FERC Filings
Motion for Leave to Intervene and Comment of EPSA and WPTF re: Southern California Edison Co. on Behalf of Mountainview Power Co. LLC
Comments
In this application, SCE has requested expedited FERC approval of a life of unit PPA with its “to-be-acquired subsidiary,” MVL, stating that SCE will only exercise this purchase option if FERC approves its proposed cost-based subsidiary-PPA structure by February 23, 2004. This approval is necessary, according to SCE, in order to allow the utility to receive the protection of the filed rate doctrine to ensure recovery of its purchased power costs from the MVL project. SCE asks FERC not to apply the Edgar standard, or, if it is applied, to find that it has been satisfied. SCE states that the proposed wholesale power purchase agreements between SCE and MVL satisfy the just and reasonable standard of Section 205 of the Federal Power Act.
Competitive Suppliers oppose SCE’s request that the Commission approve the instant Application as submitted without applying the Commission’s Edgar standard for affiliate transactions. Even though SCE includes a discussion of the CPUC review and draft decision of this unique subsidiary-PPA structure, such findings cannot function as a substitute for Commission review of the transaction in question. This PPA must satisfy the Edgar standard, under which the Commission requires a showing that the buyer has chosen the lowest-cost supplier from among the options presented, taking into account both price and non-price terms, for approval of transactions between affiliated buyers and sellers. In recent cases involving Ameren, Cinergy, Entergy and Southern, the Commission has clearly expressed the importance of meeting these standards in every market in order to ensure that competition is not unduly harmed. While SCE goes to great lengths to differentiate its situation and this PPA application from other affiliate arrangements, the Commission’s review of the PPAs in question must be sufficiently rigorous to ensure that the “subsidiary-PPA structure” is transparent, fair and non-discriminatory to all generation in the SCE market area and does not adversely affect competition.
The Commission has a responsibility to ensure that the PPA does not impart unfair competitive advantages to the Applicants or impede competition in the relevant market area. In Edgar, the Commission noted that it may be possible for a utility to demonstrate that it had not unduly favored its affiliate through a market test, which uses a bid or benchmark analysis to determine whether the transaction in question was one that could have resulted through arms-length negotiations between an unaffiliated buyer and seller. Specifically, the Commission presented three nonexclusive means to demonstrate absence of affiliate abuse: 1) evidence of direct head-to-head competition between the affiliated seller and competing unaffiliated suppliers in either a formal solicitation or in an informal negotiation process; 2) evidence of the prices that nonaffiliated buyers were willing to pay the affiliated seller for similar services; or 3) benchmark evidence of market value, based on both price and non-price terms and conditions, of contemporaneous sales made by nonaffiliated sellers for similar services in the relevant market.
Hence, to obtain Commission approval of the SCE-MVL PPA, the parties must either demonstrate that the contract was the result of a competitive solicitation providing for direct head-to-head competition with unaffiliated sellers or that the affiliate contract is equivalent, both on price and non-price terms, to other agreements entered into in the same relevant product market at the same time as the affiliate contract. Regardless of the expedited nature of SCE’s purchase option in this case, the Commission must be diligent to ensure that a market test has been met to the extent necessary for Commission approval. In addition, the absence of a sufficient market test would deprive the Commission of adequate information in order to rule on the application.
For this reason, the Commission should not approve this application until it is satisfied that the requirements of the Edgar standard have been met and competition is not harmed by the SCE-MLV transaction. As the Commission has repeatedly and correctly stated, vigorous, robust wholesale competition is plainly in the public interest. The health of competitive markets is a national issue; it is FERC’s responsibility and duty to ensure that transactions do not impede those markets.