As FERC mulls possible changes to its approach in examining generation market power in the electric industry, the Commission must not put on blinders and simply focus only on possible unilateral exercises of market power, a top official with the Federal Trade Commission (FTC) said last week.

FERC must also examine “the possible ease at which coordinated interaction or collusion with other suppliers can be facilitated by high concentration or entry impediments,” said Michael Wroblewski, assistant general counsel for policy studies at the FTC, at a technical conference at FERC headquarters in Washington, DC.

The conference examined FERC’s supply margin assessment (SMA) market power screen and proposed alternative screens.

“The effects on customers of the exercise of market power — either unilaterally or in concert with others — is the same,” the FTC official pointed out. “They pay higher prices or output is reduced, so please don’t focus just on unilateral exercises of market power.” Wroblewski’s comments don’t necessarily reflect the views of the full FTC or any individual FTC commissioner.

Wroblewski also said that FERC may want to require applicants to pass all four screens that the agency is reviewing. Along with the SMA, FERC staff in a recent paper listed three alternative market power screens — a pivotal supply screen called the “Capacity Surplus Index” (CSI) and two market share screens — the “Limited Competing Supplier” and “Wholesale Market Share.”

“By having multiple screens, you’ll hopefully get a better picture of whether an applicant can raise prices above the competitive level or reduce its output,” the FTC official told the conference.

Wroblewski addressed a scenario under which an applicant passes one test, but fails another. FERC could “then require the applicant to come in with a more detailed analysis on a confidential basis that has something like power flow information, but shows [whether] the deployment of generation is being used in a way to cause transmission congestion, so that you wouldn’t be able to count certain suppliers into the market.”

For the future, FERC “may want to embark upon a course where it can begin to identify and collect data and to develop a model so that it can not only measure market concentration, but can also simulate various market conditions, such that you can identify really when a supplier has market power,” Wroblewski went on to say.

Customers “will be the losers if several years from now we’re in the same place we are in today because of the data limitations that FERC is now facing. The idea is to get on the path that provides the confidential collection of more accurate data only in those cases warranting a more extensive look in order to make economically sound market power assessments.”

Meanwhile, a top executive with PacifiCorp said that the focus of the SMA and the screen alternatives on control areas is both “misplaced” and “incompatible” with the portfolio approach commonly used by electric utilities and other power sellers.

“The relevant geographic market in the West should not be defined as a control area,” said John Apperson, director of trading at PacifiCorp. “Control areas may be a rough proxy for markets elsewhere, but not here.”

Apperson noted that in the West, “we’re dealing with a single, large interconnected market with virtually all areas influencing each other — albeit with the occasional load pocket. Thus, to fairly evaluate market power in the West, a broader market — the entire Western Interconnection — should be used as the applicable market for a first-tier screen.”

Load pockets should be used as the applicable market area for a second-tier screen, with data provided by an applicant drawn from the transmission constraints published by the Western Electricity Coordinating Council, Apperson said.

“If, however, control areas are utilized as an interim screen, the failed test should be followed up with an explanation by the applicant supported by a redefined market boundary, with data supplied by the applicant, and should not result in automatic mitigation.”

Apperson also believes that the significance of non-jurisdictional utilities in the West “cannot be disregarded if FERC adopts an interim generation market power screen and mitigation measures.” Unless the SMA rule is applied uniformly, “the mix of jurisdictional and non-jurisdictional market participants within the same market may result in unintended RTO [regional transmission organization] consequences and market distortions. Any market participant — including non-jurisdictional market participants — may benefit by arbitraging between the prevailing market price and jurisdictional market participants under a mitigated, cost-based price.”

Apperson said that because non-jurisdictional market players “gain a competitive advantage with mitigation — but would be subject to RTO market rules, putting them back on a level playing field — imposing mitigation measures could impede formation of a good RTO in the West.” Moreover, jurisdictional market participants may fail a screen as a result of the expected generation availability data submitted by a non-jurisdictional participant.

The PacifiCorp executive also said that neither the SMA nor proposed alternative screens would work for the West given that region’s hydro thermal system. “Nameplate hydro capacity is not a reliable measure of a market participant’s potential ability to exercise market power.” Apperson said that a screen should “take into account the energy-limited nature of hydro generation due to limited storage capability and environmental constraints, which result in restricted capacity.”

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