On February 20, 2009, the American Public Power Association (“APPA”) issued a report entitled APPA’s Competitive Market Plan: A Roadmap for Reforming Wholesale Electricity Markets (“Market Plan”). The Market Plan proposes reforms for RTO markets that it says would provide better competition and consumer protection within Regional Transmission Organizations (“RTOs”) while maintaining reliability.

The Market Plan fulfills an APPA promise to produce a more detailed plan on reforming RTOs. In early 2008, the APPA released a white paper (see February 29, 2008 edition of WER) that was critical of RTOs, but which FERC criticized for not offering solutions. The APPA notes that its current market plan proposes an alternative way forward and advocates three significant changes to the status quo.

First, the APPA recommends combining the real-time and day-ahead markets to create an “optimization” market. The optimization market would use a single-clearing-price mechanism based on actual marginal costs. Generators would submit at-cost offers one day in advance, which would be made public on the next operating day. Meanwhile, generators with FERC-approved bilateral contracts and sales into the optimization market from demand-side resources would not be subject to the cost-based restrictions. The APPA believes that the optimization market will allow customers to balance excess purchases and supply demands while providing generators the opportunity to sell excess generation.

Second, the APPA proposes major changes affecting resource adequacy. First, RTO-administered location capacity markets would be phased out under the Market Plan. Instead, capacity would be met by bilateral contracts with load-serving entities (“LSEs”) and resource suppliers, LSE-owned generation arrangements, and LSE-managed demand response. The Market Plan recommends that RTOs develop and implement resource adequacy standards to govern their respective footprints. The Market Plan recognizes that states and Regional Reliability Councils traditionally have set adequacy standards so it solicits their input and allows state commissions to regulate the manner by which utilities would secure the necessary supplies. These changes would allow states to accommodate policy goals and reduce supply adequacy problems by encouraging bilateral contracts.

Finally, the APPA proposed modifications to current RTO transmission and dispatch management practices. The plan states that RTOs should conduct centralized least-cost dispatch of generation based on actual operating costs under a system by which resources are paid based on bilateral contracts or cost-based optimization market prices. LSEs would be granted financial transmission rights (“FTRs”), supporting bilateral power supply arrangements longer than ten years as well as LSE-owned resources. Other existing transmission rights would stay in place where feasible.

In addition to the changes recommended above, the Market Plan also endorses a national renewable electricity standard, albeit with less ambitious targets than have been proposed in Congress. The Market Plan acknowledges that its proposed changes would take a substantial amount of time and effort, but hopes that it will, at the very least, create a debate on the future of RTO markets in general. The plan is available online at: http://www.appanet.org/