FERC Filings
Comments of EPSA on Southern Power Co.'s Request to Withdraw its McIntosh PPAs
Comments
On April 4, 2003, Southern Power filed an application for approval of long-term market-based rate PPAs between Southern Power and two affiliated utilities. The Application pertained to two PPAs (collectively referred to as the McIntosh PPAs) representing a total of 1240 MW underlying the construction of two new 620 MW gas-fired combined cycle generating units to be constructed by Southern Power. Since the PPAs were entered into between affiliated entities, Southern Power filed for approval of the agreements pursuant to Section 205 of the Federal Power Act and Part 35 of the FERC Regulations, 18 C.F.R., Part 35. The Commission accepted, suspended and set the PPAs for hearing, pursuant in part to the Federal Power Act, particularly Sections 205 and 206 thereof. In its order, the Commission concluded that:
The hearing should determine: (a) whether in the design and implementation of the RFP Georgia Power and Savannah Electric unduly preferred its own affiliate, Southern Power; (b) whether the analysis of the RFP bids unduly favored Southern Power, particularly with respect to evaluation of non-price factors; (c) whether Georgia Power and Savannah Electric selected the affiliate based upon a reasonable combination of price and non-price factors; (d) whether Southern Power received an undue preference or competitive advantage in the RFP as a result of access to its affiliate's transmission system; (e) whether and to what extent the PPAs impact wholesale competition; and (f) whether the PPAs are just and reasonable and not unduly discriminatory.
In the ensuing ten months, parties have compiled an extensive evidentiary record and were on the cusp of a hearing scheduled to start just one week after Southern Power filed to withdraw the McIntosh PPAs.
EPSA has concerns over Southern Power’s attempt to circumvent FERC review or scrutiny of the PPAs themselves. However, far more important are the issues surrounding Southern’s procurement processes and attendant behaviors that raise questions of preferential and discriminatory dealing by and among Southern affiliates. There are several reasons that the Commission should keep this proceeding open and continue with the evidentiary hearing process.
• There are substantial allegations and submitted evidence of improper and discriminatory behavior by Southern affiliates that require further investigation and possible remedy by the Commission under Section 206 in order to protect the public interest.
• The investigation in this docket has raised serious questions as to the reasonableness of the Southern Company System Intercompany Interchange Contract (IIC), approved by FERC. Under the IIC, the Southern operating companies pool their resources and operate on an integrated basis. Evidence in this case has been submitted to show that the administration and economic dispatch of that pool has been preferential and discriminatory.
• Affiliates of Southern have entered into a transaction that will bring new resources under the IIC without the affiliates first engaging in a non-discriminatory-discriminatory RFP process. In the recent Mountainview case, the Commission “expressed concern about granting undue preference to affiliates whether through cost-based or market-based transactions, could cause long-term harm to the competitive market.”
These concerns exist regardless of the Commission’s jurisdiction over the PPAs themselves, as the behaviors and practices in question signal affiliate abuse and discriminatory preferences that must be remedied on a general basis going forward. The Commission can investigate these matters in this proceeding, utilizing the extensive record already compiled, and provide for such other processes as necessary to supplement the record.
The record is already extensive and could be supplemented as necessary. While EPSA has not been able to participate in the hearing portion of this proceeding due to resource limitations, other parties have expended extensive resources and time to compile evidence that the McIntosh PPAs were the fruit of a tainted and unfair procurement process. That process, and the behaviors and corporate practices that led up to it and likely still exist today, may represent affiliate self-dealing that must be ferreted out and remedied regardless of the disposition of these particular PPAs. The withdrawal of the PPAs is not sufficient to cause the Commission to terminate its investigation into these issues, which are well within its jurisdiction. Any affiliate abuse, preferential treatment or discriminatory access surrounding the procurement of power could constitute a more egregious and generalized business practice by Southern that must be investigated and remedied by the Commission. These issues lie at the heart of the 206 proceeding before the Commission in this docket, and remain unresolved.
In public testimony there are sufficient allegations and questions about Southern’s procurement process, access to information by Southern affiliates, and preferential treatment through the FERC-jurisdictional IIC and operation of the Southern pool that require further investigation by the Commission. John K. Sammon of FERC Staff testifies to the following:
As mentioned, Southern Power has a seat on the operating committee [of the Southern Pool], which by the terms of IIC, has a responsibility to review and recommend generation expansion plans to the operating companies. This would seem to give Southern Power the opportunity to acquire knowledge about the franchised Southern load and its generation needs to which other wholesale competitors for this load do not have access. When Southern created Southern Power, Southern said all it was attempting to do was to provide for a more efficient way to construct and market unregulated generating units that would otherwise be built and marketed by the traditional operating companies. Southern Power's membership in the IIC may be reasonable as to sales made to non-affiliates, but it does seem questionable as to its ability to compete on even terms with non-affiliates for sales to Southern's traditional franchised operating companies.
Further, Mr. Sammon notes,
It is possible that Southern Power's membership in the Southern Pool may at a minimum, create the appearance that Southern Power has an unfair advantage in the wholesale competitive market for sales to the traditional Southern operating companies. The mere appearance of an undue preference can have a chilling effect on the market.
Some of the issues in question in this proceeding may become even more problematic when and if the McIntosh units, as Southern-owned assets, are included and dispatched under the IIC as part of the Southern Pool. The IIC, which is FERC-jurisdictional, provides for the coordinated operations of the Southern traditional franchised operating companies through a pool of their generation assets, both regulated and non-regulated (i.e., Southern Power). Those assets are dispatched across the entire pool, regardless of which operating company owns or has contractual rights with that generation.
The purchase of the McIntosh units has been approved by the Georgia Public Service Commission. The assets will be brought into Southern’s pool via the IIC and will impact ratepayers across Southern’s full footprint. In the Mountainview case, the Commission stated, “Affiliate preference could discourage non-affiliates from adding supply in the local area, harming wholesale competition, and ultimately wholesale customers.” The Commission held that, going forward, all long term sales among affiliates must meet the Edgar standard regardless of whether the sales are at cost or market. The McIntosh PPAs will be replaced by Georgia Power and Savannah Electric and building generating facilities will be shared under the IIC. Thus, to the extent that the state of Georgia approves the addition of these new facilities at costs greater than the competitive market could provide, then consumers in Alabama, Mississippi and throughout the Southern system will be harmed. Additionally, questions have been raised by FERC Staff and Calpine about impermissible subsidies that flow from the franchised Southern load to Southern Power via the IIC and pool. Even if the withdrawal of the McIntosh PPAs is approved, the Commission must guard against a policy outcome that the Mountainview decision was designed to address. The actions of the operating companies, without further intervention by the Commission, would allow the operating companies to circumvent the policy in Mountainview. For that reason, the Commission must review the impact of the transaction on the IIC under the standards enunciated in Mountainview.
In this hearing process, which has continued for nearly a year at great expense to parties, there are a plethora of issues and concerns on the table that have been implicated by the submission of the McIntosh PPAs for FERC approval, but would exist outside of those particular PPAs as well. Further, these concerns include behaviors and practices by Southern Power, the Southern operating companies and Southern Energy which must be remedied or mitigated by FERC to ensure that wholesale competition is not further damaged on a going forward basis. These issues need to be fully investigated in all appropriate forums, and the record in this case has laid out a solid and extensive foundation for that investigation to continue in this proceeding. Hence, it is incumbent upon the Commission to continue this evidentiary proceeding into the underlying affiliate practices in question which remain unresolved.