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FERC upholds Ariz. utilities' market-based rate authority in Tucson area

After investigating the matter, the Federal Energy Regulatory Commission on Oct. 17 determined that Tucson Electric Power Co., UNS Electric Inc. and UniSource Energy Development Co. can maintain their authority to sell power at market-based rates in the Tucson Electric balancing authority area.

In doing so, the commission accepted an updated market power analysis from the utilities and terminated a proceeding launched under Section 206 of the Federal Power Act to determine if the companies' market-based rate authority in the area remained just and reasonable.

FERC allows power sales at market-based rates if the seller and its affiliates do not have, or adequately mitigate, horizontal and vertical market power.

In a December 2018 updated market power analysis, the three utilities said they passed the "pivotal supplier" indicative screen for the Tucson Electric balancing authority area for all four seasons but failed the wholesale market share screen for winter. As a result, FERC found that a rebuttable presumption existed that the companies had horizontal market power in the Tucson Electric balancing area.

The agency, therefore, initiated a Section 206 proceeding in which FERC asked the utilities to show cause why the commission should not revoke their market-based rate authority in the area. In response, the utilities asserted that the delivered price test, or DPT, analysis they submitted with their December 2018 filing demonstrated that they lack horizontal market power in the Tucson Electric balancing authority.

In its Oct. 17 order, FERC said that "after weighing all of the relevant factors" it found that the utilities successfully rebutted the presumption of market power in the area. When considering the companies' native load obligations, the commission said the utilities "are not pivotal in any season/load period," do not have at least 20% market share during any time of the year and have a market concentration index that is too low to show horizontal market power.

The commission also said the three utilities satisfied the agency's requirements for market-based rates regarding vertical market power, including by having FERC-approved open access transmission tariffs on file for the electric transmission facilities that Tucson Electric and UNS Electric own, operate or control. In addition, the companies said they only own "limited" natural gas assets in the region and have not nor plan to erect barriers to entry in any relevant market.

FERC, therefore, accepted the utilities updated market power analysis, ended the Section 206 proceeding and directed the companies to file updated market power analyses according to the regional reporting schedule for entities with market-based rate authorization. (FERC docket ER10-2564, et al.)