A recent triennial market power update filed by several Exelon Corp. affiliates shows that the companies fail FERC’s supply margin assessment (SMA) “by a significant margin,” Midwest Generation LLC recently said. The SMA screen is used to determine whether a wholesale power seller has potential generation market power.

The market power update was filed on Nov. 7 by Exelon Generation Co. LLC, PECO Energy Co., Commonwealth Edison Co. (ComEd), Amergen Energy Co., Unicom Power Marketing and Exelon Energy Co.

The filing concludes that there is a total of 36,444 MW of capacity available to serve load in the ComEd control area. Subtracting the ComEd peak load of 21,752 MW from this total results in a supply margin of 14,692 MW. “However, the applicants’ analysis states that there are 19,810 MW of Exelon-controlled generation resources in the ComEd control area, considerably more than the calculated supply margin,” Midwest Generation noted. “Thus, as ComEd acknowledges in its market power update filing, Exelon does not pass the FERC’s supply margin assessment screen for the ComEd control area.”

A witness for the Exelon companies said that it was not appropriate to apply a strict SMA test to the companies. The witness argued that a strict application of the screen does not account for retail load that ComEd serves under regulated, frozen retail rates and wholesale load that ComEd serves under fixed-price agreements. He further argued that ComEd’s retail load and the portion of ComEd’s wholesale load that is served under fixed price contracts are protected from any theoretical market power that the Exelon companies might exercise.

But Midwest Generation said that under Illinois restructuring, all of ComEd’s non-residential retail customers are allowed to choose alternate electric suppliers, so these customers currently have the opportunity to turn to the market. “If ComEd’s regulated retail rates are higher than would be produced by a competitive market, applicants have an incentive to withhold generation from the wholesale market in order to prevent ComEd’s non-residential customers from switching to alternate suppliers.” And, as long as the Exelon companies have this incentive, “it is not appropriate to treat ComEd’s non-residential customers as insulated from potential Exelon withholding.”

Midwest Generation also said that although meaningful competition has not yet developed to serve ComEd’s residential load, such load is not insulated from potential Exelon withholding of generation supplies. The Illinois restructuring legislation allows residential customers to choose alternate suppliers, but no such suppliers have yet sought certification.

“But one would expect that potential alternate suppliers would make their decisions to enter the market based on their ability to obtain wholesale supplies at a reasonable price, thus enabling them to offer competitive priced supplies to ComEd residential customers. If applicants have the ability to raise prices in the wholesale market within the ComEd control area by withholding generation, such actions can function to block entry of competitive retail suppliers.”

Therefore, Midwest Generation believes that all of ComEd’s retail load should be treated as potentially available to competitive suppliers and FERC should consider such load in applying the SMA screen. “It is therefore clearly relevant to consider that applicants control over 5,000 MW of generation in excess of the supply margin for the ComEd control area. Control of such generation could permit applicants to withhold generation in order to raise prices within such region.”

Midwest Generation is a subsidiary of Edison Mission Energy, which in turn is an affiliate of Southern California Edison Co.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.