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FERC proposes to scrap market power screens for some market-based rate sellers

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FERC proposes to scrap market power screens for some market-based rate sellers

The Federal Energy Regulatory Commission on Dec. 20 proposed to revise its policies for granting the right to make sales at market-based rates.

Under the proposal, entities seeking to obtain or retain authority to make market-based rate sales 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 — i.e., those currently operated by the ISO New England, New York ISO, PJM Interconnection and Midcontinent ISO — would no longer have to submit indicative horizontal market power screens.

"The existence of market power mitigation in an organized market generally results in a market where prices are transparent, which disciplines forward and bilateral markets by revealing a benchmark price, keeping offers competitive," FERC explained in the notice of proposed rulemaking, or NOPR.

But since some RTO/ISOs — currently, the California ISO and the Southwest Power Pool — do not operate centralized capacity markets and therefore cannot act to mitigate capacity sales, those seeking to sell capacity at market-based rates in those regions would still be required to submit both indicative screens for assessing horizontal market power. Entities, however, would be relieved of the requirement to submit those screens "if their market-based rate authority is limited to wholesale sales of energy and ancillary services," according to the NOPR.

FERC Chairman Neil Chatterjee praised the move during the agency's Dec. 20 regular open meeting. He noted that the commission "has long relied on RTO and ISO market monitoring and mitigation to address any market power concern" and called the proposal "a common-sense change that will reduce regulatory burdens without diminishing protections for ratepayers."

"I think this is a small but important step toward streamlining our market-based rate program," Chatterjee said.

While Commissioner Richard Glick agreed that eliminating unnecessary burdens imposed on jurisdictional utilities is important, he also said the NOPR "highlights the essential role that robust market mitigation plays" in protecting against market power abuses.

"I look forward to reviewing the comments that are submitted in this proceeding to consider whether there are additional measures the commission or regions could adopt to offer added protections," Glick said.

Under the commission's existing market-based rate policies, which largely were codified in 2007 in Order 697, market participants seeking to obtain or retain market-based rate authority generally are required to submit pivotal supplier and wholesale market share screens. Entities that fail one or both indicative screens are presumed to have market power and are given three choices: accept the presumption and mitigate the market power, agree to sell power at cost-based rates, or submit a delivered price test or other evidence to rebut the presumption.

FERC in 2014 attempted to make a similar change to the one outlined in the Dec. 20 proposal but that effort was shelved the following year after some stakeholders, including the American Public Power Association and the National Rural Electric Cooperative Association, strongly opposed the move. FERC explained at the time, however, that it was preserving the record on the matter for possible later consideration.

In its latest NOPR, FERC explained that its new proposal differs from the earlier one in "some material respects."

Among other things, the commission noted that all market-based rate sellers, even those exempted from submitting the indicative screens, still would be subject to other regulatory requirements, including those related to initial applications, changes in status and triennial updates. FERC also said it would eliminate for RTOs and ISOs that lack organized capacity markets the general rebuttable presumption established in 2007 that approved monitoring and mitigation measures sufficiently addresses any horizontal market power concerns regarding capacity sales.

FERC explained that the new exemption would apply to market-based rate sellers entering into bilateral transactions because although those transactions are not subject to monitoring and mitigation, "if RTO/ISO energy (e.g., day-ahead and real-time) markets and capacity markets are competitive, and commission-approved monitoring and mitigation sufficiently protect against the exercise of market power in these markets, then bilateral markets for the same product should also be competitive."

According to the NOPR, the move is expected to save market participants a total of approximately $2.2 million annually. Comments on the proposal are due 45 days after its publication in the Federal Register. (FERC docket RM19-2)