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FERC to Expand Market Power Probes of Entergy, Southern

FERC last week issued orders laying the groundwork for expanded probes into potential market power-related issues for Entergy Corp. and Southern Co. The decisions drew partial dissents from FERC Commissioner Joseph Kelliher.

Specifically, FERC granted rehearing of a Dec. 17, 2004 decision in which the Commission instituted a Federal Power Act (FPA) Section 206 proceeding related to the justness and reasonableness of Southern's market-based rates. FERC set a refund effective date based on Southern's failure of a wholesale market share screen for generation market power.

In granting a rehearing request, FERC instituted a separate proceeding under Section 206 [EL05-104-000] to probe whether Southern satisfies the remaining three parts of the Commission's market-based rate analysis, i.e., transmission market power, barriers to entry and affiliate abuse or reciprocal dealing.

FERC said this new investigation will be held in abeyance pending the outcome of a separate 206 probe it is instituting in docket EL05-102-000 in a concurrent order examining allegations pertaining to an intercompany interchange contract (IIC).

In the case involving Entergy Services Inc., FERC granted in part, and denied in part, rehearing of a Dec. 17, 2004 order. In the December decision, FERC instituted a proceeding pursuant to Section 206 of the FPA to investigate generation market power issues.

In granting rehearing in part, FERC instituted a proceeding under Section 206 of the FPA [EL05-105-000] to investigate whether Entergy satisfies the Commission's transmission market power and affiliate abuse or reciprocal dealing standards for the grant of market-based rate authority. FERC is holding this investigation in abeyance pending the outcome of related proceedings.

Kelliher attached partial dissents to the Southern and Entergy orders. Among other things, he noted that FERC has initiated a rulemaking to review the entire market power test, including the transmission market power, barriers to entry and affiliate abuse prongs.

"In my view, significant changes to our market power test should be made in the rulemaking where the Commission can have the benefit of notice and comment procedures, rather than in the instant proceeding," he said in his partial dissent attached to the Southern order.

He thinks FERC "got it right" in the Dec. 17 order. "Southern Companies satisfies the market power test with respect to transmission market power, barriers to entry, and affiliate abuse, based on the test as we have applied it up until now. I would continue to apply the same test in this instance, and reserve changes for the rulemaking. For that reason, I dissent in part."

As for the Entergy ruling, Kelliher noted that the order reversed the Commission's determination that Entergy satisfied the Commission's market power test with respect to transmission market power and affiliate abuse. "I support reversing the Commission's determination with respect to transmission market power, but not with respect to affiliate abuse, and therefore dissent in part on this order," he wrote.

With respect to the affiliate abuse prong, "the Commission has set the affiliate abuse issue for hearing when intervenors have made a prima facie case of possible affiliate abuse in a proposed wholesale power sale between affiliates. In this instance, I simply do not believe the petitioners have met the burden necessary to justify further investigation."

Kelliher said that the order's analysis of the allegations on how Entergy fails the affiliate abuse prong "is terse, nothing more than a summary conclusion. For that reason, I dissent in part."

Meanwhile, FERC last Wednesday also launched Section 206 probes of LG&E Energy Marketing Inc., PPM Energy, PacifiCorp and Progress Energy examining generation market power issues. As a result, the companies will have to file updated market power analyses at the federal agency.

The news was announced at the Commission's latest open meeting at FERC headquarters in Washington, DC, where several other market-based rate related decisions were also released.

FERC granted a new request for market-based rate authority filed by Public Service Electric & Gas and PSEG Energy Resources. Separately, the Commission accepted updated market power analyses filed by Portland General Electric, Reliant Energy Coolwater and Black Hills Colorado.

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