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FERC to hold technical conference to address concerns about Southern Co. market power

Followingup on its earlier finding that almost a dozen subsidiaries of failed to rebut thepresumption of market power in several balancing authority areas, FERCannounced that it will hold a technical conference May 23 to discuss "selectedissues related to the market-based rate authorization" of those entities.

Amongother things, participants in the conference will look for ways to improve theenergy auction currently used to mitigate the utilities' presumed market powerand explore whether alternative forms of mitigation might be used to addressany market-power concerns, FERC said.

Thoseconcerns stretch back to at least 2004, when FERC initiated an investigation(EL04-124) into why Southern subsidiaries Alabama Power Co., Georgia Power Co., Gulf Power Co., MississippiPower Co. and SouthernPower Co. failed a wholesale market power screen in each of thefour seasons for the Southern Co.Services Inc. balancing authority area.

Toresolve the investigation, the subsidiaries said they would institute acost-based short-term energy auction process for that balancing authority area.While they proposed that only they would be allowed to submit offers into the auction,at least initially, FERC in December 2008 insisted that the auction be opened up to other sellerswithin 12 months of startup.

Butin an April 2015 show-cause order (EL15-39), FERC said the Southern companies' most recent updated marketpower analyses raise new concerns about market power in the Southern,PowerSouth Energy Cooperative,South Carolina Public ServiceAuthority d/b/a Santee Cooper, South Carolina Electric & Gas Co. and the city of Tallahassee, Fla.,balancing authority areas. The analyses showed horizontal market power screenfailures in those markets that may not be effectively mitigated even if theSouthern companies follow through on a proposal to take certain actions aimedat increasing auction participation by nonaffiliates, FERC said.

"Thedearth of participation in the auction could be an indication that it isineffective because there are few suppliers willing to sell in the auction, andfew buyers interested in purchasing what is being offered," FERC said. "Arobust auction is one in which there are a large number of buyers and sellers,of which this auction has neither."

Intheir response, theSouthern companies — Alabama Power, Georgia Power, Gulf Power, MississippiPower and Southern Power, as well as their affiliates Oleander Power ProjectLP, Southern Company-Florida LLC, Southern Turner Cimarron I LLC, SpectrumNevada Solar LLC, Campo Verde Solar LLC and Macho Springs Solar LLC. — insistedthat their presence in the Southeast energy market is not one of a dominantseller and that the market screen failures that prompted the show-cause orderwere "grossly overstated."

"Significantly,these results do not consider the mitigating effects of the energy auction,particularly the must-offer requirement, so [delivered price test] resultsalone cannot form a reasonable basis upon which to find that Southern companieshave market power in the marketplace," the filing said. "Taking theeffects of the energy auction into account effectively reduces Southerncompanies' market share to zero."

Accordingto the filing, transaction prices in the region are below the Southerncompanies' cost-based prices and low auction participation levels actuallyindicate that the market power mitigation measure is serving its purpose.

"Ifthe market was not competitive, or if parties were concerned that Southerncompanies had been exercising market power, one would expect more active use ofthe energy auction by market participants, where they have access to cost-basedenergy," the filing explained. "But they have not, instead using theenergy auction (if at all) as a supplement to their routine trading practices."

FERCapparently was swayed, at least to some extent, by the Southern companies'arguments, as it scheduled a technical conference to be held at itsheadquarters in Washington, D.C., rather than revoking the utilities'market-based rate authority. The event will be divided into two sections, thefirst addressing the organizational structure and interrelationship of theSouthern companies, and the second exploring potential improvements to theauction process as well as possible alternative forms of mitigation, accordingto FERC's May 4 noticeof technical conference.

Thecommission said the conference will give non-Southern attendees the opportunityto describe their experiences with the auction and explain why they decided to,or not to, participate.