Duke's Market-Based Rate Authority Under Fire in CA

The California Electricity Oversight Board (CEOB) asked FERC to revoke the market-based rate authority of several Duke Energy affiliates to sell energy and ancillary services in California, arguing that conditions in the state's troubled energy markets have "changed dramatically" since the Commission first gave market-based rate authority to sellers of power in California's wholesale energy markets.

The CEOB's move comes in response to a recent updated triennial market power analysis filed by Duke Energy Moss Landing LLC, Duke Energy Morro Bay LLC, Duke Energy Oakland LLC and Duke Energy South Bay LLC at the Federal Energy Regulatory Commission. In total, these generators currently account for about 2,645 MW of generation capacity in California.

The board noted that during FERC's ongoing price-mitigation activities related to California and the West, the Commission has found that there is "clear evidence" that the California market structure and rules provide the opportunity for sellers to exercise market power when supply is tight. In the wake of the most recent Commission order in these proceedings in June, Duke's California generators "remain among key generators from which refund amounts are owed to California for exorbitant energy prices."

The CEOB disagrees with the position of Duke's generators that FERC-imposed price mitigation measures serve as justification for a continued grant of market-based rate authority. Although the board said it realized that the Commission's order provides a plan for price mitigation in all hours and across the western region, "the actual effectiveness of this order in disciplining prices has yet to be determined."

The CEOB also reiterated its belief that FERC's traditional methodology for evaluating market power is ineffective for California's wholesale electric markets. According to the board, in assessing generation market power, Duke's California generators rely on an analysis of market shares using the traditional "hub-and-spoke" method.

However, the board argued that the Commission's traditional test for the ability of a market participant to exercise market power, overall time-averaged market share, is not appropriate for determining the exercise of market power in California's markets. "Under current conditions in California, a generator's total market share is not determinative of whether or not that generator is able to increase prices significantly over a substantial period of time." The CEOB said that FERC should require a time-differentiated market power analysis as it relates to sellers' market-based rate authority for either energy or ancillary services in California.

The CEOB asked FERC to terminate the market-based rate authority of Duke's California generators and direct them to file an application for cost-based rates. In addition, the board asked the Commission to set the matter for hearing.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.