News
July-September 2004
News Release: July 8, 2004 | ![]() |
Docket Numbers: ER96-2495, et al. |
Commission Retains Screens Adopted In April, Clarifies
Interim Generation Market Power Policy
The Federal Energy Regulatory Commission today stood by its interim
market power screens adopted in April, but sought to clarify implementation
issues regarding the screens and the associated market-based rates
process.
In addressing the rehearing requests, the Commission said that
its earlier determination provides a sound basis to assess whether
an applicant for market-based rates has the ability to exercise
market power subject to the opportunity of both the applicant and
intervenors to provide specific evidence rebutting the outcome
of the indicative screens. The Commission noted that it has provided
extensive opportunity for all parties to inform the Commission
of their views, through multiple rounds of comments in addition
to a two-day technical conference.
Many commenters argued that the
screens were too strict, the Commission noted, while many others
argued they should be tightened.
Today’s order balances these conflicting views and adopts
well-established economic methods.
Chairman Pat Wood, III said: “Market-based rate authority
is not a right. The Federal Power Act allows us to grant this
authority only if public utilities have demonstrated that they
lack, or have adequately mitigated, market power. Today’s
order balances the competing views of a broad spectrum of commenters.”
The April 14 order, issued in response to rehearing requests on a proposed
November 2001 Supply Margin Assessment (SMA) proposal, replaced SMA with two
market power screens to assess generation market power and measures to mitigate
market power. The screens were adopted on an interim basis only, with the Commission
initiating a generic rulemaking proceeding and a comprehensive generic review
of market-based rates, generation and transmission market power,
along with other barriers to market entry, affiliate abuse and
reciprocal dealing.
The first screen is a pivotal supplier analysis
based on a control area’s annual peak demand. The hours
leading up to that point is the most likely time that
an applicant
will
be a pivotal supplier, the Commission noted.
The second
screen focuses on a market share analysis applied on a seasonal basis. Both
screens consider native load obligations,
operating reserve requirements and other commitments of the applicants.
If applicants pass both screens, it is presumed that generation
market power does not exist.
In denying rehearing of the two screens
adopted in the April 14 order, the Commission said the screens “provide
a fair assessment of generation market power” and will indicate
the potential for generation market power where it may exist.
The Commission explained that the pivotal supplier analysis evaluates
the applicant in relation to market supply and demand; the market
share analysis evaluates applicants’ size in relation to
others in the market. Taken together, the Commission is able
to measure both peak and off peak market power and the ability
to exercise market power both unilaterally and in interaction
with other sellers.
Failure of either screen sets up a presumption
that generation market power exists and the applicant for market-based
rates
may rebut the presumption with additional information through
the Delivered Price Test, or historical data. The Delivered Price
Test is a well-established analysis that has been used in over
100 cases for evaluating market power effects of utility mergers.
An applicant may also choose to file a mitigation proposal tailored
to its particular circumstances that would eliminate the ability
to exercise market power, or adopt cost-based rates.
AEP Power
Marketing, et al., Entergy Services, Inc., and Southern Company
Energy Marketing, L.P., the subject of the
original SMA
order in November 2001, have 30 days to submit their revised
generation market power analyses.
R-04-27
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