On a day in which market power issues took center stage at FERC headquarters, the Commission last Tuesday proposed revising all existing market-based rate tariffs and authorizations in order to prohibit anti-competitive behavior or the exercise of market power. In addition, the Federal Energy Regulatory Commission also instituted a proceeding to establish a refund effective date should it find that electric power rates are unjust and unreasonable.

The Commission expressed concern about the potential for public utilities with market-based rate authorization to exercise market power or engage in anti-competitive behavior, and affirmed its commitment to ensure that rates are just and reasonable. While it did not find that particular sellers have exercised market power, FERC proposed to take steps now to minimize the potential for any such market power abuse. The order provides examples of prohibited practices, including physical and economic withholding of supplies.

The order establishes a refund effective date, under section 206 of the Federal Power Act, 60 days from the date on which the order is published in the Federal Register. Should a public utility engage in a prohibited behavior, its rates will be subject to increased Commission scrutiny, potential refunds and restrictions on or termination of its market-based rate authority. Initial comments on the order [EL01-118-000] are due in 15 days and reply comments will be due 15 days thereafter.

The Commission’s decision drew some words of concern from Commissioner William Massey. “One of the motivating factors for me in advocating that we pursue a tariff condition that applies to all sellers at market-based pricing is the situation that we found ourselves in California, in which prices began to soar in June of 2000,” Massey said. “Prices were extraordinarily high in June, July, August and September of 2000,” he added.

“Since there was no tariff condition in effect at that time, we have no way to go back to June, July, August, September of 2000 with refunds,” the Commissioner said. “I’m concerned about that and I don’t think the customers ought to bear that burden solely for an out-of-control market,” Massey went on to say. The Commissioner noted that the new tariff condition states that if FERC catches “you engaging in bad behavior, you may have refund liability, so it’s triggered by bad behavior like withholding of generation, either economic or physical withholding.”

Massey acknowledged that this approach is “an improvement over nothing.” But his concern is that the Commission has yet to find bad behavior in the California market. “Our December 15 and later orders are based solely on the theory that this was an out-of-control market that justifies refunds and the refunds begin October 2 of last year.”

Massey is worried that even with this improvement, if a market is out of control — whether it be in California or somewhere else — and the Commission finds no bad behavior, there’s still no refund protection under the new tariff condition. “So, even under this new tariff condition, it seems to me that the customer bears the burden, bears the risk of an out-of-control market where we find no bad behavior.”

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