Standard Market Design in Wholesale Electricity Markets: Can FERC's Proposed Structure Adapt to the Unknown?

Publication Date: November 2002

Publisher: Reason Foundation

Author(s): Lynne Kiesling; Brian Mannix

Research Area: Energy

Type: Report

Abstract:

FERC's current Standard Market Design (SMD) proposal is a bold, although not final, step in the evolution of electricity markets. It recognizes that, in power generation, competition is now the primary guarantor of "just and reasonable" rates. It seeks to protect and promote that competition by proscribing anticompetitive practices, especially those that take the form of "undue discrimination" by vertically integrated transmission operators. It seeks to expand the scope of competition by erasing the "seams" between different geographic
jurisdictions, as well as smoothing some of the seams between wholesale and retail markets.

The standard market design should be couched more in the long-run benefits and objectives of creating a collaborative regulatory environment that enables demand-side and supply-side incentives and knowledge to interact, which is the best way to perform market monitoring, discipline suppliers, and provide optimal dynamic investment incentives.