FERC last Wednesday sought to bring clarity to when power sellers would be on the hook for refunds under a sweeping order issued last year. That order, issued Nov. 20, proposed to revise all existing market-based rate tariffs and authorizations to prohibit the exercise of market power and anticompetitive behavior.

Last year’s order also instituted a proceeding to establish a refund effective date should FERC determine that electric power rates are unjust and unreasonable. But the decision came under fire from the power industry as being unclear and imposing an open-ended refund conditioned on power sellers.

At its regular Wednesday agenda meeting, FERC attempted to respond to those criticisms by fleshing out the Nov. 20 order. Specifically, FERC Commissioners mulled a proposal to require all market base rate tariffs and authorizations to include the following provisions:

FERC would require that any alleged violation of a tariff provision be made on a transaction specific basis. The Commission offered examples of what FERC might consider legitimate reasons for a generator offering its power during times when the market price exceeds its marginal costs and clarifies that marginal costs include opportunity costs.

FERC Commissioner Nora Brownell asked a commission staff member to elaborate on situations where a generator may legitimately need to withhold power from the market. In response, the staff member cited the example of a scheduled maintenance outage.

“You might say ‘Gee, this is a 500 MW plant. Why are they only offering up 450 MW?'” But plant owners faced with medium to short-term contracts don’t necessarily know exactly what the availability of their unit will be. “So they have to be a little bit careful and maybe they won’t offer all of it up, or they’ll offer…the last few megawatts up at a very high price and that’s too ensure that they cover this probabilistic availability.”

More specifically, the staffer used a hydro facility as an example. “It’s May and the price is $60/MWh or something, but you think the price is going to be $90/MWh in July, you’ve only got so much water — you have to make a choice about whether to run now or later,” he added. “And, in some sense, we want these guys making the choice — that’s an efficient allocation of resources when the water gets run in the summer when the value is higher,” the staff member went on to say.

“There are lots of times when they’re legitimate reasons not to be running and those are pretty verifiable reasons,” the staff member noted. “It’s a pretty easy story to tell — ‘Look, I’ve only got so much water, I can’t be running all the time,’ or ‘Look, this is an old plant. It wasn’t meant to run this hard and I need to be careful with this thing or it’s not going to be available in the summer.'”

Meanwhile, Commissioners Linda Breathitt and William Massey voiced concerns on the proposal to exempt RTO and ISO markets. “There are provisions of this proposal that I like,” Massey pointed out. “This exempting of ISO-RTO markets, at this point in time, though, really concerns me,” he went on to say. “That’s really where the rubber meets the road for me of this proposal right now. That exemption troubles me a great deal.”

In response, FERC Chairman Pat Wood asked Massey whether his concerns might be remedied by defining with a lot more specificity “what we mean by Commission-approved markets, monitoring and mitigation.” Massey said that he would be “willing to look at that.”

“Quite frankly, exempting short-term sales in RTOs and ISOs from this tariff condition is fraught with difficulty,” Breathitt argued. “My concern about this option is one of equity,” she went on to note. “We need to have fair and equal treatment for market participants across the country. I don’t believe that exempting a few areas of the country from this provision, while imposing a refund condition on the majority of the market, is equitable.”

Breathitt said that this “bifurcated approach” might also have some unintended consequences. “For example, trading could be affected,” she said, noting that parties may decline to sell into certain areas, in favor of other areas. “Or new products can be introduced that are later discovered to have flaws or a lack of transparency.”

Breathitt underscored that her reluctance to exempt RTOs doesn’t stem from a concern that the market monitoring in those markets is necessarily weak. “However, I know that even RTOs, with market monitoring, the Commission still has complaints filed concerning the rates for short-term transactions, especially in the day-ahead and the real-time market.”

FERC spokesperson Barbara Connors noted that the Commissioners did not take any vote on the overall proposal. “They didn’t take any vote on it, they didn’t act on it,” she noted. “Obviously, there is agreement on some things, and not on others, which is why they wanted to discuss it further.”

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