Staff Report to the

Federal Energy Regulatory Commission 

on the Bulk Power Markets

In the United States

Part II 

of 

Staff Report on U.S. Bulk Power Markets

November 1, 2000
i

The analyses and conclusions are those of the study team and do not necessarily reflect the views of

other staff members of the Federal Energy Regulatory Commission, any individual Commissioner, or

the Commission itself.

Acknowledgments

The study team consists of:

Scott Miller, Co-Team Lead for National Investigation

Andrea Wolfman, Co-Team Lead for National Investigation

Northeast Team:

Dean Wight, Team Lead

Kent Carter

Mark Gratchen

Mark Hegerle

Raymond Montini

Gerald Richman

Jamie Simler

Thanks to: Udi Helman, James Akers, Edward Mills, Deborah Ott, James Turnure and Roland

Wentworth.

Midwest Team:

Thanh Luong, Team Lead

Elizabeth Arnold

Joseph Cholka

Stuart Fischer

Maria Hasanzadah

Thanks to: Meesha Bond, Tom Brownfield and Cynthia Epps.

Southeast Team:

P. Kumar Agarwal, Team Lead

John Kroeger

Walter McDaniel

Camilla Ng

Stanley Wolf

Thanks to: Meesha Bond, Maria Hasanzadah and Ron Rattey.

ERCOT Team:

William Booth, Team Lead

John Robinson
ii

Preface

The reports that follow make up Part II of the Staff Report on U.S. Bulk Power Markets, and

specifically review the regions of the Northeast, Midwest, Southeast, and the Electric Reliability Council

of Texas (ERCOT). Like Part I, that dealt with staff's investigation of the Western Bulk Power

Market, these investigations were directed by the Commission in an undocketed order issued on July

26, 2000. 92 FERC ¶ 61,160 (July 26, 2000). The Commission directed staff to undertake a fact

finding investigation of the conditions in electric bulk power markets (including volatile price

fluctuations) in various regions of the country. Staff was further directed to (a) determine any technical

or operational factors, regulatory prohibitions or rules (federal or state), market or behavior rules, or

other factors affecting competitive pricing of electric energy or reliability of service and (b) report its

findings to the Commission by November 1, 2000.

Part II of the report, as with Part I (the Western Market), presents certain facts regarding the

physical descriptions of the resources, load, prices and input costs in each region in a way that is

common among all regions. The focus of the report varies for each region, reflecting the variation in the

issues among the regions. The West, for example, is a region that is partially restructured with the

California ISO. The Northeast, by contrast, is entirely composed of ISOs. The Midwest and

Southeast are currently traditional bilateral markets that are dominated by vertically integrated systems. 

ERCOT is also in transition to an ISO market.

The overall picture is one of an industry in transition. The issues pertain to regulatory or

structural uncertainty, the uneven pace of change, and complex market designs that are still in flux. 

This, combined with a period of unprecedented economic growth and heavy demand on electricity

means that there is a great deal of stress on the current bulk power markets. 

Electricity is a commodity with market dynamics similar to many other commodities but is still

viewed by many as “different.” This is evidenced by the reaction to price volatility in various regions,

with corresponding efforts to control prices. Basic decisions about the regulatory model need to be

decided so that the industry can complete the transition from a traditional cost-of-service model to a

model that uses markets to price the commodity and services. The industry is currently in a hybrid state

where the transmission is regulated and the price of the commodity is sometimes controlled through

various market interventions.