FERC Filings
Request for Rehearing and Clarification of the Order on Rehearing and Modifying Interim Generation Market Power Analysis and Mitigation Policy of EPSA
Introduction
On April 14, the Commission issued an order replacing the Supply Margin Assessment, announced in an order issued Nov. 20, 2001, with a new approach to screening for generation market power in the context of an application for market based rate authority. The new Order adopts two indicative screens to test for generation market power and establishes a new, but interim, substantive and procedural framework for assessing generation market power. At the same time, the Commission opened a new rulemaking docket to consider whether the interim market power screens should be retained, as well as to consider the other prongs in the Commission¡¦s four-prong test for granting market based rate authority.
EPSA welcomes the initiation of a rulemaking on the tests the Commission uses to grant market-based rate authority. As EPSA has pointed out in this proceeding and others, the interplay of generation and transmission market dominance allows some utilities to effectively foreclose competition, thus undermining the Commission¡¦s goal of promoting effective competitive wholesale markets. Only by reexamining the current tests for generation AND transmission market power can the Commission effectively and comprehensively address these issues. EPSA looks forward to working with the Commission and others in the industry in that rulemaking proceeding.
In light of the initiation of a rulemaking proceeding, EPSA is reluctant to seek rehearing of this Order as we plan to address issues related to the new generation market power screen and mitigation in the rulemaking process. However, despite the Commission¡¦s characterization of the new generation market power screens in this Order as ¡§interim,¡¨ EPSA anticipates that these new screens will be in use for some time, most likely several years.
EPSA endorses the Commission¡¦s efforts to:
balance the need for the Commission to be able to identify market-based rate applicants who have the potential to exercise generation market power (and to impose appropriate mitigation measures to address such market power) with the need to ensure that the analysis we adopt and the mitigation measures we design do not mistakenly attribute market power to those who do not have it, and thereby distort markets.
We are nonetheless concerned that the appropriate balance has not yet been fully achieved. While we endorse the concept of indicative, rather than definitive, screens, EPSA seeks both rehearing and clarification of the new screens and mitigation measures proposed in this Order. Specifically:
„X The Commission should provide greater clarity to the industry on the application of the screens. Many elements of the newly announced screens are susceptible to multiple interpretations and permit a variety of approaches. While EPSA appreciates the flexibility this provides, the resources required to develop or to contest applications under these new screens will overwhelm many market participants. Defining the Commission¡¦s expectations more clearly and providing fewer opportunities for subjective decisions by the applicants or intervenors will help make the screening for generation market power more efficient and effective. In addition, the Commission should consider a ¡§test run¡¨ of the new generation market screens to a small subset of companies, perhaps those identified in the initial orders, before applying this new approach generically. This will allow the industry and the Commission to become more familiar with the new screens and see what, if any adjustments, are necessary before imposing complex modeling.
„X The Commission should not penalize market participants who are in RTOs. In Paragraph 39 of the Order, the Commission permits applicants to forego the time and expense of submitting a generation market power analysis, accept a presumption of market power and proceed directly to appropriate mitigation. However, in Paragraph 189 the Commission may have denied the same ability to streamline this process to applicants within RTOs. In other words, a company is now being penalized for RTO/ISO participation by being required to submit a full generation market power analysis even when it is subject to extensive market monitoring and mitigation within an RTO. In addition, the Commission should require that RTOs with organized markets and Commission-approved mitigation perform screen analyses of their markets on an annual basis and not look at those markets on an applicant-by-applicant basis.
„X The Commission¡¦s new indicative screens do not reflect reality and must be revised. The new screens understate both generation concentration and the size of the wholesale market, are inconsistent with the Merger Policy Statement and produce unrealistic results. EPSA recommends that the Commission revise the screens to reflect the reality that wholesale and retail supply and wholesale and retail demand are fungible and cannot be easily separated.
„X The Commission should revamp the mitigation measures. EPSA believes that structural remedies, rather than behavioral remedies, are more effective and has significant concerns about the use of cost-based rates to achieve the Commission¡¦s goals. EPSA urges the Commission to require those vertically-integrated utilities that fail the market power screen to engage in well-designed competitive procurement programs and include merchants in the economic dispatch of their systems.
„X The Commission should address the inability of some companies to obtain the information necessary to prepare the required analyses. As noted above, some aspects of the new screens require access to complex and sophisticated information and tools to work with that information. For example, the use of simultaneous transfer limits requires an estimate of those limits. While utilities may file that information as part of their applications, other market participants, who do not own transmission assets, may not have access to the data needed to prepare such a study. Similarly, operating reserves are not generally known or stated in useful terms. EPSA requests that transmission owners be required to post both simultaneous import capability and operating reserves on their OASIS and to keep them current.
„X The Commission should clarify the Section 35.27 exemption. The Order reiterates that Section 35.27 of the Regulations exempts utilities seeking market-based rate authorization from demonstrating the lack of generation market power related to capacity for which construction commenced on or after July 9, 1996. However, the Order cautions that, if an applicant sites or acquires generation in an area where it or its affiliates own or control other generation assets, the applicant must address whether its new capacity raises generation market power concerns when added to the existing capacity. The Commission should confirm that no generation market power demonstration is required even when an applicant or its affiliates own or control other generation if all such generation in the relevant market is post July 9, 1996. In addition, the Commission introduces uncertainty with its use of the term ¡§area.¡¨ ¡§Area¡¨ is an undefined and imprecise term, and the Commission should clarify its definition in this context.
These issues are discussed further below.