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Power Companies Unable to Clear FERC Market Power Bar

Power Companies Unable to Clear FERC Market Power Bar

Several electric power companies were unable to pass interim generation market power tests adopted by FERC, and those companies failing screens now have 60 days to file a delivered price test, propose case-specific market power mitigation, or accept default cost-based rates and file cost support for those rates, the Commission said at its regular meeting last Wednesday.

The paper hearings initiated by a series of orders issued by FERC offer companies an opportunity to rebut the presumption of market power.

The number of draft orders issued at the meeting doesn't correlate with the number of passes and fails listed by FERC staff since some companies, such as American Electric Power (AEP), are spread across several control areas. "One company may be accounted for both as a pass and a fail, depending on which control area we're discussing," a FERC staff member noted.

A total of 16 market-based rate orders were placed before FERC Commissioners. Of that total, 13 reflected market-based rate triennial review filings, while the remaining orders addressed new requests for market-based rate authority.

Of the triennial review filings, three (AEP, Entergy and Southern Co.) were amended filings as required by an April order issued by FERC. The remaining triennial review filings were required by a May 13 order issued by the Commission.

The following provides a scorecard on how several utilities performed in response to the screens:

  • Alliant: Failed the market power test in its home control area and in one first-tier market control area (passes once MISO market launches in March 2005);
  • AEP: Failed the market power test for the portions of its service areas in the Southwest Power Pool (SPP), while passing the test for the company's facilities in the Electric Reliability Council of Texas and PJM;
  • Duke Power: Failed in its home control area, while passing in all first-tier markets. Duke's marketing affiliate and its California generating affiliate passed the initial market power test;
  • Entergy: Failed in its home control area while satisfying current standards in first-tier markets;
  • Kansas City Power & Light: Failed in its home control area and one first-tier market;
  • Pinnacle West: Non-compliant in its home control area and Tucson Electric and Public Service Co. of New Mexico markets;
  • Public Service Co. of New Mexico: Failed in its home control area while non-compliant in one first-tier market;
  • Puget Sound Energy: Non-compliant in its home control area, while passing in first-tier markets; and
  • Southern Co.: Failed in its home control area while passing in first-tier markets.

With respect to AEP-SPP, FERC has required that SPP provide a market monitoring plan, which includes appropriate market power mitigation measures, to address market problems and a clear set of rules governing market participation conduct with the consequences for violations spelled out.

"Accordingly, once the Commission approves SPP's market monitoring and mitigation plan, applicants could point to such mitigation rules as evidence that any market power has been mitigated and the Commission will consider such arguments on a case-by-case basis," a FERC staff member noted.

Duke Power provided historical sales data for review and FERC's draft order said that the agency will examine this information "in conjunction with the other evidence submitted in the 206 proceeding."

With respect to Southern, the giant Southeastern-based utility offered modified pivotal supplier screen data and FERC said that it would take a closer look at this information in conjunction with the Section 206 proceeding.

Entergy offered evidence in the form of a delivered price test to rebut the presumption of market power. Entergy said that it failed the delivered price test using an economic capacity measure, but the utility believes that it passes the delivered price test using an available economic capacity measure, another measure under FERC's April order. The draft order said that FERC is currently reviewing Entergy's delivered price test.

Along with failing in its own control area, Kansas City Power & Light's analysis indicates a market share as high as 33% in the Board of Public Utilities of Kansas City market. "Accordingly, that market is part of the 206 proceeding" for Kansas City Power & Light, a FERC staffer said.

With respect to Puget Sound Energy, Pinnacle West Capital Corp. and PNM, FERC was unable to validate the analysis submitted by the companies and accordingly a Section 206 proceeding was instituted for the utilities.

"The draft orders allow companies to file revised market power studies for those control areas where the Commission finds the analysis is not in compliance with the April 14 order," the FERC staffer noted in referring to PNM in the El Paso control area and Pinnacle West and Puget in their own control areas.

The following companies passed the new market power screens:

  • Consolidated Water Power
  • CMS/Consumers Energy
  • DPL/Dayton Power & Light
  • El Paso Electric
  • Pastoria Energy Center
  • MeadWestvaco Energy Services
  • PEI Power

FERC also noted that Dominion and Green Mountain Power were both previously granted market-based rate authority prior to Wednesday's meeting. Dominion's authority is tied to its joining PJM Interconnection.

FERC Commissioner Joseph Kelliher said that the next stage in the process -- where the Commission considers evidence offered by utilities to rebut the presumption of generation market power -- "in my view, that will be more important than the step that we're taking today."

He thinks that if it proves impossible to rebut the presumption of generation market power, then the indicative screens in the April order "will actually have become bright line tests." Kelliher said that if that scenario comes to fruition, "I think we will have set the bar to low. I supported the 20% threshold as an indicative screen, but not as a bright line test of generation market power," he noted.

Kelliher said that a number of applicants that failed the market share screen have market shares just slightly in excess of 20%. "In my view, rebutting the presumption of market power in those instances doesn't mean demonstrating that the market share is actually below 20% in all periods. I think it means the Commission takes a harder look at the individual markets in question and determines notwithstanding that 21.7% market share or something of the like-- that the applicant, even though above 20%, may lack market power in that market."

As for PNM, Puget and Pinnacle West, Kelliher said he would have given these companies another chance to "properly calculate transmission import capability and not initiated a Section 206 proceeding."

Last week's action marks the culmination of several orders issued by the Commission over the past year. FERC in July issued an order affirming interim market power tests adopted in April, but the Commission also sought to clarify implementation issues regarding the screens and the associated market-based rates process.

Various power companies subsequently made filings at FERC in response to those orders, as well as a May 13 decision addressing procedures for implementing the generation market power analysis and mitigation policy announced in the April 14 order and clarified in the July 8 order.

On Nov. 22, FERC began posting the notices of the submissions by several market participants that were asked on Oct. 29 to submit additional information on their applications to renew market-based rates.

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