A Federal Trade Commission (FTC) attorney told FERC last Wednesday that there was no need for the agency to redo its four-pronged test for assessing market power, but he recommended that it update the screens or the thresholds that correspond to each prong in the analysis. Notably, he said the Commission should consider adopting rebuttable presumption screens for each prong.

For instance, if an energy company seeking approval to sell electricity at market-based rates is not a member of a FERC-approved regional transmission organization (RTO) or independent system operator (ISO), the Commission should presume that the firm has transmission market power, said the FTC’s Michael Wroblewski Wednesday.

“This standard is based on FERC’s own findings in addressing and remediating market power” that was established in Order 2000, he noted during a Commission technical hearing exploring the adequacy of the agency’s existing four-prong market power test used in granting market-based rates. The four-pronged test focuses on whether an applicant 1) has generation market power; 2) has transmission market power; 3) can erect barriers to entry; and 4) is involved in affiliate abuse or reciprocal dealing.

Robert Weishaar, an attorney representing industrial customers, was more blunt. He believes that vertically integrated utilities that are not part of RTOs or ISOs should be denied the “privilege” of selling electricity at market-based rates.

Wroblewski called the Commission’s interim standards for assessing generation market power, which were adopted in April, a “sound addition” to FERC’s market power test. “The revisions are aimed at determining more accurately whether an applicant has horizontal market power in generation services. We note that FERC has adopted screens that not only focus on unilateral exercises of market power, but also the risk of coordinated interaction,” he said.

The FTC particularly supported FERC’s decision to establish a rebuttable presumption for generation market power. “This approach provides opportunities for firms that failed these screens to demonstrate through more refined techniques that they do not have generation market power,” Wroblewski noted.

He suggested that FERC could take a similar approach to barrier to entry. The Commission “may wish to consider a rebuttable presumption that an applicant for market-based rates must be in compliance with both the interconnection rules and be a member of an RTO or ISO.” Firms that fail to rebut the presumption would be denied market-based rates.

“It’s important to consider entry barriers in two contexts — that is, entry into generation and entry via existing transmission,” Wroblewski said.

As for the affiliate abuse prong, “the chief concerns include discrimination, improper information sharing, and cross-subsidization or cost-shifting that favors [an] unregulated affiliate,” he told FERC staff members. “With each of these presumptions, an applicant may be able to present evidence that it does not engage in the prohibited behavior to override the presumption.”

In arguing against major revisions to the existing four-prong test for market power, he noted that FERC over the years “has undertaken several regulatory initiatives to ensure market power at any level, transmission and generation, [does] not hinder operations with the anticompetitive effect of reducing output or increasing prices.”

Key initiatives were Orders 888, 889 and 2000, as well as a revised merger policy, standard market design proposals, interconnection standards, revised codes of conduct and solicitation process issues.

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