FERC Filings
REQUEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION FOR INTERVENTION, CLARIFICATION AND REHEARING OF THE COMMISSION’S NOVEMBER 20, 2001 ORDER ESTABLISHING REFUND EFFECTIVE DATE AND PROPOSING TO IMPOSE CONDITIONS ON MARKET-BASED RATE TARIFFS AND AUTHORIZATION
SUMMARY
EPSA continues to applaud the Commission’s long-term goal of achieving a vibrant wholesale marketplace that, by its very existence, limits opportunities for market power abuse. We are not necessarily opposed to refinement or clarification of market-based rate authority. However, the Commission’s instant
proposal to condition all existing market-based rate tariffs on vague and ill-defined standards such as “anticompetitive behavior” or the “exercise of market power” without appropriate determination of the definitions, procedures and authorities, would seriously undermine the competitive wholesale bulk power market that the Commission is trying to promote. Specifically, (1) such vague and undefined conditions guarantee regulatory uncertainty that will drastically increase the perceived risk level of energy companies in the minds of the investment and lending communities resulting in less available capital and/or higher costs which in turn will create a disincentive to build vital infrastructure; and (2) the examples of physical and economic withholding provided as evidence of anticompetitive behavior or the exercise of market power simply are not evidence of such behavior and do not reflect the way electricity must be priced as a commodity in a competitive bulk power market. Moreover, conditioning rates as proposed is overly broad and illegal under the Federal Power Act (FPA).
These points are reinforced by the attached Affidavit of Dr. Richard Tabors (“Affidavit”) (Attachment 1), in which he states that, ultimately, the Commission’s proposals will not ensure just and reasonable rates in bulk power markets. The Affidavit explains how actual experience in wholesale markets does not justify such draconian regulatory intervention; applying this condition to bilateral contracts will reduce the level and efficiency of competition in bulk power markets; the proposed approach for identifying unjust and unreasonable prices is vague and inconsistent with economic principles; there is no recognition of various markets for various products; an incremental-cost based standard violates fundamental principles of competitive markets; and the examples of anti-competitive behavior in the Order are inconsistent with the Commission’s merger policy.
In addition to the Tabors Affidavit, we offer a Wall Street perspective in the attached Affidavit written by former FERC Commissioner Branko Terzic (Attachment 2). In his comments, Mr. Terzic highlights how the Commission’s November 20th Order, in addition to the Commission’s other recent market intervention Orders, will seriously disturb capital markets and impede new capacity planning.
The Commission’s actions appear to be in response to the experiences in California rather than a pervasive problem with abuse of market-based rates. EPSA cautions against a potentially damaging overreaction to a market that was poorly designed or to political pressure – “events in California” do not justify the conditioning of all transactions for all sellers with market-based rates in competitive wholesale electric markets nation-wide. As is outlined in the Tabors Affidavit, “the level of definite harm to the public interest that will result from the imposition of this condition to all transactions of all sellers will be far greater than any potential benefit that may result from a longer refund period in a case involving a particular seller’s anticompetitive behavior.” The negative market impacts that will stem from the November 20th Order are numerous and will create uncertainty and increased risk for market participants – all of which will translate into higher costs for retailers and consumers.
EPSA shares the Commission’s goal of creating workably competitive markets free from the toxic effects of market power abuse. The November 20th
Order, however, will not further this goal. The surest way to diffuse market power is to have RTOs with the right structures and rules that facilitate liquid markets and transmission access, thereby reducing the need to evaluate or condition market-based rate applications. The most important task for the Commission right now is to take actions that: (a) standardize market design and market structures, (b) develop a new pro forma tariff, (c) broaden competitors’ access to non-discriminatory transmission service by establishing broadly defined RTOs, and (d) facilitate new entry with actions such as requiring fair and effective interconnection policies for new merchant plants. All of these efforts are under-way at the Commission and should remain the key focus of the Commission and industry attention.
As Commissioner Brownell recently said in her concurring opinion in Carolina Power & Light, Docket No. ER01-2301:
NCEMC’s request underscores the value that an RTO can bring to the region. First, access to information, standardized rules and procedures (including generation interconnection) and comparable access to the transmission—all things that an RTO can bring to enhance—should incent additional suppliers of energy and ancillary services in CP&L’s control area. Given the opportunity, a third party supplier will have an incentive to compete business away from the transmission provider, if it is profitable. Second, control of the transmission system by an independent operator should mitigate, if not eliminate, concerns of anticompetitive and affiliate abuse and thus produce greater options for customers—ones that NCEMC appears to be seeking now.
The Commission should follow the path outlined by Commissioner Brownell and, in the meantime, not impose refund conditions which are both illegal and antithetical to the current operation and continued development of the competitive wholesale electric bulk power market and the addition of needed infrastructure.