Not all utilities own and operate power plants or generate enough electricity to meet all their needs. Many purchase power in the wholesale energy market. Federal and state regulators are charged with overseeing these wholesale transactions in their jurisdictions. They must ensure adequate supplies of energy and that consumers pay reasonable rates.
The Federal Power Act (FPA) governs the actions of public utilities that engage in interstate commerce to ensure that wholesale electricity providers charge fair rates. The Federal Energy Regulatory Commission (FERC) is the federal agency with the authority to oversee the interstate sale and transmission of electricity, ensure that wholesale contracts are “just and reasonable,” and monitor and investigate wholesale energy markets.
By enacting the just and reasonable provisions of the FPA, Congress intended to protect consumers from exploitation and abuse. Therefore, FERC must determine whether challenged rates affect the public interest. To do so, FERC must assess whether consumers’ electric bills are higher than they would have been if their utilities’ wholesale contracts had included just and reasonable costs.
WHOLESALE ELECTRICITY MARKETS: Policy
Ensuring affordable electricity
Policymakers should ensure:
- wholesale electricity markets operate fairly,
- consumers pay reasonable rates, and
- adequate supplies of electricity are maintained.
The Federal Energy Regulatory Commission (FERC) should order cost-based price regulation and take other appropriate regulatory actions in any wholesale market in which rates are not demonstrably and reliably “just and reasonable.”
FERC should closely monitor the wholesale electricity market to identify prices that reflect the exercise of market power and to order refunds to ratepayers for any overpayments.
Regulators should adopt safeguards that ensure just, reasonable, and affordable rates and high-quality service for residential customers.
Policymakers should consider expanding public power when doing so would create significant and measurable benefits for residential customers.
Policymakers should ensure adequate reserve capacity to maintain reliability and price stability.