FERC Comments on Real-time Prices and Market Signals

· Market prices send the right signals to both sellers and buyers (at least those not subject to a rate freeze). Market prices will increase supply and reduce demand, thus correcting the current imbalance. Capping prices below market levels through regulation or legislation will have exactly the opposite effect. (FERC testimony before the Committee on Government Reform April 10-12, 2001)

· Price mitigation should be as market oriented as possible and adopt market solutions and mechanisms to the maximum extent possible; the pricing provisions must encourage, and not discourage, the critically needed investment in infrastructure (e.g., increasing generation supply, adding required transmission, and implementing demand response). FERC April 26, 2001 Order

· Allowing large retail consumers to face the price in the wholesale market would provide more demand responsiveness to the wholesale market. If state policy is to allow load serving entities to pass through the costs of energy and ancillary services directly to retail customers, then those customers should be given some way to respond to those prices. (FERC 11/1/200 Staff Report)

· "I view today's (Dec. 15, 2000) order as a missed opportunity. Current emergency circumstances should embolden federal and state regulators - not intimidate them - to take decisive action. Timidity is no longer excusable. California ratepayers will benefit from the restructuring of the California energy market only when the market is allowed to operate without artificial restraints designed by regulators and politicians who believe that they know best how to serve energy customers... To summarize briefly, I would have adopted the following remedial measures [including] eliminat[ing] all price controls." (Concurrence of Commissioner Hebert to FERC December 15, 2000 Order)

· "Consistent with our discussion in this order, we will reject the various proposals and complaints regarding the imposition of price caps or cost-based rates (FERC December 15, 2000 Order)

· These requirements will develop demand-side price responsiveness that will help mitigate market power and lessen the severity of price spikes. When demand responds to price, suppliers have additional incentives to keep bids close to their marginal production costs, because high bids are more likely to reduce the bidder's energy sales. (FERC April 26, 2001 Order)