# Presentation: 132540

## Introduction

- Electric Market-Based Rate Filings Including
- Triennial Reviews And New Market-Based
- Rate Authorizations

**Notes:**
Good morning.  This morning we will provide a recap of a number of market-based rate orders that the Commission has issued over the past year or so.  Since that time, the Commission has made significant strides in re-examining a number of its market-based rate policies and, in particular, how the Commission evaluates generation market power for the purposes of granting market-based rate authority.  In addition, the Commission has issued a final rule with respect to the market-based rate change in status requirement and, on this agenda, addresses overdue triennial review filings.

## FERC responsibility under the Federal Power Act:

- To Ensure That Rates Charged By Public Utilities For Wholesale Power Are Just, Reasonable And Not Unduly Discriminatory Or Preferential

**Notes:**
First let’s start with the Commission’s responsibility.  The Commission has a responsibility under the Federal Power Act to ensure that jurisdictional rates in the wholesale markets are just and reasonable. The Commission’s responsibility is to ensure that sellers not charge unjust and unreasonable wholesale rates, and that the market structures and market rules governing public utility sellers, and affecting the wholesale rates of such public utility sellers, do not result in, wholesale rates that are unjust, unreasonable, unduly discriminatory, or preferential. 
Where there is a competitive market, the Commission may rely on market-based rates in lieu of cost-of-service regulation to ensure that rates satisfy this requirement. Consistent with the Commission’s precedent, the Commission authorizes sales of electric energy at market-based rates only if the seller and its affiliates do not have, or have adequately mitigated, market power in the generation and transmission, and cannot erect other barriers to entry by potential competitors.  The Commission also considers whether there is evidence of affiliate abuse or reciprocal dealing. 

## Key Generation Market Power Orders

- April 14 Order (SMA Rehearing Order) 107 FERC ¶ 61,018
- May 13 Order (Implementation Order)   107 FERC ¶ 61,168
- July 8 Order (April 14 Rehearing Order) 108 FERC ¶ 61,026

**Notes:**
In the April 14, 2004 Order, the Commission replaced the previous generation market power test and instead, adopt the new interim generation market power screens.  These new screen consist of two “indicative screens” for assessing generation market power (an uncommitted pivotal supplier screen and an uncommitted wholesale market share screen. The Commission also modified the mitigation previously announced in an earlier order. 
In the May 13, 2004 Order, the Commission addressed procedures for implementing the new generation market power analysis and mitigation policy announced in the April 14, 2004 Order. 
In the July 8, 2004 Order, the Commission denied rehearing and provided clarification on several aspects of the April 14, 2004 Order.

## Two Step Approach

- Step One: Submit Indicative Screens
- Step Two: For Utilities That Fail
-  Delivered Price Test
- Tailored Mitigation
- Default Mitigation

**Notes:**
The April 14 Order adopted a two step approach in evaluating whether a utility has market power in generation. The first step is for Applicants to submit analysis based on the indicative screens. Generally, if the Applicant passes those screens and there is no evidence to the contrary, the applicant is deemed to satisfy the Commission’s market-based rate standards as it applies to generation market power. However, if the Applicant fails either of the indicative screens then it has several procedural options available.
In this instance, the applicant may then present evidence to rebut the presumption of market power by: (1) filing a Delivered Price Test which is a  more robust market power study; (2) filing alternative evidence such as actual historic sales data to show that it doesn’t have market power; or (3) filing a mitigation proposal tailored to its particular circumstances that would eliminate the ability to exercise market power; and/or (4) informing the Commission that it will adopt the default cost-based rates discussed in the April 14 Order and submit cost support for such rates. 
Before the Commission considers the Delivered Price Test, the applicant must be found to have “failed” one of the two “indicative” screens or so concede. Accordingly, the Delivered Price Test will be considered as an alternative study to support the grant of market-based rate authority. In all cases, the applicant or intervenors may present evidence such as historical wholesale sales data to support whether the applicant does or does not possess market power.

## Results To Date For Backlog 

- 80%  Complete
- 92%  Estimate After 6/15/05 Agenda
- 95%  Estimate After 6/30/05 Agenda

**Notes:**
To date and including this agenda the Commission has issued orders on about 80% of the backlog of triennial review filings.  We estimate that as of the June 15 agenda the Commission will have had before it about 92% of the backlogged triennials and the June 30 agenda should put us at about 95%.  
In the current fiscal year which began October 1, 2004 we have processed about 800 market-based rate dockets in total.  These include new requests for market-based rate authorization, new triennial review filings, triennial review filings listed on the May 13 implementation order, tariff changes, change in status filings, tariff cancellations and the various amendments to the filings.  
Staff has reviewed about 150 generation market power analysis.  This number only includes the studies that the Commission has already acted on and do not include studies involving the delivered price test and alternative studies based on historical data. 

## IOU Passes Using Non-RTO Geographic Markets

- Avista Corporation
- Consumers Energy Company
- Idaho Power Company
- Portland General Electric Company
- Puget Sound Energy, Inc.

**Notes:**
To date there have been a number of IOUs pass the indicative screens without using an RTO-wide geographic market and the Commission has issued an order finding that they satisfy the Commission’s standards for market-based rate authority.  They are: Avista Corporation, Consolidated Water Power, Consumers Energy Company, Idaho Power, Portland General, and Puget Sound Energy.  
With respect to Consumers Energy, the Commission approved its market-based rate triennial review based on the MECS control area prior to the start of the MidWest ISO day two market.  In the case of Puget, on December 20, 2004 the Commission instituted a section 206 proceeding because, among other things, Puget had provided an incomplete simultaneous transmission import capability study.  However, by order issued April 13, 2005 the Commission found that, based on addition information provided, Puget satisfies the Commission’s standards for market-based rate authority.  Accordingly, the Commission accepted Puget’s triennial review filing and terminated the 206 proceeding. 

## Today’s Agenda

- Three New MBR Authorizations Granted
- Eleven Triennial Review Filings Accepted
- Two Triennial Review Filing Conditionally Accepted
- Five Triennial Review Filings Set For A Section 206 Proceeding

**Notes:**
On this agenda, the Commission grants initial market-based rate authority for three utilities; accepts eleven triennial review filings; conditionally accepts two triennial review filing; and initiates a section 206 proceeding with regard to five triennial review filings.  Four of the 206 proceedings are the result of generation screen failures and two of these also include transmission market power.  One section 206 proceeding is focused on affiliate abuse only. 

## Technical Conferences

- Five Publicly Announced Technical Conferences (Docket No. RM04-7)
-  Three On Affiliate Abuse Including     	Competitive Procurement
-  Vertical Market Power/Barriers To Entry
-  Generation Market Power Analysis

**Notes:**
Based on this presentation so far, it may seem like we’ve concentrated exclusively on the new screens and generation market power in particular.  However, that’s not the case.  First, the Commission’s review of triennial market power filings include an analysis of not only generation market power but also vertical or transmission market power.  As part of those filings, the Commission also analyzes barriers to entry, and affiliate abuse and reciprocal dealing.  In addition, the Commission has conducted five publicly noticed technical conferences in connection with the generic market-based rate rulemaking in Docket No. RM04-7.

The five technical conferences break down like this: three on affiliate abuse including competitive procurement – I’m including the recent conference with NARUC that was held in Chicago; and one conference dedicated to generation market power and one dedicated to barriers to entry.  We have received volumes of comments from participants in those conferences and other interested parties.
In addition to the RM04-7 technical conferences, the Commission has held several publicly noticed technical conferences regarding triennial review filings.

## Key Affiliate Abuse Orders

- Mountainview Power Company
- 106 FERC ¶ 61,183 (2004)
-  Allegheny Energy Supply Company
- 108 FERC ¶ 61,082 (2004)
-  Conectiv Energy
- 109 FERC ¶ 61, 385 (2004)
- Public Service Electric And Gas
- 111 FERC ¶ 61, 152 (2005)

**Notes:**
The Commission has issued several significant orders in regard to affiliate abuse.  In particular the Commission has stated that all affiliate long-term power purchase agreements, whether market- or cost-based, must meet the Edgar standard.  Edgar provides three examples of how to show lack of affiliate abuse: (1) head-to-head competition; (2) price evidence of what non-affiliates pay; and (3) benchmark price evidence (e.g., an index).
In addition, the Commission has provided four non-mandatory guidelines for reviewing requests for proposals or RFPs.  They are: transparency; product definition; evaluation criteria; and oversight by an independent 3rd party.  In the Allegheny order the Commission stated that, “The underlying principle when evaluating an RFP . . . is that no affiliate should receive undue preference during any stage of the RFP.”
The Commission also set for hearing a case where an affiliate was selected under RFP that didn’t meet Allegheny guideline for independent 3rd party oversight.  With no 3rd party oversight, the applicant could have eliminated non-affiliate bidders based on credit.
Lastly on this topic, in the Public Service Electric & Gas Company the Commission approved an affiliate sale based on the applicants’ participation in a statewide auction bidding process finding that the RFP met the Allegheny guidelines.

## Other Significant Orders

- Reporting Requirements For Change in Status
- 110 FERC ¶ 61,097 (2005)
- E-84 – Order Announcing Policy On Non-Compliance With Conditions Of Market-Based Rate Authority

**Notes:**
On February 10, 2005 the Commission issued a final rule regarding changes in status.  The final rule, among other things, adopted uniform standards on all market-based rate sellers by eliminating the option to delay reporting changes in status until submission of the triennial review or to file a triennial review in lieu of reporting changes in status as they occur; specifically refers to control of generation or transmission facilities as a trigger which could result in the obligation to make a change in status filing, provides guidance on the characteristics that the Commission relies on in granting market-based rate authority and the form, content, and timing of a change in status filing.
With respect to E-84, the Commission announces its policy with respect to entities that have failed to comply with the conditions under which the Commission granted them market-based rate authority, in particular, the requirement to submit an updated market power analysis which I’ve been referring to as a triennial review filing.  The order which is on today’s consent agenda states that as a condition of receiving market-based rate authority, the Commission requires market-based rate sellers to submit an updated market power analysis every three years to allow the Commission to evaluate the reasonableness of their charges and to provide for ongoing monitoring of their ability to exercise market power.  In the absence of an updated market power analysis, the Commission cannot exercise its statutory duty to ensure that market-based rates are just and reasonable and that market-based rate sellers continue to lack the potential to exercise market power so that market forces are in fact determining the price.
Accordingly, the Commission notifies the public utilities identified in the order that their market-based rate authority will be revoked, unless they submit their updated market power analyses within 60 days of the issuance of this order or provide satisfactory support for why they should not be required to do so.  In addition, for the protection of customers, the order establishes a refund effective date pursuant to the provisions of section 206 of the Federal Power Act (FPA).
That concludes our presentation.  We are available for any questions.