive, and will include specific recommendations to address some of the most difficult issues of electricity restructuring.

Goodman told BNA Dec. 7 that he could not give a preview of the details of the new plan because not all NEMA members had yet approved it. However, he said, the association believes that "all of the issues can be resolved within two years--all the way down to the retail level." NEMA will have proposals for agencies of both federal and state government, he said, and will address the tax aspects of restructuring.

NEMA represents both wholesale and retail marketers of natural gas and electricity. It includes within its membership producers, generators, transporters, and marketers of energy-related services, information, and technology.

Government Certification Opposed

On the question of measures to assure the financial viability of electricity marketers, Goodman said NEMA would oppose any government certification plan. Certification was an issue in last summer's Midwest electricity crisis, which the Federal Energy Regulatory Commission (FERC) said was caused in part by the default of several wholesale energy marketers (186 DER A-11, 9/25/98). At the time it was claimed that a major reason for the defaults was the shaky financial condition of several marketers, and that this was known to some, but not all, wholesale electricity buyers even before the crisis.

NEMA has its own code of conduct that affiliated and non-affiliated entities can use, Goodman said. In addition, the association has initiated an effort to standardize wholesale power contracts in response to last summer's price spikes, he said.

"We want to do this as an industry cooperative effort, rather than as a government effort, because government efforts tend to be overly long, overly bureaucratic, and at the end of the day the work product is less than satisfactory," Goodman said. "We also intend to promulgate industry standards for marketer certification."

Regional Transmission Organizations

The NEMA plan also will focus on the issue of regional transmission organizations, Goodman said. "On regional transmission grids, our main concern is accountability and independence, and maximizing the transmission system," he said.

On the issue of which regional transmission organization is best, "we do not rule out Transcos," Goodman said. The problem with the independent system operator (ISO) structure is that "there is very little accountability," he said. Electricity transactions are being disrupted solely because transmission managers think the system will be unable to handle a small proportion of the total volume of specific transactions, he said.

"We're seeing trades broken on a 20 to 1 leverage basis, because of some of the [transmission loading relief procedures] that are out there," Goodman said. If an independent marketer was trying to deliver 100 megawatts into a particular service territory, and a transmission system manager said that system congestion put 5 percent of the load in jeopardy, the whole transaction could be disrupted for 5 megawatts, he said. "Nobody has an obligation to redispatch" under current rules, he said.

The transmission organization issue is one that FERC is addressing at present. Most participants in the electricity industry agree that a key element in the introduction of competition is a mechanism to ensure that all electricity suppliers have equal access to the transmission facilities they need to deliver power to their customers. The most common structure to ensure equal access in competitive markets is the ISO, a non-profit organization that manages, but does not own, transmission facilities in a particular region.

However, some argue that Transcos--companies that acquire ownership of regional grids and offer transmission facilities for profit--would work better, and would have greater incentives to beef up transmission systems so that they could offer adequate services to all comers. FERC Commissioner Curt Hebert indicated last week that he shares this point of view (234 DER A-30, 12/7/98).

NEMA has already made clear its dissatisfaction with one recent ISO plan. The association is a leading member of the Energy Marketers Coalition, which Dec. 3 intervened in FERC proceedings (Docket No. ER97-1523) relating to the New York ISO. The coalition objected to the ISO's rules on the basis that they did not "afford all market participants a meaningful voice in the governance of the ISO, and instead [remain] heavily tilted in favor of the [incumbent utilities]."

The coalition called on FERC to reject some of the rules, notably those that provided for weighted voting and certain veto powers for transmission providers.

By Kenneth Skilling

Copyright © 1998 by The Bureau of National Affairs, Inc., Washington D.C.