FERC requirements “burdensome & potentially misleading”

A move to boost the electricity market’s transparency through additional data reporting has drawn criticism and raised questions about the FERC’s focus. Pauline McCallion reports

The Federal Energy Regulatory Commission (FERC) recently proposed new reporting rules that it believes will improve its oversight of the US electricity market. According to a statement, the FERC’s proposal will enhance transparency around price formation through bilateral transactions in the wholesale electricity markets and better enable the regulator to detect instances of manipulation and market-power abuse.

Boosting transparency is certainly in vogue among regulators at the moment – look no further than the massive reform efforts in the derivatives sector under the Dodd-Frank Wall Street Reform and Consumer Protection Act for evidence. But while electricity market participants do not seem to be disputing the benefits of greater transparency, concerns have been raised that the new rules could become a costly drain on resources.

If enacted, the proposal would extend reporting requirements, obliging non-public utilities of a certain size to file the electric quarterly reports (EQRs) that public utilities already file. EQRs detail transactional information for market- and cost-based power sales, as well as for transmission service. The proposal would also alter the reporting requirements of all filers, who would have to report transaction dates, times, rate types, as well as details of the index publishers, brokers and exchanges involved. Additionally, the data relating to the electronic tags (e-Tags) used to schedule the transmission of wholesale market transactions would also have to be reported in EQRs.

The new rules were proposed on April 21 and were subject to a public-comment period which closed at the end of June. Several of the respondents, including Shell Energy North America and the Electric Power Supply Association (EPSA), cited US President Barack Obama’s January 2011 executive order that regulators must “identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends.” Preparation of the EQR already requires one full-time employee at many utilities, according to EPSA, but the new requirements could add a minimum of two more full-time employees.

As well as additional staff, many filers could incur a large one-time cost for software system changes and significant ongoing costs, according to EPSA. It suggests that the rules might require expensive system modifications, if not an entirely new system, as well as the use of manual processes to input
the necessary data.

Automation of data reports plays a key role in keeping down costs and resource allocation. Shell Energy picks up the issue of manual processes with regards to part of the proposal that would see all transactions time-stamped. Recording execution times is not something that many companies currently do, according to Shell Energy, and so a time stamp would need to be added manually by traders. Also, time stamping physical transactions that occur in day-ahead and real-time markets “would not reveal much information useful to FERC, but would greatly encumber staff trying to perform transactions,” Shell Energy argues.

A joint filing by American Public Power Association, Edison Electric Institute, Large Public Power Council and National Rural Electric Cooperative Association focuses on e-Tags. The trade associations dispute their usefulness in collecting transactional data. Such a method would not only be burdensome for market participants, it could also be “potentially misleading” given the complexities of power scheduling and the fact that e-Tags and transactions do not necessarily have a one-to-one relationship. For example, a transaction may not have an e-Tag if it does not cross balancing authorities; however, more than one transaction can have the same e-Tag if trade dates differ but the counterparty or delivery period is the same, according to the trade associations.

Ron McNamara, an electricity market consultant who previously worked at the Midwest Independent System Operator (ISO) and American Electric Power, agrees that the requirements could be costly and burdensome for market participants. “Whether it’s Dodd-Frank regulation or proposals such as this, there certainly is a drive for more transparency at the moment. But regulators often don’t seem to really know what they are looking for,” he says, suggesting that regulators provide more information about their objectives when requiring additional information.

McNamara believes the electricity market would benefit from regulators developing a more over-arching understanding of real-time markets. Referring to the FERC proposal, he says: “The focus here is on the participants and not the regional transmission organisations (RTOs). But there really is little transparency about how RTOs actually work.”

Increasing information about the operation of the physical markets, how prices are formed and boosting insight into system operations is becoming more important, especially as intermittent generation resources are introduced, McNamara argues. “Market players need to understand how uncertainty is being anticipated so they can set their price expectations,” he says. “It’s not that there are concerns about RTO operations, but there is a lot of uncertainty.”