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Some ask FERC to relax market power screens more, others want stricter standards

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Some ask FERC to relax market power screens more, others want stricter standards

A proposal to relax requirements for securing market-based rate authority faced significant pushback from community-owned and rural utilities as well as consumer advocates. But it was lauded by others in the power sector, and some even urged regulators to expand the proposal's reach.

At issue is the Federal Energy Regulatory Commission's role in assessing horizontal market power before granting entities the right to make sales at market-based rates. The commission's market-based rate, or MBR, program currently requires sellers to submit pivotal supplier and wholesale market share indicative screens to obtain or retain MBR authority for sales of energy, ancillary services and capacity.

A Dec. 20, 2018, notice of proposed rulemaking would nix those screens for entities in regions with energy, ancillary services and capacity markets subject to FERC-approved monitoring and mitigation by a regional transmission organization or independent system operator.

That relief would not apply to sellers in the California ISO or the Southwest Power Pool, which do not operate centralized capacity markets, unless the MBR authority "is limited to wholesale sales of energy and ancillary services," according to the NOPR.

Some say proposal should go further

Several trade organizations supported the NOPR but also sought to expand its applicability.

"The burden of preparing the indicative screens outweighs the benefits for market products where RTO/ISO mitigation exists," the Edison Electric Institute said. It added that "the same principles justify granting such relief to MBR sellers" in SPP's and CAISO's capacity markets as well as to "sellers in non-RTO/ISO markets with commission-approved monitoring and mitigation."

Although joint comments submitted by the Electric Power Supply Association and Independent Energy Producers Association, or EPSA/IEPA, did not press for the proposal’s expansion to SPP, they did say "an approach for CAISO can be developed to ensure that an entity cannot exercise horizontal market power in sales of capacity based on existing market rules and mechanisms."

Noting that sellers of resource adequacy capacity in CAISO currently can rely on MRB authority when making such sales, EPSA/IEPA said existing backstop procurement mechanisms that cap prices at either going forward fixed costs or full cost of service will adequately protect against the exercise of market power.

CAISO's department of market monitoring, or DMM, disagreed, saying it "strongly supports" FERC's decision to exclude the region’s capacity market sales from the proposal. The backstop procurement processes "do not mitigate market power like the commission-approved market power mitigation in [other] capacity markets," and recent evidence suggests that substantial market power exists in the region's bilateral capacity markets, the DMM said.

"Commission-approved market monitoring and mitigation is designed to 'prevent the exercise of market power before it happens,'" but CAISO's existing rules cannot do that, the market monitor said.

However, CAISO's DMM backed extending the proposal to the EIM. It said, "the automated market power mitigation procedures applied to each EIM balancing area provide effective market power mitigation on a system-wide level across each individual EIM balancing area."

Existing and planned participants in CAISO's EIM, which include utilities such as Arizona Public Service Co., Idaho Power Co., NV Energy Inc., PacifiCorp, and Portland General Electric Co., similarly asked FERC for clarification that the proposal will apply to transactions in that market. The EIM is "structurally competitive due to the absence of pivotal suppliers and low frequency of price separation," and any potential market power that might exist would be mitigated by CAISO's real-time bid mitigation procedures, the utilities said.

The PJM Interconnection's independent market monitor, Monitoring Analytics, backed the plan proposed by FERC as "efficient, logical and correct" so long as market monitors are given "equal standing with the RTO and its membership to file tariff revisions to the market monitoring and mitigation sections of the tariff."

Others seek to rein it in

Conversely, a joint filing by the American Antitrust Institute, American Public Power Association and National Rural Electric Cooperative Association said the NOPR failed to strike "a proper balance between alleviating regulatory burdens and guarding against the harmful effects of market power in wholesale electricity markets."

Those groups said FERC, if it were to move forward with the NOPR, would be distancing itself "from oversight of the competitive issues that arise in the organized wholesale electricity markets" and skirting its statutory duty to ensure just and reasonable wholesale electric rates.

"No court has sanctioned the NOPR's method of delegating the responsibility for ensuring just and reasonable rates to the ISOs and their market monitoring units," they said. "The [Federal Power Act] relies on public regulation, not private enforcement, as the means to ensure just and reasonable rates for wholesale sales of electricity."

Public Citizen similarly argued that the market power screens should not be eliminated for any entity seeking MBR authority in any market, noting that those screens currently act as FERC's "central regulatory review to ensure that applicants will be unable to charge unjust and unreasonable rates."

In particular, Public Citizen objected to FERC delegating responsibility for ensuring just and reasonable rates to the two private consulting firms that act as external market monitors for the ISO New England, Midcontinent ISO, New York ISO and PJM Interconnection. Neither Potomac Economics nor Monitoring Analytics feature boards of directors or public interest advisory committees, and they are not subject to open meeting laws or Freedom of Information queries or required to report to Congress, the group noted.

The proposal also would impair the ability of members of the public to challenge proposed rates because they no longer would be able to do so by weighing in on an MBR application but their concerns instead would be addressed in a different proceeding, Public Citizen warned.

Moreover, Public Citizen noted that "once an entity is granted market-based rate authority in RTO markets, the commission rarely revokes it." To make its point, Public Citizen cited the "full year and a half" FERC took to revoke Enron Corp.'s MBR authority after that company declared bankruptcy in December 2001.

Instead of relaxing the market screen requirement, Public Citizen argued that FERC should make MBR requirements more stringent by applying new "corporate character standards" to all applicants to weed out those "that may have a demonstrated track record of frequent and serious legal violations." The Federal Communications Commission considers such violations when granting or renewing broadcast licenses, and FERC should do the same when granting MBR authority, Public Citizen said.

The Transmission Access Policy Study Group, or TAPS, likewise opposed scrapping the market screens in any region at this "time of dramatic changes to the nation's generation mix and increasing industry consolidation."

"It would be unwise for the commission to eliminate the indicative screens requirement and place all of its eggs in one basket by relying solely on RTO monitoring and mitigation that may not be adequate to protect against new market power challenges at this time of fundamental industry transformation," TAPS said. (FERC docket RM19-2)

Jasmin Melvin is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.