Document ID: FERC-2019-0055-0001
Agency: ferc
Document Type: Proposed Rule
Title: Refinements to Horizontal Market Power Analysis for Sellers in Certain Regional Transmission Organization and Independent System Operator Markets
Posted Date: 2019-02-01T05:00Z

[Federal Register Volume 84, Number 22 (Friday, February 1, 2019)]
[Proposed Rules]
[Pages 993-1006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00459]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM19-2-000]

Refinements to Horizontal Market Power Analysis for Sellers in 
Certain Regional Transmission Organization and Independent System 
Operator Markets

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing to revise its regulations regarding the horizontal market 
power analysis required for market-based rate sellers that study 
certain Regional Transmission Organization (RTO) or Independent System 
Operator (ISO) markets and submarkets therein. This proposed 
modification of the Commission's horizontal market power analysis would 
relieve such sellers of the obligation to submit indicative screens 
when seeking to obtain or retain market-based rate authority. The 
Commission's regulations would continue to require market-based rate 
sellers that study an RTO, ISO, or submarket therein, to submit 
indicative screens for authorization to make capacity sales at market-
based rates in any RTO/ISO market that lacks an RTO/ISO-administered 
capacity market subject to Commission-approved RTO/ISO monitoring and 
mitigation. For those RTOs and ISOs lacking an RTO/ISO-administered 
capacity market, we propose that Commission-approved RTO/ISO monitoring 
and mitigation no longer be presumed sufficient to address any 
horizontal market power concerns for capacity sales where there are 
indicative screen failures.

DATES: Comments are due March 18, 2019.

ADDRESSES: Comments, identified by docket number, may be filed 
electronically at http://www.ferc.gov in acceptable native applications 
and print-to-PDF, but not in scanned or picture format. For those 
unable to file electronically, comments may be filed by mail or hand-
delivery to: Federal Energy Regulatory Commission, Secretary of the 
Commission, 888 First Street NE, Washington, DC 20426. The Comment 
Procedures Section of this document contains more detailed filing 
procedures.

FOR FURTHER INFORMATION CONTACT: 

Gregory Basheda, Office of Energy Market Regulation, Federal Energy 
Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 
502-6479, Gregory.basheda@ferc.gov.
Laura Chipkin, Office of the General Counsel, Federal Energy Regulatory 
Commission, 888 First Street NE, Washington, DC 20426, (202) 502-8615, 
Laura.chipkin@ferc.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

 
                                                         Paragraph Nos.
 
I. Introduction......................................                  1
II. Background.......................................                  3
    A. The Market-Based Rate Program.................                  3
    B. Order No. 816 Proposal........................                  7
    C. Comments on Order No. 816 Proposal............                 10
III. Discussion......................................                 23
    A. Overview of Existing RTO/ISO Market Power                      26
     Monitoring and Mitigation.......................
    B. Proposal Implementation.......................                 42
    C. Bilateral Transactions........................                 56
    D. The Commission Will Continue To Ensure That                    61
     Market-Based Rates Are Just and Reasonable......
IV. Information Collection Statement.................                 71
V. Environmental Analysis............................                 77
VI. Regulatory Flexibility Act.......................                 78
VII. Comment Procedures..............................                 84
VIII. Document Availability..........................                 88
 

I. Introduction

    1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy 
Regulatory Commission (Commission) seeks comment on a proposal to 
modify the horizontal market power analysis for certain Regional 
Transmission Organization (RTO) and Independent System Operator (ISO) 
markets. Specifically, the Commission proposes to relieve market-based 
rate sellers, i.e., sellers seeking to obtain or retain authorization 
to make market-based rate sales, of the requirement to submit 
indicative screens for certain RTO/ISO markets and submarkets.\1\ This 
proposed modification of the Commission's horizontal market power 
analysis would apply in any RTO/ISO market with RTO/ISO-administered 
energy, ancillary services, and capacity markets subject to Commission-
approved RTO/ISO monitoring and mitigation. In addition, for RTOs and 
ISOs that lack an RTO/ISO-administered capacity market, market-based 
rate sellers would be relieved of the requirement to submit indicative 
screens if their market-based rate authority is limited to sales of 
energy and/or ancillary services. We believe that this proposal would 
reduce the filing burden on market-based rate sellers in RTO/ISO 
markets without compromising the Commission's ability

[[Page 994]]

to prevent the potential exercise of market power in RTO/ISO markets.
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    \1\ For purposes of this NOPR, references to RTO/ISO markets 
include any submarkets therein.
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    2. The Commission's regulations would continue to require RTO/ISO 
sellers \2\ to submit indicative screens for authorization to make 
capacity sales in any RTO/ISO markets that lack an RTO/ISO-administered 
capacity market subject to Commission-approved RTO/ISO monitoring and 
mitigation. We also propose to eliminate the rebuttable presumption 
that Commission-approved RTO/ISO market monitoring and mitigation is 
sufficient to address any horizontal market power concerns regarding 
sales of capacity in RTOs/ISOs that do not have an RTO/ISO-administered 
capacity market.
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    \2\ RTO/ISO sellers are market-based rate sellers that have an 
RTO/ISO market as a relevant geographic market.
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II. Background

A. The Market-Based Rate Program

    3. In Order No. 697,\3\ the Commission codified two indicative 
screens for assessing horizontal market power for market-based rate 
sellers: The pivotal supplier screen and the wholesale market share 
screen (with a 20 percent threshold), each of which serves as a cross 
check on the other to determine whether sellers may have market power 
and should be further examined.\4\ The Commission stated that passage 
of both indicative screens establishes a rebuttable presumption that 
the seller does not possess horizontal market power. Sellers that fail 
either indicative screen are rebuttably presumed to have market power 
and have the opportunity to present evidence through a delivered price 
test (DPT) analysis or other evidence demonstrating that, despite a 
screen failure, they do not have market power.\5\ The Commission uses a 
``snapshot in time'' approach based on historical data for both the 
indicative screens and the DPT analysis.\6\
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    \3\ Market-Based Rates for Wholesale Sales of Electric Energy, 
Capacity and Ancillary Services by Public Utilities, Order No. 697, 
FERC Stats. & Regs. ] 31,252, clarified, 121 FERC ] 61,260 (2007) 
(Clarifying Order), order on reh'g, Order No. 697-A, FERC Stats. & 
Regs. ] 31,268, clarified, 124 FERC ] 61,055, order on reh'g, Order 
No. 697-B, FERC Stats. & Regs. ] 31,285 (2008), order on reh'g, 
Order No. 697-C, FERC Stats. & Regs. ] 31,291 (2009), order on 
reh'g, Order No. 697-D, FERC Stats. & Regs. ] 31,305 (2010), aff'd 
sub nom. Mont. Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 
2011), cert. denied, 133 S. Ct. 26 (2012).
    \4\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 62.
    \5\ Id. P 13; 18 CFR 35.37(c)(3) (2018).
    \6\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 17.
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    4. With respect to the horizontal market power analysis, in 
traditional markets (outside RTO/ISO markets) the default relevant 
geographic market for purposes of the indicative screens is first, the 
balancing authority area(s) where the seller is physically located, and 
second, the markets directly interconnected to the seller's balancing 
authority area (first-tier balancing authority areas).\7\ Generally, 
sellers that are located in and are members of an RTO/ISO may consider 
the geographic region under the control of the RTO/ISO as the default 
relevant geographic market for purposes of the indicative screens.\8\
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    \7\ The Commission also noted that ``[w]here a generator is 
interconnecting to a non-affiliate owned or controlled transmission 
system, there is only one relevant market (i.e., the balancing 
authority area in which the generator is located).'' Id. P 232 
n.217.
    \8\ Where the Commission has made a specific finding that there 
is a submarket within an RTO/ISO, that submarket becomes a default 
relevant geographic market for market-based rate sellers located 
within the submarket for purposes of the horizontal market power 
analysis. See id. PP 15, 231.
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    5. In Order No. 697, the Commission created two categories of 
market-based rate sellers.\9\ Category 1 sellers are wholesale power 
marketers and wholesale power producers that own, control, or are 
affiliated with 500 megawatts (MW) or less of generation in aggregate 
per region; that do not own, operate, or control transmission 
facilities other than limited equipment necessary to connect individual 
generation facilities to the transmission grid (or have been granted 
waiver of the requirements of Order No. 888 \10\); that are not 
affiliated with anyone that owns, operates, or controls transmission 
facilities in the same region as the seller's generation assets; that 
are not affiliated with a franchised public utility in the same region 
as the seller's generation assets; and that do not raise other vertical 
market power issues.\11\ Category 1 sellers are not required to file 
regularly scheduled updated market power analyses. Market-based rate 
sellers that do not fall into Category 1 are designated as Category 2 
sellers and are required to file updated market power analyses every 
three years.\12\ However, the Commission may require an updated market 
power analysis from any market-based rate seller at any time, including 
those sellers that fall within Category 1.\13\
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    \9\ Id. P 848.
    \10\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, FERC Stats. & Regs. ] 31,036 (1996), order on reh'g, 
Order No. 888-A, FERC Stats. & Regs. ] 31,048, order on reh'g, Order 
No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C, 
82 FERC ] 61,046 (1998), aff'd in relevant part sub nom. 
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (DC 
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \11\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 849 
n.1000; 18 CFR 35.36(a) (2018).
    \12\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 850.
    \13\ Id. P 853.
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    6. Section 35.37 of the Commission's regulations requires market-
based rate sellers to submit market power analyses: (1) When seeking 
market-based rate authority; (2) every three years for Category 2 
sellers; and (3) at any other time the Commission requests a seller to 
submit an analysis. A market power analysis must address a market-based 
rate seller's potential to exercise horizontal and vertical market 
power. If a market-based rate seller studying an RTO/ISO market as a 
relevant geographic market fails the indicative screens for the RTO/ISO 
market, it can seek to obtain or retain market-based rate authority by 
relying on Commission-approved RTO/ISO monitoring and mitigation.\14\
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    \14\ In Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 111, 
the Commission stated that ``to the extent a seller seeking to 
obtain or retain market-based rate authority is relying on existing 
Commission-approved [RTO] market monitoring and mitigation, we adopt 
a rebuttable presumption that the existing mitigation is sufficient 
to address any market power concerns.''
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B. Order No. 816 15 Proposal
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    \15\ Refinements to Policies and Procedures for Market-Based 
Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary 
Services by Public Utilities, Order No. 816, FERC Stats. & Regs. ] 
31,374 (cross-referenced at 153 FERC ] 61,065) (2015), order on 
reh'g Order No. 816-A, FERC Stats. & Regs. ] 31,282 (2016).
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    7. On July 19, 2014, the Commission proposed certain changes and 
clarifications in order to streamline and improve the market-based rate 
program's processes and procedures.\16\ The Commission found that the 
burdens associated with certain requirements may outweigh the benefits 
in certain circumstances. For those reasons, the Commission proposed 
changes to the market-based rate program that the Commission believed 
would reduce burden, while continuing to ensure that the standards for 
market-based rate sales result in sales that are just and reasonable.
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    \16\ Refinements to Policies and Procedures for Market-Based 
Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary 
Services by Public Utilities, Order No. 816, FERC Stats. & Regs. ] 
32,702 at P 10 (2014) (Order No. 816 NOPR).
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    8. The Commission noted that since the issuance of Order No. 697, 
it has been the Commission's practice to grant sellers market-based 
rate authority or allow them to retain market-based rate authority 
where they have failed indicative screens in an RTO/ISO market but have 
relied on Commission-approved monitoring and mitigation to mitigate any 
market power that the

[[Page 995]]

sellers may have.\17\ The Commission found that the existence of market 
monitoring and mitigation in an organized market generally results in 
transparent prices, which discipline forward \18\ and bilateral markets 
by revealing a benchmark price and keeping offers competitive.\19\ 
While the burdens of preparing the indicative screens are not 
necessarily greater for RTO/ISO sellers than for market-based rate 
sellers in other markets, in the Order No. 816 NOPR, the Commission 
noted that the submission of indicative screens yields little practical 
benefit because it has been the Commission's practice to allow RTO/ISO 
sellers that fail the indicative screens to rely on RTO/ISO monitoring 
and mitigation to mitigate any market power that the sellers may have. 
Thus, for market-based rate sellers in RTO/ISO markets, the Commission 
stated that ``the burden of submitting indicative screens may not be 
`outweighed by the additional information gleaned with respect to a 
specific seller's market power.' '' \20\
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    \17\ See Order No. 816 NOPR, FERC Stats. & Regs. ] 32,702 at P 
31. See, e.g., NRG Power Marketing, LLC, 150 FERC ] 61,011 (2015) 
(failures in the CAISO and PJM markets); Entergy Arkansas, Inc., 145 
FERC ] 61,243 (2013) (failures in the MISO market); PSEG Energy 
Resources & Trade LLC, 125 FERC ] 61,073, at PP 31-32 (2008) 
(failures in the PJM-East submarket); Dominion Energy Marketing, 
Inc., 125 FERC ] 61,070, at PP 26-27 (2008) (failures in the 
Connecticut submarket of ISO New England, Inc.); Niagara Mohawk 
Power Corp., 123 FERC ] 61,175, at P 28 (2008) (failures in the New 
York City and Long Island submarkets of the New York Independent 
System Operator, Inc.).
    \18\ Forward markets are distinct from RTO/ISO-administered 
capacity markets, as discussed below.
    \19\ Order No. 816 NOPR, FERC Stats. & Regs. ] 32,702 at P 35.
    \20\ Id. P 34 (quoting Order No. 697-A, FERC Stats. & Regs. ] 
31,268 at P 110).
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    9. Specifically, as relevant for the purposes of the instant NOPR, 
the Commission proposed in the Order No. 816 NOPR to allow market-based 
rate sellers in RTO/ISO markets to address horizontal market power 
issues in a streamlined manner that would not involve the submission of 
indicative screens if the seller relies on Commission-approved 
monitoring and mitigation to prevent the exercise of market power.\21\ 
Under that proposal, RTO/ISO sellers would state that they are relying 
on such monitoring and mitigation to address the potential for market 
power issues that they might have, provide an asset appendix, and 
describe their generation and transmission assets. The Commission would 
retain its ability to require a market power analysis, including 
indicative screens, from any market-based rate seller at any time.\22\
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    \21\ See id. PP 35-36.
    \22\ Id. P 36.
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C. Comments on Order No. 816 Proposal

    10. The Commission received numerous comments on its proposal to 
eliminate the need for RTO/ISO sellers to submit indicative screens as 
part of their market power analyses. As discussed below, some 
commenters supported the Commission's proposal; \23\ other commenters 
requested that the Commission clarify aspects of its proposal,\24\ or 
extend the proposal to additional circumstances.\25\ However, some 
commenters opposed the Commission's proposal, raising issues regarding 
the Commission's legal authority to eliminate the requirement to submit 
indicative screens \26\ or the effectiveness of RTO/ISO monitoring and 
mitigation.\27\
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    \23\ See, e.g., American Electric Power Service Corporation 
(AEP) at 4-5; Electric Power Supply Association (EPSA) at 3-4; 
FirstEnergy Service Company (FirstEnergy) at 4-5; Subsidiaries of 
NRG Energy, Inc. (NRG Companies) at 8-9.
    \24\ See, e.g., E.ON Climate & Renewables North America LLC 
(E.ON) at 2-4; Southern California Edison Company (SoCal Edison) at 
16; Julie Solomon and Matthew Arenchild (Solomon/Arenchild) at 2; 
Edison Electric Institute (EEI) at 6; Potomac Economics at 3-4; 
NextEra Energy, Inc. (NextEra) at 2-3.
    \25\ See, e.g., FirstEnergy at 6; AEP at 6; EEI at 7; Golden 
Spread Electric Cooperative, Inc. (Golden Spread) at 6; El Paso 
Electric Company (El Paso) at 5-6.
    \26\ American Antitrust Institute (AAI) at 2-7; American Public 
Power Association and National Rural Electric Cooperative 
Association (APPA/NRECA) at 5-21; Transmission Access Policy Study 
Group (TAPS) at 1-2, 4-9.
    \27\ Potomac Economics at 3-4.
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    11. Numerous commenters supported the Commission's proposal. AEP 
urged the Commission to adopt the proposal, stating that ``[t]he nature 
of the current RTOs, with large markets, transparent pricing and 
vigorous, independent monitoring and mitigation measures, provides 
sellers with incentives to offer competitive prices'' and noted that 
``[c]ustomers will not be harmed if the current reporting requirements 
are narrowed as proposed.'' \28\ EPSA also agreed that the indicative 
screen requirement ``yields little practical benefit because, according 
to current market power screen rules, if a seller in an RTO/ISO market 
does fail the indicative screens, the Commission has allowed such 
sellers to rely on Commission-approved market monitoring and mitigation 
as a default.'' \29\ The Commission's proposal was also supported by 
E.ON, SoCal Edison, Solomon/Arenchild, SunEdison, and NRG.\30\
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    \28\ AEP at 5.
    \29\ EPSA at 3-4.
    \30\ See E.ON at 2-4, SoCal Edison at 16, Solomon/Arenchild at 
2, SunEdison at 1, and NRG at 8-10.
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    12. Several other commenters supported the proposal and made 
additional proposals. For example, Golden Spread supported the proposal 
but requested that the Commission ``afford RTO/ISO market participants 
or interested stakeholders that have concerns about market power the 
opportunity to come forward and present evidence that a specific market 
participant or market participants in a specific RTO/ISO generally have 
the ability to exercise generation market power.'' \31\ FirstEnergy 
supported the proposal but also argued that a seller should no longer 
be required to file a change in status report based on increases in the 
amount of generating capacity that it owns or controls once it has made 
an affirmative statement that it is selling electricity in RTO markets 
with Commission-approved market monitoring and mitigation practices and 
the Commission has accepted that statement as sufficient to address 
horizontal market power concerns.\32\
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    \31\ Golden Spread at 6.
    \32\ First Energy at 6.
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    13. In addition, EEI requested that the Commission ``provide the 
same relief from undertaking the horizontal market power screens 
outside RTOs, to utilities that have accepted FERC-approved market 
power mitigation measures that are intended to address market power 
concerns in specific balancing authority areas [. . .], markets, or 
regions.'' \33\ Similarly, El Paso, while not suggesting that third-
party market monitoring suffices to eliminate the indicative screen 
requirement, stated that, where a non-RTO market has third-party market 
monitoring of a size and scope comparable to that of an RTO (``i.e., 
with hourly testing of horizontal market power over the price of 
energy, accompanied by FERC-approved automatic mitigation''), and when 
public utility sellers with such Commission-approved measures in place 
are not seeking to rebut the Commission's pre-existing presumption of 
market power or the associated Commission-approved measures, ``it may 
be appropriate for the utilities to provide, in their triennial 
submissions, only the asset appendices and descriptions that would be 
required for [s]ellers within RTOs, for the sake of comparability.'' 
\34\
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    \33\ Id. EEI also requested that the Commission ``clarify that 
change in status reporting is not required as to changes in any 
information that would have been used only in the market power 
indicative screens and analyses, to the extent those screens and 
analyses are no longer required for particular public utilities in 
particular [balancing authority areas], markets, or regions.'' Id. 
at 7.
    \34\ El Paso at 5-6.
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    14. NextEra supported the proposal and asked the Commission to 
clarify

[[Page 996]]

that the Order No. 816 NOPR did not intend to eliminate the rebuttable 
presumption regarding Commission-approved RTO monitoring and mitigation 
that was developed in Order No. 697-A.\35\ Potomac Economics agreed 
with the proposed reforms, but recommended that the Commission ``take 
steps to ensure that the market mitigation measures for each RTO are 
complete and effective.'' \36\ SoCal Edison sought clarification that 
entities participating in the California Independent System Operator 
Corporation (CAISO) Energy Imbalance market must still perform screens 
for their ``home'' market and that such market has not been expanded to 
include CAISO.\37\
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    \35\ NextEra at 3 (citing Order No. 697-A, FERC Stats. & Regs. ] 
31,268 at P 111). NextEra stated that if that is not the case, that 
the Commission provide a rationale for the change in policy.
    \36\ Potomac Economics at 3.
    \37\ SoCal Edison at 16.
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    15. Several commenters opposed the proposal citing legal, economic, 
or implementation issues. APPA/NRECA contended that the proposal 
represented a fundamental departure from the market-based rate scheme 
that the courts have previously upheld \38\ and objected on the 
following grounds: (1) The proposed rule provides no legal or factual 
analysis showing that RTO mitigation standing alone is legally 
sufficient to allow market-based pricing; \39\ (2) the proposed rule 
would effectively deregulate public utilities' bilateral sales in RTO 
regions; \40\ and (3) the proposal would unlawfully subdelegate to 
private entities, i.e., RTOs, the Commission's statutory 
responsibilities to ensure that wholesale electric rates of public 
utilities are just and reasonable.\41\ APPA/NRECA also argued that 
recent experience suggests that RTO mitigation has not been adequate to 
prevent the exercise of individual seller market power.\42\
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    \38\ APPA/NRECA at 8-10 (citing Mont. Consumer Counsel v. FERC, 
659 F.3d 910; California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th 
Cir. 2004) (Lockyer); Blumenthal v. FERC, 552 F.3d 875,882 (DC Cir. 
2009) (Blumenthal)).
    \39\ APPA/NRECA at 10 (``The NOPR does not address the specific 
mitigation measures of the RTO tariffs where the Commission's 
proposal would be effective. The NOPR's general statement that RTO 
market monitoring and mitigation has been `Commission-approved' does 
not constitute reasoned decision-making [. . .] [T]he Commission 
approved RTO mitigation [acts] as an addition to--not a substitute 
for--the Order No. 697 requirement that sellers pass the indicative 
screens or otherwise demonstrate that they lack or have mitigated 
their market power. No appellate court precedent supports the 
lawfulness of market-based rates where the only check on seller 
market power is RTO mitigation and the Order No. 697 requirements 
are eliminated.'' Id.at 10-11). See also id. at 16-17 (``The 
adequacy of RTO mitigation of horizontal market power in wholesale 
electricity is a fact-bound matter. An administrative decision to 
rely on RTO mitigation of public utility sellers' horizontal market 
power--even if legally permissible--requires evidence, analysis, and 
findings of fact and law regarding specific RTO tariffs and markets. 
But the NOPR provides no such evidence, analysis, or findings.'').
    \40\ APPA/NRECA at 11-14 (``[T]he NOPR does not state, much less 
demonstrate, that this supposed indirect incentive [for a seller to 
offer at a competitive price] will ensure that the resulting rates 
for bilateral sales are just and reasonable [. . .] The NOPR's claim 
that RTO markets will discipline market power in bilateral markets 
is unsubstantiated and illogical.'') Id. at 12-13.
    \41\ APPA/NRECA at 14-16. See also id. at 15 (`` 'The Commission 
is the only body that can apply and enforce this statutory standard. 
The Commission cannot subdelegate this core statutory duty to the 
regulated public utility itself.' '' (citing U.S. Telecom Ass'n v. 
FCC, 359 F.3d 554, 565-566 (DC Cir. 2004)).
    \42\ Id. at 17-21.
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    16. AAI stated that the proposal ``would relinquish perhaps the 
most important tool the Commission has to prevent abusive conduct 
before it occurs--namely the ability to deny market-based rate 
authority based on an ex ante showing that a generator possesses market 
power.'' \43\ AAI further contended that the Commission has ``largely 
outsourced the oversight of monitoring and mitigation'' to the RTO 
market monitors and that the proposal to eliminate the horizontal 
market power indicative screens ``would seem to compound the 
Commission's already significant distance from this crucial area of 
oversight.'' \44\ AAI also stated that the information submitted as 
part of the screens provides information and insight that the 
Commission can use to improve and refine policies to prevent 
transmission owners from discriminating against rival generators and 
that ``[c]easing to collect this critical information would do a 
disservice to competition and consumers.'' \45\
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    \43\ AAI at 3.
    \44\ Id. at 4. AAI also stated that there have been several 
incidents involving the exercise of market power that were in fact 
not detected or mitigated, citing the proceedings in Docket No. 
ER14-1409-000, and New York Independent System Operator, Inc., 131 
FERC ] 61,170 (2010). Id. at 5-6.
    \45\ Id. at 6-7.
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    17. TAPS stated that, even if RTO monitoring and mitigation is 
effective to mitigate market power today, ``that may not [be] true 
going forward, and the Commission should not blind itself to the extent 
of seller market power in a particular RTO'' and that ``[t]he 
Commission should not and cannot properly rely on Commission-approved 
market monitoring and mitigation in organized markets or market forces 
to safeguard against the exercise of market power in bilateral and 
forward markets.'' \46\ TAPS stated that ``Order No. 697-A's 
pronouncements with respect to bilateral and forward markets are a 
compelling reason to continue to require the submission of indicative 
screen data'' and that if the Commission removes the requirement for 
RTO/ISO sellers to submit indicative screens, ``the Commission will 
need to revisit Order [No.] 697's treatment of [market-based rates] for 
forward and bilateral sales in RTO regions in light of the removal of 
an essential element of the support for that disposition.'' \47\
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    \46\ TAPS at 1-2.
    \47\ Id. at 9.
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    18. TAPS also stated that it is problematic for the Commission to 
rely on the ``faulty presumption'' that organized spot markets will 
discipline forward and bilateral markets by revealing benchmark prices 
``given the non-substitutable nature of the products.'' \48\ TAPS 
contended that Order No. 697 relied on the Commission's market power 
screening combined with Commission-approved monitoring and mitigation 
to support market-based rates in bilateral markets, pointing to the 
ability of customers to challenge the RTO mitigation in the context of 
market-based rate applications and triennial reviews informed by the 
screen information: ``[t]he NOPR, however, would completely remove this 
important avenue to assure just and reasonable rates on bilateral 
contracts that the Commission has sought to promote.'' \49\
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    \48\ Id. at 8 (citing Order No. 816 NOPR, FERC Stats. & Regs. ] 
32,702 at P 76 (``it is unrealistic for franchised public utilities 
to rely extensively on spot market purchases to serve statutory load 
obligations.'')).
    \49\ Id. at 8-9.
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    19. EPSA filed comments in reply to APPA/NRECA and Potomac 
Economics. EPSA disagreed with APPA/NCRECA's assertion that relying on 
mitigation measures under the various RTO tariffs in lieu of market 
power analyses represents a departure from the market-based rate scheme 
that the courts have previously upheld, because the Commission adopted 
the rebuttable presumption in Order No. 697-A, if not earlier.\50\ EPSA 
also takes issue with APPA/NRECA's argument that the proposed rule 
would effectively deregulate public utilities' bilateral sales in RTO 
regions, arguing that the Commission in Order No. 697-A explained that 
RTO/ISO mitigation measures act as a disciplining force even with 
respect to sales negotiated on a bilateral basis, and further explained

[[Page 997]]

that ``RTO/ISOs have Commission-approved market mitigation rules that 
govern behavior and pricing in those short-term markets,'' and that 
``the RTO/ISOs have Commission-approved market monitoring, where there 
is continual oversight to identify market manipulation.'' \51\
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    \50\ EPSA Reply Comments at 4-5. EPSA stated that ``APPA and 
NRECA ignore the fact that the Commission already allows sellers to 
rely on RTO/ISO mitigation, and that, as the Commission observed in 
the NOPR, its proposal would do no more than `reflect current 
practice' in this regard.'' Id. at 5.
    \51\ Id. at 7-8 (citing Order No. 697-A, FERC Stats. & Regs. ] 
31,268 at P 285).
---------------------------------------------------------------------------

    20. EPSA also argued that the proposal would not unlawfully 
subdelegate to private entities, i.e., RTOs, the Commission's statutory 
responsibilities to ensure that wholesale electric rates of public 
utilities are just and reasonable, as APPA/NRECA argued, noting that 
nothing in the proposed rule seeks any change to the Commission's 
extensive oversight over RTO and ISO markets, and that the Commission 
will ``continue to evaluate and approve or reject the proposed market 
rules for each RTO/ISO, monitor RTO/ISO implementation of such rules, 
and hear challenges regarding the effectiveness of RTO/ISO mitigation 
measures.'' \52\
---------------------------------------------------------------------------

    \52\ Id. at 9 (citing Order No. 697-A, FERC Stats. & Regs. ] 
31,268 at P 111).
---------------------------------------------------------------------------

    21. EPSA disagreed with Potomac Economic's recommendation that the 
Commission take steps to ensure that the market mitigation measures for 
each RTO are complete and effective, stating that like APPA and NRECA, 
``Potomac Economics appears to miss the point that the rebuttable 
presumption was adopted years ago in Order No. 697-A, and its objection 
to that presumption is an impermissible collateral attack on that 
order.'' \53\
---------------------------------------------------------------------------

    \53\ Id. at 10.
---------------------------------------------------------------------------

    22. When the Commission issued Order No. 816, it stated that it was 
not prepared at that time to adopt the proposal regarding RTO/ISO 
sellers, but that it would further consider the issues raised by 
commenters and transferred the record on that issue to Docket No. AD16-
8-000 for possible consideration in the future as the Commission may 
deem appropriate.\54\ We have reviewed and considered that record in 
preparing the instant proposal.
---------------------------------------------------------------------------

    \54\ Order No. 816, FERC Stats. & Regs. ] 31,374 at P 27.
---------------------------------------------------------------------------

III. Discussion

    23. After reviewing all of the comments received in response to the 
Order No. 816 NOPR, we believe that it is appropriate to relieve 
market-based rate sellers of the requirement to submit the indicative 
screens in certain circumstances. As discussed below, the proposal we 
make here differs in some material respects from the original proposal 
in the Order No. 816 NOPR. Specifically, the Commission proposes to 
relieve market-based rate sellers, i.e., sellers seeking to obtain or 
retain authorization to make market-based rate sales, of the 
requirement to submit indicative screens for certain RTO/ISO markets 
and submarkets. This proposed modification of the Commission's 
horizontal market power analysis would apply in any RTO/ISO market with 
RTO/ISO-administered energy, ancillary services, and capacity markets 
subject to Commission-approved RTO/ISO monitoring and mitigation. In 
addition, for RTOs and ISOs that lack an RTO/ISO-administered capacity 
market, market-based rate sellers would be relieved of the requirement 
to submit indicative screens if their market-based rate authority is 
limited to sales of energy and/or ancillary services.
    24. Under this proposal, the Commission's regulations would 
continue to require RTO/ISO sellers \55\ to submit indicative screens 
for authorization to make capacity sales in any RTO/ISO markets that 
lack an RTO/ISO-administered capacity market subject to Commission-
approved RTO/ISO monitoring and mitigation. Furthermore, we propose to 
eliminate the rebuttable presumption that Commission-approved RTO/ISO 
market monitoring and mitigation is sufficient to address any 
horizontal market power concerns regarding sales of capacity in RTOs/
ISOs that do not have an RTO/ISO-administered capacity market.
---------------------------------------------------------------------------

    \55\ RTO/ISO sellers are market-based rate sellers that have an 
RTO/ISO market as a relevant geographic market.
---------------------------------------------------------------------------

    25. Although this proposal would eliminate the requirement to 
submit indicative screens in certain RTO/ISO markets, it would not 
eliminate other market-based rate regulatory reporting requirements. As 
discussed below, we believe that the RTO/ISO market power monitoring 
and mitigation combined with the remaining market-based rate reporting 
requirements will enable the Commission to adequately address market 
power concerns in the RTO/ISO markets.

A. Overview of Existing RTO/ISO Market Power Monitoring and Mitigation

    26. Both the horizontal market power analysis, including indicative 
screens, and RTO/ISO market power monitoring and mitigation provisions 
are designed to protect against the potential exercise of seller market 
power, and the Commission has found that both ensure just and 
reasonable rates. The indicative screens provide an up-front snapshot 
of the seller's market power, using static and historical data 
aggregated from a specific year, which is part of the basis of the 
Commission's determination of whether to grant that seller market-based 
rate authority. RTO/ISO market power mitigation is based on real-time 
data, and is triggered in response to specific resource offers or 
system characteristics and tailored to the market rules of each RTO/
ISO.
    27. Despite these differences, the market power analyses provided 
in the indicative screens and RTO/ISO market power mitigation both seek 
to prevent the exercise of seller market power and ensure just and 
reasonable rates. Given the Commission's previous findings that RTO/ISO 
monitoring and mitigation adequately mitigate a seller's market power 
and the availability of other data regarding horizontal market power, 
the indicative screens provide marginal additional market power 
protections and these protections will still be available with the 
proposed changes.\56\ This suggests that the burden on sellers to 
provide indicative screens may outweigh the benefits in certain RTO/ISO 
markets.
---------------------------------------------------------------------------

    \56\ The Commission can still require a market-based rate seller 
to file indicative screens in individual cases.
---------------------------------------------------------------------------

    28. RTO/ISO market power mitigation is ongoing and tailored to the 
specific RTO/ISO and uses more granular operational or market data than 
the indicative screens. This data is used to specifically tailor the 
RTO/ISO market power screens to the market interval (and sometimes a 
few subsequent intervals) for which prices are established.\57\ Given 
the dynamic nature of binding transmission constraints and ever-
changing market conditions, the RTO/ISO market power mitigation 
generally allows for a flexible and ongoing application of market power 
tests, which more accurately reflect system conditions that exist at 
the time and are better suited to preventing the exercise of market 
power in the RTO/ISO markets than the static indicative screens that 
are in many cases only filed every three years. In the event that a 
seller in an RTO/ISO market fails the RTO/ISO market power mitigation 
tests, that seller's offer is mitigated to a reference level or cost-
based offer,

[[Page 998]]

which represents the resource's short-run marginal cost.
---------------------------------------------------------------------------

    \57\ For example, five minutes in the real-time market, one hour 
in the day-ahead market, and the length of the capacity delivery 
period for the capacity market. In ISO New England Inc. (ISO-NE), 
Midcontinent Independent System Operator, Inc. (MISO), and PJM 
Interconnection, L.L.C. (PJM), the delivery period in the capacity 
market is one year. In New York Independent System Operator, Inc. 
(NYISO), the delivery period in the capacity market is one month or 
six months.
---------------------------------------------------------------------------

    29. CAISO and PJM use a structural approach to market power 
mitigation, imposing mitigation when a resource's offer fails a market 
power screen that relies on the three pivotal supplier test to measure 
competition. In contrast, ISO-NE, MISO, NYISO, and Southwest Power 
Pool, Inc. (SPP) employ a conduct and impact approach to market power 
mitigation, using a two-part market power screen that includes (1) a 
conduct test, which compares a resource's offer to its reference 
level,\58\ and (2) an impact test, which examines the extent to which 
that offer affects clearing prices, mitigating an offer if it fails 
both tests.
---------------------------------------------------------------------------

    \58\ A reference level is an approximation of a resource's 
short-run marginal cost.
---------------------------------------------------------------------------

    30. Identification of constrained areas is a fundamental aspect of 
RTO/ISO market power mitigation. For example, the RTO/ISOs with conduct 
and impact mitigation generally use more stringent conduct and impact 
tests in areas that are more significantly or frequently constrained. 
The definition of a constraint, or its treatment as static or 
dynamic,\59\ and the conduct and impact thresholds vary by RTO/ISO. PJM 
uses a three pivotal supplier test to evaluate whether sellers are 
likely to be able to exercise market power and applies this test any 
time a resource is committed from an offline state to relieve a binding 
transmission constraint. In CAISO, a resource's energy supply offer is 
subject to market power mitigation if that resource's offer affects a 
transmission constraint deemed by CAISO to be non-competitive.
---------------------------------------------------------------------------

    \59\ RTO/ISO market power mitigation procedures can either 
identify constraints statically or dynamically. Dynamically 
identified constraints are designated based on constantly evolving 
system congestion patterns, whereas statically identified 
constraints are designated following an ex post review of congestion 
patterns on an annual or at times less frequent basis.
---------------------------------------------------------------------------

    31. The Commission also requires the RTO/ISO independent market 
monitors to evaluate market monitoring and mitigation efforts on an 
ongoing basis. Market monitors are required to periodically report on 
the performance of market power mitigation practices, evaluate tariff 
inadequacies or proposals, and report on the general competitiveness of 
their respective markets.\60\ Market monitors report information on how 
the competitiveness of the RTO/ISO market or any relevant sub-markets 
is affected by transmission constraints and report a variety of 
competition metrics,\61\ including the Herfindahl-Hirschman Index 
(HHI), supply-side and demand-side concentration measurements,\62\ 
pivotal supplier tests,\63\ the residual supplier index,\64\ and the 
Lerner index.\65\
---------------------------------------------------------------------------

    \60\ RTO/ISO market monitors are required to submit to 
Commission staff an annual state of the market report and less 
extensive quarterly reports. See Wholesale Competition in Regions 
with Organized Electric Markets, Order No. 719, FERC Stats. & Regs. 
] 31,281, at P 424 (2008), order on reh'g, Order No. 719-A, FERC 
Stats. & Regs. ] 31,292 (2009), order on reh'g, Order No. 719-B, 129 
FERC ] 61,252 (2009).
    \61\ RTO/ISO market monitors include a variety of competition 
metrics in their reports but these metrics are not used to mitigate 
prices in RTO/ISO markets. The market reports for each RTO/ISO do 
not reference the indicative screens.
    \62\ ISO-NE uses both supply-side and demand side concentration 
measurements which measure the concentration of the four largest 
buyers and largest four sellers, expressed as a percentage of market 
share, similar to the market share screen used in the indicative 
screens.
    \63\ The pivotal supplier tests are similar to the ones used in 
the indicative screens and determine if a supplier is pivotal if 
demand cannot be met without their supply. CAISO's market monitor 
reports on one, two, and three pivotal supplier tests.
    \64\ The residual supply index is the ratio of supply from non-
affiliate suppliers to demand.
    \65\ The Lerner index measures the percentage markup that a firm 
is able to charge over its marginal cost. The index ranges from a 
low value of 0 to a high of 1. The higher the value of the Lerner 
index, the more the firm is able to charge over its marginal cost. 
The Lerner index measures seller behavior rather than market 
structure.
---------------------------------------------------------------------------

    32. We summarize below the specific market power mitigation 
provisions used today by RTO/ISOs to prevent the exercise of market 
power in energy, ancillary services, and capacity markets.
1. Energy
    33. All RTOs/ISOs have mitigation provisions for energy offers, 
which generally are employed when there are binding constraints on the 
system.\66\ Energy supply offers, which include both financial and 
physical offer components, are screened for potential market power. 
Financial offer components are denominated in dollars. The most 
important financial offer components are the start-up, no-load, and 
incremental energy offers, all of which are subject to mitigation. 
Physical offer components are denominated in non-dollar units, such as 
MW, time, or some combination thereof (e.g., minimum run time, economic 
minimum operating level, ramp rate). When a resource's offer fails the 
applicable market power screens, that offer is mitigated.
---------------------------------------------------------------------------

    \66\ RTOs/ISOs use different methods to define constraints, and 
some RTOs/ISOs define constraints (specifically constrained areas) 
on an annual basis while others define constraints more dynamically.
---------------------------------------------------------------------------

    34. Market power mitigation often involves replacing the seller's 
offer with an appropriate reference level to determine the locational 
market price. Reference levels for financial offer components are based 
on an estimate of a resource's short-run marginal cost, and reference 
levels for physical offer components are based on an estimate of the 
physical capability of a resource. Reference levels are determined 
either by the seller of the resource pursuant to guidelines and review 
(e.g., SPP) \67\ or by the market monitor, potentially after 
consultation with the seller (e.g., CAISO).\68\ In many cases, the 
market monitors help create the resource-specific reference levels with 
the seller.
---------------------------------------------------------------------------

    \67\ SPP Open Access Transmission Tariff, Sixth Revised Volume 
No. 1, Attachment AF, Section 3.3.
    \68\ CAISO Open Access Transmission Tariff, section 39.7.1.
---------------------------------------------------------------------------

    35. In addition to market power mitigation provisions, resource 
offers in energy markets are subject to an offer cap. Pursuant to Order 
No. 831,\69\ the RTO/ISO or market monitor must verify energy supply 
offers above $1,000/MWh prior to those offers being used to calculate 
locational marginal prices (LMPs). Order No. 831 also requires each 
RTO/ISO to limit energy supply offers to $2,000/MWh (known as the 
``hard cap'') when calculating LMPs.\70\
---------------------------------------------------------------------------

    \69\ See Offer Caps in Markets Operated by Regional Transmission 
Organizations and Independent System Operators, Order No. 831, FERC 
Stats. & Regs. ] 31,387, at P 1 (2016), (CROSS-REFERENCED AT 157 
FERC ] 61,115), order on reh'g and clarification, Order No. 831-A, 
161 FERC ] 61,156 (2017).
    \70\ Order No. 831, FERC Stats. & Regs. ] 31,387, at P 1.
---------------------------------------------------------------------------

    36. Resources with capacity supply obligations in RTOs/ISOs also 
are subject to must-offer requirements, which are designed to address 
physical withholding.\71\
---------------------------------------------------------------------------

    \71\ The indicative screens and subsequent granting of market-
based rate authority does not place a must-offer requirement on 
sellers to address physical withholding.
---------------------------------------------------------------------------

2. Ancillary Services
    37. Unlike the market-based rate indicative screens, which do not 
specifically analyze market power for ancillary services, RTO/ISO 
market power mitigation provisions are designed to address the specific 
ancillary service products that are sold in the RTO/ISO. The market 
power mitigation provisions for ancillary services in four RTOs/ISOs 
(NYISO, PJM, MISO, and SPP) are similar to market power mitigation for 
energy and employ either conduct and impact screens or structural 
market power screens to identify and potentially mitigate offers of 
ancillary services that raise market power concerns.
    38. Although CAISO and ISO-NE do not have market power mitigation 
provisions in place for ancillary services,\72\ as noted above, 
ancillary

[[Page 999]]

service prices typically are based on the opportunity cost of not 
generating energy, so concerns about market power in ancillary service 
offers in these RTOs/ISOs are alleviated through the mitigation of 
energy offers.\73\ In addition, these markets are still monitored by 
their respective independent market monitors,\74\ enabling the CAISO 
and ISO-NE market monitors to evaluate the competitiveness of their 
respective ancillary service markets and submit a filing at the 
Commission to seek changes if they deem them necessary.
---------------------------------------------------------------------------

    \72\ ISO-NE's forward reserve market is not mitigated.
    \73\ The price for ancillary services that are co-optimized with 
energy are derived from the LMP for energy. Therefore, mitigation of 
LMPs indirectly mitigates the price for such ancillary services.
    \74\ The ISO-NE internal market monitor monitors ancillary 
services and reports on their performance and competitiveness. The 
CAISO market monitor routinely reports on the ancillary service 
markets, including costs, cost drivers, and operational issues. In 
the 2016 Annual Report, the market monitor did not raise any 
concerns that ancillary service markets were not competitive. See 
CAISO Department of Market Monitoring, 2016 Annual Report on Market 
Issues & Performance, (May 2017) http://www.caiso.com/Documents/2016AnnualReportonMarketIssuesandPerformance.pdf. See Chapter 6, 
Ancillary Services.
---------------------------------------------------------------------------

    39. In addition, Commission staff and third parties retain the 
right at any time to provide evidence that a particular seller in an 
RTO/ISO has market power in ancillary services that is not adequately 
mitigated by the existing market rules. Moreover, unlike the capacity 
market issues discussed below, remedies for any gaps in ancillary 
service market mitigation can be addressed more readily because CAISO 
and ISO-NE currently operate ancillary service markets and thus have 
the ability to propose market power mitigation provisions for ancillary 
services should additional mitigation be warranted.
3. Capacity
    40. The indicative screens analyze the uncommitted capacity of a 
market-based rate seller in each RTO/ISO, without regard to a specific 
offer and do not take specific locational requirements or performance 
obligations into account. By contrast, ISO-NE, NYISO, PJM and MISO 
currently operate capacity markets with Commission-approved market 
power mitigation for a standardized RTO/ISO capacity product that 
specifies a particular delivery year and capacity supply obligation. 
Capacity sales in RTO/ISOs that operate capacity markets also are 
subject to system-wide offer caps. If a seller wants to offer its unit 
at a price higher than the cap, it must submit its costs to the market 
monitor and have a reference level developed based on its going-forward 
cost, which becomes its maximum offer.\75\
---------------------------------------------------------------------------

    \75\ Reference levels set according to going-forward costs are 
generator specific.
---------------------------------------------------------------------------

    41. CAISO and SPP do not operate centralized capacity markets 
currently; thus, they do not have mitigation in place for capacity 
sales. We note that the California Public Utilities Commission plays an 
active role in reviewing the majority of bilateral capacity contracts 
(i.e., Resource Adequacy contracts) in CAISO because the costs of these 
contracts are recovered in retail electric rates. Similarly, capacity 
costs in the SPP footprint are reviewed by state regulators and 
recovered through cost-of-service rates. As such, the market for 
capacity as a standalone product in SPP is very small. Although the 
CAISO and SPP capacity contracts are subject to state oversight, as 
explained above, at this time we propose that the requirement to submit 
the indicative screens be retained for market-based rate sellers 
studying RTO/ISO markets that do not include RTO/ISO-administered 
capacity markets, including CAISO and SPP, unless the seller is only 
making energy and/or ancillary service sales and not capacity 
sales.\76\
---------------------------------------------------------------------------

    \76\ Market-based rate sellers are authorized to sell certain 
ancillary services in CAISO and SPP at market-based rates. We do not 
propose to modify this authorization in the instant rulemaking.
---------------------------------------------------------------------------

B. Proposal Implementation

    42. We propose two modifications to Sec.  35.37(c) of the 
Commission's regulations to exempt certain market-based rate sellers 
from the requirement to submit the indicative screens as part of their 
horizontal market power analyses of RTO/ISO markets, whether as part of 
an initial application for market-based rate authority, a change in 
status filing, or an updated market power analyses.
    43. First, for entities seeking to sell into RTO/ISO-administered 
energy, ancillary services, and capacity markets, a market-based rate 
seller could state that it is relying on Commission-approved RTO/ISO 
market monitoring and mitigation, which is presumed to address any 
potential horizontal market power that the seller might have in such 
markets.\77\ This modification would apply equally to sellers that 
study an RTO/ISO market as a first-tier market. A power marketer 
likewise could represent that it is relying on RTO/ISO market 
monitoring and mitigation in any RTO/ISO market that is a relevant 
geographic market for the power marketer.\78\ To implement this 
proposal, we propose to insert a new paragraph in Sec.  35.37(c) 
specifying that, in lieu of submitting the indicative market power 
screens, sellers studying RTO/ISO markets that operate RTO/ISO-
administered energy, ancillary services, and capacity markets may state 
that they are relying on Commission-approved market monitoring and 
mitigation to address potential horizontal market power sellers may 
have in those markets.
---------------------------------------------------------------------------

    \77\ See Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 111 
(``to the extent a seller seeking to obtain or retain market-based 
rate authority is relying on existing Commission-approved [RTO] 
market monitoring and mitigation, we adopt a rebuttable presumption 
that the existing mitigation is sufficient to address any market 
power concerns.'') For those RTOs and ISOs lacking an RTO/ISO-
administered capacity market, Commission-approved RTO/ISO monitoring 
and mitigation will no longer be presumed sufficient to address 
horizontal market power concerns for capacity sales where there are 
indicative screen failures.
    \78\ Under this proposal, a market-based rate seller 
participating in the CAISO Energy Imbalance Market but located 
outside of CAISO would still have to submit indicative screens for 
its relevant geographic market. The requirement to submit indicative 
screens is unchanged for market-based rate sellers in all 
traditional markets.
---------------------------------------------------------------------------

    44. Second, we also propose that sellers in RTOs and ISOs that lack 
an RTO/ISO-administered capacity market would be relieved of the 
requirement to submit the indicative screens if their market-based rate 
authority is limited to wholesale sales of energy and ancillary 
services. To implement this proposal, we propose to insert a second new 
paragraph in Sec.  35.37(c) specifying that, in lieu of submitting the 
indicative market power screens, sellers studying RTO/ISO markets that 
operate RTO/ISO-administered energy and ancillary services markets, but 
not capacity markets, may state that they are relying on Commission-
approved market monitoring and mitigation to address potential 
horizontal market power that sellers may have in energy and ancillary 
services. However, sellers studying such RTOs/ISOs would need to submit 
indicative market power screens if they wish to obtain market-based 
rate authority for wholesale sales of capacity in these markets.
    45. We believe that these exemptions will reduce the burden on 
market-based rate sellers while preserving appropriate Commission 
oversight of its market-based rate program. Since the issuance of Order 
No. 697 in 2007, the Commission has granted sellers market-based rate 
authority, or allowed them to retain market-based rate authority, where 
they have failed the indicative screens in an RTO/ISO but have relied 
on Commission-approved RTO/ISO

[[Page 1000]]

monitoring and mitigation.\79\ Given the Commission's presumption that 
RTO/ISO market monitoring and mitigation adequately mitigate any 
potential seller market power, the submission of the indicative screens 
yields little practical benefit when compared to the associated burden 
on industry. This burden is not trivial; over the three-year period 
2015-2018, market-based rate sellers in RTOs/ISOs filed approximately 
130 indicative screens in updated market power studies for RTOs/ISOs on 
average per year.\80\ We provide more detailed information on the 
burden associated with filing indicative screens for updated market 
power studies in the Information Collection Statement section below.
---------------------------------------------------------------------------

    \79\ See Niagara Mohawk Power Corp., 123 FERC ] 61,175, at P 28 
(2008) (failures in the New York City and Long Island submarkets of 
the New York Independent System Operator, Inc.); Dominion Energy 
Marketing, Inc., 125 FERC ] 61,070, at PP 26-27 (2008) (failures in 
the Connecticut submarket of ISO New England, Inc.); PSEG Energy 
Resources & Trade LLC, 125 FERC ] 61,073, at PP 31-32 (2008) 
(failures in the PJM-East submarket)). There are also numerous 
delegated letter orders granting sellers market-based rate authority 
where the seller relies on Commission-approved monitoring and 
mitigation in RTO markets. See, e.g., TransCanada Energy Marketing 
ULC, Docket No. ER07-1274-001 (Jan. 23, 2009) (delegated order). 
Finally, the Commission has not initiated any investigations 
pursuant to Federal Power Act section 206 for any RTO/ISO sellers 
failing indicative screens since the issuance of Order No. 697; in 
all cases where RTO/ISO sellers failed, the Commission relied on the 
Commission-approved monitoring and mitigation to prevent the 
seller's ability to exercise any potential market power.
    \80\ On average per year, approximately 20 indicative screens 
from this total studied the CAISO and SPP markets.
---------------------------------------------------------------------------

    46. However, market-based rate sellers still would be required to 
file initial applications, changes in status, and triennial updates, 
including all of the information currently required, except the seller 
would not need to submit indicative screens for any RTO/ISO markets 
subject to the above-proposed exemptions. Specifically, to address 
horizontal market power in an RTO/ISO market, a seller's initial 
application for market-based rate authorization and any subsequent 
updated market power analyses would include, among other things: (1) A 
statement that the seller is relying on Commission-approved RTO/ISO 
market monitoring and mitigation to address any potential market power 
it might have in that market; (2) identification and description of it 
and its affiliates' generation and transmission assets and other inputs 
to electric power production; and (3) an asset appendix as required in 
18 CFR 35.37(a)(2).\81\ The Commission believes that the continued 
submission of information, such as the asset appendix and Electric 
Quarterly Reports (EQR),\82\ will help us to maintain effective 
oversight of RTO/ISO markets. Moreover, under this proposal, the 
Commission would retain the ability to require an updated market power 
analysis, including indicative screens, from any market-based rate 
seller at any time.
---------------------------------------------------------------------------

    \81\ Market-based rate sellers would also continue to submit 
other information, such as ownership and affiliate information. See 
Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 181 n.258 (``A 
seller seeking market-based rate authority must provide information 
regarding its affiliates and its corporate structure or upstream 
ownership.''); 18 CFR 35.37(a)(2) (requiring submission of an 
organizational chart); however, the requirement to submit an 
organizational chart is currently stayed. See Order No. 697-A, FERC 
Stats. & Regs. ] 31,268 at P 47. Sellers also would continue to be 
required to provide the following additional information: (1) A 
standard vertical market power analysis; (2) category status 
representations; (3) a demonstration that sellers continue to lack 
captive customers in order to support obtaining or retaining a 
waiver of affiliate restrictions, if requested; and (4) any other 
information that is required for that particular filing. See 18 CFR 
35.37.
    \82\ See 18 CFR 35.10b. EQRs are discussed in more detail below.
---------------------------------------------------------------------------

    47. In addition, the Commission proposes to continue requiring RTO/
ISO sellers to submit change in status filings consistent with current 
requirements. While we received comments from the Order No. 816 NOPR 
that called for eliminating the change in status requirement for RTO/
ISO sellers, we believe the change in status requirement is an 
important tool that the Commission uses to identify new potential 
market power concerns, which will assist the Commission in ensuring 
that rates continue to be just and reasonable. Under this proposal, we 
would still require an RTO/ISO seller to report any change in status 
that would reflect a departure from the characteristics that the 
Commission relied upon in granting it market-based rate authority, as 
required under Sec.  35.42 of the Commission's regulations. Therefore, 
consistent with current policy, where the change in status concerns 
pertinent assets held by that seller or its affiliates, the seller must 
still submit a new asset appendix.\83\
---------------------------------------------------------------------------

    \83\ 18 CFR 35.42(c).
---------------------------------------------------------------------------

    48. Although market-based rate sellers are not required to provide 
indicative screens in their horizontal market power analyses when 
submitting change in status filings,\84\ sellers often submit 
indicative screens in order to determine the effect of the change on 
their market power, particularly when a change in status filing has 
created the likelihood that they would fail an indicative screen. We 
clarify that, with this proposed streamlined approach, an RTO/ISO 
seller subject to the proposed exemption in this NOPR also would not 
need to submit indicative screens with its change in status filing even 
where it may have market power. Instead, the seller may state that it 
is relying on Commission-approved monitoring and mitigation to mitigate 
any potential market power it may have.
---------------------------------------------------------------------------

    \84\ Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 506 
(``[W]e will not require entities to automatically file an updated 
market power analysis with their change in status filings . . . . 
Furthermore, regardless of the seller's representation, if the 
Commission has concerns with a change in status filing (for example, 
market shares are below 20 percent, but are relatively high 
nonetheless), the Commission retains the right to require an updated 
market power analysis at any time.'').
---------------------------------------------------------------------------

    49. However, in RTOs/ISOs that do not operate an RTO/ISO-
administered capacity market with Commission-approved mitigation, we 
propose to continue to require the submission of the indicative screens 
for any seller seeking to make market-based sales of capacity. CAISO 
and SPP currently are the RTO/ISO markets without an RTO/ISO-
administered capacity market. Therefore, we propose to require any 
seller seeking to sell capacity at market-based rates in CAISO or SPP, 
either as a bundled or unbundled product or on a short-term or long-
term basis, to submit the indicative screens.
    50. We recognize that there is state regulatory oversight of the 
capacity costs and/or prices incurred in CAISO and SPP. However, we do 
not believe that it is appropriate to exempt sellers from filing the 
indicative screens (i.e., submitting a horizontal market power study) 
in markets that lack Commission-approved monitoring and mitigation 
programs. Capacity markets are distinct from energy markets (unlike 
several ancillary services, capacity is not co-optimized with 
energy),\85\ so monitoring and mitigation of energy prices in day-ahead 
and real-time markets does not ensure that capacity prices will be just 
and reasonable. Therefore, we believe that the indicative screens 
remain an important tool for determining whether a seller has market 
power in RTO/ISO markets that lack Commission-approved market 
monitoring and mitigation for capacity sales.
---------------------------------------------------------------------------

    \85\ As discussed above, the price of several ancillary services 
reflects the opportunity cost of not selling energy, so mitigation 
of energy prices will affect the price of such ancillary services 
offered in the day-ahead and real-time markets.
---------------------------------------------------------------------------

    51. Thus, we are proposing that indicative screen failures in RTO/
ISO markets that do not have RTO/ISO-administered capacity markets 
(currently, CAISO and SPP) will no longer be presumed to be adequately 
addressed by RTO/ISO market monitoring and mitigation. We propose that 
any market-based rate seller that

[[Page 1001]]

fails the indicative screens in those markets and seeks to rebut the 
presumption of horizontal market power may submit a DPT or alternative 
evidence or propose other mitigation for capacity sales in these 
markets.
    52. In contrast, we do not propose to disturb the rebuttable 
presumption in RTOs/ISOs with RTO/ISO-administered energy, ancillary 
services, and capacity markets. In addition, we do not propose to 
disturb the rebuttable presumption for market-based sales of energy and 
ancillary services in RTO/ISO markets that have monitoring and 
mitigation for these two services. In those RTOs/ISOs, Commission-
approved monitoring and mitigation is currently presumed to adequately 
address market power concerns presented by indicative screen failures. 
To the extent that commenters are arguing that it is inappropriate for 
the Commission to rebuttably presume that market monitoring and 
mitigation is sufficient to mitigate any market power a seller may have 
in an RTO/ISO market, we believe that it is a collateral attack on the 
Commission's creation of the rebuttable presumption in Order No. 697-
A.\86\
---------------------------------------------------------------------------

    \86\ See Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 111.
---------------------------------------------------------------------------

    53. As noted above, we propose to maintain the rebuttable 
presumption that Commission-approved monitoring and mitigation is 
currently presumed to adequately address market power concerns. By its 
terms, the rebuttable presumption established in Order No. 697-A that 
existing RTO/ISO monitoring and mitigation is sufficient to address 
market power concerns is not immune to challenge. The Commission and 
intervenors can rebut this presumption in a particular case using 
information market-based rate sellers provide in accordance with Sec.  
35.37 in their initial applications, change in status filings and 
triennial updated market power analyses.\87\ The challenging party 
would bear the burden of proof to demonstrate that the seller has 
market power and that such market power is not addressed by existing 
Commission-approved RTO/ISO market monitoring and mitigation.
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    \87\ We recognize that challenging parties would have to provide 
evidence that a seller had market power before arguing that RTO/ISO 
mitigation was insufficient to address the seller's alleged market 
power. In addition to the information provided by a seller in its 
market-based rate filings, a challenging party could rely on other 
sources to present evidence that a seller has market power. 
Moreover, a challenging party is not limited as to the type of tests 
or other evidence it submits to make such a demonstration.
---------------------------------------------------------------------------

    54. We seek comment as to whether CAISO or SPP currently have 
adequate additional safeguards in place that prevent the exercise of 
horizontal market power in sales of capacity. Commenters who argue that 
adequate safeguards are present should explain in detail why the 
Commission should find the requirement to submit indicative screens to 
be unnecessary for capacity sales in either of these markets. If either 
CAISO or SPP adopts an RTO/ISO-administered capacity market with 
Commission-approved monitoring and mitigation in the future, the 
Commission could revisit the requirement that sellers of capacity 
submit the indicative screens.
    55. We are not proposing to relieve market-based rate sellers of 
the requirement to submit the indicative screens in any market outside 
of an RTO/ISO, even a market that may have an alternative form of 
mitigation. As explained above, RTO/ISO monitoring and mitigation is 
comprehensive and specifically tailored to each RTO/ISO market. Such 
mitigation, particularly the ability to mitigate prices on an ongoing 
basis, does not exist in any non-RTO/ISO market.

C. Bilateral Transactions

    56. Market-based rate sellers may enter into bilateral transactions 
for energy, capacity, and ancillary services within RTO/ISO footprints. 
Although such transactions are not monitored or mitigated by RTOs/ISOs, 
the proposal will not give rise to market power concerns with respect 
to bilateral transactions, as discussed below.
    57. Wholesale buyers and sellers of energy and capacity enter into 
various types of bilateral financial and physical instruments, 
including forward contracts that settle on day-ahead and real-time 
electricity prices. An electricity forward contract represents the 
obligation to buy or sell a fixed amount of electricity at a pre-
specified contract price, i.e., the forward price, at a certain time in 
the future.\88\ Forward contracts involve a transaction between a 
specific buyer and seller, unlike the day-ahead and real-time RTO/ISO 
energy markets which are bid- and offer-based markets that are 
centrally cleared.
---------------------------------------------------------------------------

    \88\ Short-term forward contracts (e.g., of daily or weekly 
duration) typically are standardized contracts, whereas long-term 
contracts (defined as one year or longer) often are negotiated, 
tailored contracts between the buyer and seller.
---------------------------------------------------------------------------

    58. The price of a forward contract represents the willingness of 
buyers and sellers to exchange electricity in the future and should 
largely reflect expectations of future demand and supply conditions in 
RTO/ISO markets if markets are liquid and competitive. Thus, if RTO/ISO 
energy (e.g., day-ahead and real-time) markets and capacity markets are 
competitive, and Commission-approved monitoring and mitigation 
sufficiently protects against the exercise of market power in these 
markets, then bilateral markets for the same product should also be 
competitive. Moreover, the structure of RTO/ISO markets enhances 
competition in the forward markets because entities that do not have 
physical assets or load (e.g., marketers) can rely on the RTO/ISO to 
physically deliver the power while settlement prices in RTO/ISO markets 
enable financial transactions.\89\
---------------------------------------------------------------------------

    \89\ Financial transactions can provide buyers and sellers a 
hedge against uncertain and volatile day-ahead energy prices and 
typically are settled against the energy prices published by RTOs/
ISOs.
---------------------------------------------------------------------------

    59. RTO/ISO day-ahead and real-time energy markets and capacity 
markets also can provide an alternative to bilateral sales,\90\ thereby 
helping to discipline prices on bilateral contracts for energy and 
capacity. For these reasons, the existence of competitive RTO/ISO 
markets is expected to provide a strong incentive for sellers in 
bilateral markets to offer at competitive prices.
---------------------------------------------------------------------------

    \90\ We recognize that RTO/ISO energy and capacity markets are 
not necessarily a perfect substitute for bilateral sales, 
particularly if the bilateral sale is made pursuant to a non-
standardized, long-term contract. However, RTO/ISO energy and 
capacity markets provide load-serving entities a means to serve 
their customers and also provide a benchmark against which to 
compare prices offered in the bilateral market.
---------------------------------------------------------------------------

    60. Contrary to some comments received in the Order No. 816 
proceeding, we believe that the proposal will retain sufficient 
Commission oversight of bilateral sales in RTO/ISO markets. As the 
Commission previously has explained, the existence of market power 
mitigation in an organized market generally results in a market where 
prices are transparent, which disciplines forward and bilateral markets 
by revealing a benchmark price, keeping offers competitive.\91\ In 
addition, as the Commission has previously found, buyers seeking 
bilateral transactions in RTO/ISO footprints ``have access to 
centralized, bid-based short-term markets which will discipline a 
seller's attempt to exercise market power in long-term contracts 
because the would-be buyer can always purchase from the short-term 
market if a seller tries to charge an excessive price.'' \92\ The 
Commission also retains the ability to require the submission of 
indicative screens should evidence of market power in the bilateral 
markets materialize.
---------------------------------------------------------------------------

    \91\ Order No. 816 NOPR, FERC Stats. & Regs. ] 32,702 at P 35.
    \92\ Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 285.

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[[Page 1002]]

D. The Commission Will Continue To Ensure That Market-Based Rates Are 
Just and Reasonable

    SUPRA
    61. Notwithstanding concerns raised in response to the Order No. 
816 NOPR,\93\ we believe that the Commission's market-based rate 
program and its broader oversight of RTO/ISO markets, including its 
enforcement authority, is sufficiently robust to check the potential 
exercise of market power without the need for the indicative screens 
addressed in this NOPR. As discussed in Order No. 697, ``the 
Commission's market-based rate program includes many ongoing regulatory 
protections designed to ensure that rates are just and reasonable and 
not unduly discriminatory or preferential.'' \94\ Exempting sellers 
from submitting screens for RTO/ISO markets will not eliminate these 
other requirements set forth in Sec.  35.37 of the Commission's 
regulations.
---------------------------------------------------------------------------

    \93\ See supra section II.C.
    \94\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 963.
---------------------------------------------------------------------------

    62. Such protections include the requirement for sellers with 
market-based rate authority to submit EQRs, notices of change in 
status, and the requirement to submit a market power analysis, which 
would still include an asset appendix, affiliate information, and a 
demonstration regarding vertical market power.\95\ We believe that the 
asset appendix provides comprehensive information relevant to a 
determination of a seller's market power, including information on: 
generators owned or controlled by seller and its affiliates; long-term 
firm power purchase agreements of seller and its affiliates; and 
electric transmission assets, natural gas intrastate pipelines, and 
intrastate natural gas storage facilities owned or controlled by seller 
and its affiliates.\96\ The asset appendix information on generation 
and power purchase agreements are important parts of any assessment of 
horizontal market power and the information on electric transmission 
and intrastate gas facilities support the analysis of vertical market 
power.\97\ Thus, we do not believe that eliminating the requirement 
that sellers submit indicative screens in certain RTO/ISO markets would 
mean that the Commission and others would lack information necessary to 
assess a seller's horizontal market power. In addition, under this 
proposal, the Commission would continue to reserve the right to require 
submission of complete horizontal market power analysis, including 
indicative screens, at any time.\98\
---------------------------------------------------------------------------

    \95\ See 18 CFR 35.37(a)(2), 35.37(d). While the requirement to 
submit an organizational chart is currently stayed, market-based 
rate sellers still must provide information regarding their 
affiliates and corporate structure or upstream ownership. Sellers 
seeking to obtain or retain market-based rate authority must trace 
upstream ownership until all upstream owners are identified. In 
addition, market-based rate sellers must identify all of their 
affiliates and, when seeking market-based rate authority, state the 
business activities of its owners and state whether such owners are 
in any way involved in the energy industry. See Order No. 697-A, 
FERC Stats. & Regs. ] 31,268 at P 181 n.258.
    \96\ See 18 CFR App. A to subpt. H of pt. 35.
    \97\ Information provided in the indicative screens does not 
support the analysis of vertical market power. Thus, the screens do 
not provide insight into the ability of a vertically-integrated 
company to use its transmission assets to favor its generation 
assets.
    \98\ See Order No. 697, FERC Stats. & Regs. ] 31,252 at PP 301, 
304; Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 126.
---------------------------------------------------------------------------

    63. Asset and ownership information would also continue to be 
collected as part of initial applications, as well as change in status 
filings \99\ in which sellers report, among other things, changes with 
respect to their and their affiliates': (1) Ownership or control of 
generation capacity or long-term firm purchases of capacity and/or 
energy that result in a cumulative net increase in 100 MW or more of 
capacity in any relevant geographic market (including an RTO/ISO 
market); (2) ownership or control of inputs to electric power 
production or ownership, operation or control of transmission 
facilities; and (3) affiliation with any entity that: (a) Owns or 
controls generation facilities or has long term firm purchases of 
capacity or energy that results in cumulative net increases of 100 MW 
or more in a relevant geographic market; (b) owns or controls inputs to 
electric power production; (c) owns, operates, or controls transmission 
facilities; or (d) has a franchised service area.
---------------------------------------------------------------------------

    \99\ Change in status filings, which currently do not require 
the submission of indicative screens, are a useful tool in assessing 
a seller's ability to exercise market power. We will, therefore, 
retain this requirement for RTO/ISO sellers.
---------------------------------------------------------------------------

    64. In addition, the Commission's regulations require public 
utilities to file EQRs,\100\ which summarize transaction information 
for cost-based and market-based rate sales and contractual terms and 
conditions in the public utility's agreements for jurisdictional 
services.\101\ The data collected in EQRs provide information that the 
Commission needs to perform its regulatory functions and ``provide[s] 
greater price transparency, promote[s] competition, enhance[s] 
confidence in the fairness of the markets, and provide[s] a better 
means to detect and discourage discriminatory practices.'' \102\ The 
EQR also ``strengthens the Commission's ability to identify potential 
exercises of market power or manipulation and to better evaluate the 
competitiveness of interstate wholesale electric markets.'' \103\ 
Nothing in the Commission's proposal here affects the EQRs; thus, EQRs 
would remain available for the Commission and others to use to detect 
the potential exercise of market power. Indeed, the EQR data is a 
critical component of the Commission's market oversight activities, 
which aim, among other things, to identify potential opportunities for 
the exercise of market power.
---------------------------------------------------------------------------

    \100\ See 18 CFR 35.10b. The EQR requirement also applies to 
non-public utilities with more than a de minimis market presence. 
Id.
    \101\ See Electric Market Transparency Provisions of Section 220 
of the Federal Power Act, Notice of Proposed Rulemaking, FERC Stats. 
& Regs. ] 32,675, at P3 (2011) (citing Revised Public Utility Filing 
Requirements, Order No. 2001, 67 FR 31043 (May 8, 2002), FERC Stats. 
& Regs. ] 31,127, reh'g denied, Order No. 2001-A, 100 FERC ] 61,074, 
reh'g denied, Order No. 2001-B, 100 FERC ] 61,342, order directing 
filing, Order No. 2001-C, 101 FERC ] 61,314 (2002), order directing 
filing, Order No. 2001-D, 102 FERC ] 61,334, order refining filing 
requirements, Order No. 2001-E, 105 FERC ] 61,352 (2003), order on 
clarification, Order No. 2001-F, 106 FERC ] 61,060 (2004), order 
revising filing requirements, Order No. 2001-G, 72 FR 56735 (Oct. 4, 
2007), 120 FERC ] 61,270, order on reh'g and clarification, Order 
No. 2001-H, 73 FR 1876 (Jan. 10, 2008), 121 FERC ] 61,289 (2007), 
order revising filing requirements, Order No. 2001-I, 73 FR 65526 
(Nov. 4, 2008), 125 FERC ] 61,103 (2008)).
    \102\ Electric Market Transparency Provisions of Section 220 of 
the Federal Power Act, FERC Stats. & Regs. ] 32,675 at P3 (citing 
Order No. 2001, FERC Stats. & Regs. ] 61,127 at P 31).
    \103\ Electricity Mkt. Transparency Provisions of Section 220 of 
the Federal Power Act, Order No. 768, FERC Stats. & Regs. ] 31,336, 
at P 1 (2012) (cross-referenced at 140 FERC ] 61,232), order on 
reh'g and clarification, Order No. 768-A, 143 FERC ] 61,054 (2013).
---------------------------------------------------------------------------

    65. Furthermore, nothing in this proposal would prevent the 
Commission or others from initiating a proceeding under Federal Power 
Act section 206 if concerns are identified about a seller's market 
power or the ability of RTO/ISO market monitoring and mitigation to 
address any such market power.
    66. Although it is true that the Commission would not receive the 
indicative screens for market-based rate sellers in certain RTO/ISO 
markets under this proposal, we do not believe that this would affect 
the Commission's ability to prevent and deter abusive conduct. In fact, 
the Commission-approved RTO/ISO market monitoring and mitigation in 
large part is designed to do just that--prevent the exercise of market 
power before it happens. As discussed above, the RTOs/ISOs screen for 
potential market power using either a structural test such as the three 
pivotal supplier screen or a conduct and impact

[[Page 1003]]

test, which first compares a resource's offer to its reference level 
and then examines the extent to which the offer affects market clearing 
prices.
    67. RTO/ISO market power mitigation often involves replacing the 
offer with an appropriate reference level, which is based on an 
estimate of the resource's short run marginal cost. Thus, RTO/ISO 
market power mitigation is intended to prevent the exercise of market 
power before it can occur, and does so using mitigation that is similar 
to the Commission's default mitigation for sellers that fail the 
Commission's market power screens--cost-based mitigation.\104\
---------------------------------------------------------------------------

    \104\ The Commission's default mitigation for sellers that fail 
market power screens may be found at 18 CFR 35.38. Mitigation for 
short-term sales--sales of one week or less--is set equal to the 
seller's incremental cost plus a ten percent adder. This mitigation 
is very similar to an RTO/ISO seller's reference level price, as 
discussed above.
---------------------------------------------------------------------------

    68. The Commission's market-based rate regulations also provide 
that a seller that has been found to have horizontal market power ``may 
propose mitigation tailored to its own particular circumstances to 
eliminate its ability to exercise market power.'' \105\ In many ways, 
RTO/ISO market monitoring and mitigation is just an alternative method 
that the Commission has approved to mitigate market power that a seller 
may have in an RTO/ISO market, and this mitigation functions to prevent 
an exercise of market power before it occurs.
---------------------------------------------------------------------------

    \105\ 18 CFR 35.38.
---------------------------------------------------------------------------

    69. We do not believe that the Commission has subdelegated its 
responsibility with respect to the RTO/ISO markets; to the contrary, it 
has approved RTO/ISO proposed rules that help ensure that rates for 
sales in RTO/ISO markets are just and reasonable.\106\ As the 
Commission has previously explained, ``Commission-approved RTOs and 
ISOs run real-time energy markets under Commission-approved tariffs. 
These single price auction markets set clearing prices on economic 
dispatch principles, to which various safeguards have been added to 
protect against anomalous bidding.'' \107\ Thus, one way in which the 
Commission ensures just and reasonable rates is through approval of 
RTO/ISO tariffs.\108\
---------------------------------------------------------------------------

    \106\ The Commission has flexibility in how it ensures that 
rates are just and reasonable. The Supreme Court has previously 
found that, while statutes such as the Natural Gas Act, and the 
Federal Power Act direct that rates be just and reasonable, they do 
not specify the means by which that is to be attained. See FPC v. 
Texaco, Inc., 417 U.S. 380, at 387 (1974). Furthermore, the 
Commission has previously found that it is not an impermissible 
subdelegation of its responsibility to ensure just and reasonable 
rates when it approves certain RTO/ISO actions as detailed in 
Commission-approved RTO/ISO tariffs. See e.g., Midwest Indep. 
Transmission Sys. Operator, Inc., 111 FERC ] 61,053, at P 25, order 
on reh'g, 112 FERC ] 61,086 (2005); also Midwest Indep. Transmission 
Sys. Operator, Inc., 136 FERC ] 61,100, at P 31 (2011); San Diego 
Gas & Elec. Co. v. Sellers of Energy & Ancillary Servs. 127 FERC ] 
61,269, at P 109 (2009), order on reh'g, 131 FERC ] 61,144 (2010).
    \107\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 963 
(footnotes omitted).
    \108\ The Commission has flexibility in how it ensures that 
rates and just and reasonable. The Supreme Court has previously 
found that, while statutes such as the Natural Gas Act, and the 
Federal Power Act direct that rates be just and reasonable, they do 
not specify the means by which that is to be attained. See FPC v. 
Texaco, Inc., 417 U.S. 380, at 387 (1974).
---------------------------------------------------------------------------

    70. Furthermore, the Commission retains RTO/ISO market oversight 
through proceedings under Federal Power Act section 206. Specifically, 
the Commission retains the right to consider whether to institute 
separate Federal Power Act section 206 proceedings that would be open 
to all interested entities to investigate whether the existing RTO/ISO 
mitigation continues to be just and reasonable and, if not, how such 
mitigation should be revised.\109\ In addition, affected parties may 
argue, in the context of a specific market-based rate application or 
triennial review, that changed circumstances have rendered such 
mitigation no longer just, reasonable and not unduly discriminatory. 
Thus, the Commission takes an ongoing role in ensuring the justness and 
reasonableness of rates in the RTO/ISO markets.\110\
---------------------------------------------------------------------------

    \109\ Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 112.
    \110\ See Midwest Indep. Transmission Sys. Operator, Inc., 136 
FERC ] 61,100, at P 31 (2011); La. Pub. Serv. Comm'n, 761 F.3d 540, 
552 (5th Cir. 2014).
---------------------------------------------------------------------------

IV. Information Collection Statement

    71. The Paperwork Reduction Act (PRA) \111\ requires each federal 
agency to seek and obtain Office of Management and Budget (OMB) 
approval before undertaking a collection of information directed to ten 
or more persons or contained in a rule of general applicability. OMB's 
regulations \112\ require approval of certain information collection 
requirements imposed by agency rules. Upon approval of a collection of 
information, OMB will assign an OMB control number and an expiration 
date. Respondents subject to the filing requirements of an agency rule 
will not be penalized for failing to respond to these collections of 
information unless the collections of information display a valid OMB 
control number.
---------------------------------------------------------------------------

    \111\ 44 U.S.C. 3507(d).
    \112\ 5 CFR 1320.
---------------------------------------------------------------------------

    72. The revisions proposed in this NOPR would clarify and update 
the requirements specified above for sellers seeking to obtain or 
retain market-based rate authority that study certain RTOs, ISOs, or 
submarkets therein, as discussed above. The Commission anticipates that 
the revisions, once effective, would reduce regulatory burdens.\113\ 
The Commission will submit the proposed reporting requirements to OMB 
for its review and approval under section 3507(d) of the Paperwork 
Reduction Act.\114\
---------------------------------------------------------------------------

    \113\ ``Burden'' is the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a Federal agency. For 
further explanation of what is included in the information 
collection burden, refer to 5 CFR 1320.3.
    \114\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    73. While the Commission expects that the regulatory revisions 
proposed herein will reduce the burdens on affected entities, the 
Commission nonetheless solicits public comments regarding the 
Commission's need for this information, whether the information will 
have practical utility, the accuracy of the burden estimates, ways to 
enhance the quality, utility, and clarity of the information to be 
collected or retained, and any suggested methods for minimizing 
respondents' burden, including the use of automated information 
techniques. Specifically, the Commission asks that any revised burden 
or cost estimates submitted by commenters be supported by sufficient 
detail to understand how the estimates are generated.
    74. Section 35.37 of the Commission's regulations currently 
requires market-based rate sellers to submit a horizontal market power 
analysis when seeking to obtain or retain market-based rate 
authority.\115\ We propose to implement a streamlined procedure that 
will eliminate the requirement to file the indicative screens as part 
of a horizontal market power analysis for any market-based rate seller 
that studies any RTO/ISO market with RTO/ISO-administered energy, 
ancillary services, and capacity markets subject to Commission-approved 
RTO/ISO monitoring and mitigation. Market-based rate sellers that study 
an RTO, ISO, or submarket therein, would continue to be required to 
submit indicative screens for authorization to make energy, capacity, 
or ancillary services sales at market-based rates in any RTO/ISO market 
that lacks an RTO/ISO-administered energy, capacity, or ancillary 
services market subject to Commission-approved RTO/ISO monitoring and 
mitigation. Eliminating the requirement for certain sellers to file 
indicative screens will reduce the burden of filing a horizontal market 
power analysis for a large

[[Page 1004]]

portion of market-based rate sellers when filing triennial updated 
market power analyses, initial applications for market-based rate 
authority, and notices of change in status.
---------------------------------------------------------------------------

    \115\ 18 CFR 35.37.
---------------------------------------------------------------------------

    75. Burden Estimate: The estimated burden and cost for the 
requirements contained in this NOPR follow.\116\
---------------------------------------------------------------------------

    \116\ Other Sellers in the chart below are market-based rate 
sellers that do not have an RTO/ISO market with RTO/ISO-administered 
energy, ancillary services, and capacity markets as a relevant 
geographic market.
---------------------------------------------------------------------------

Burden Reductions as Proposed in NOPR in RM19-2-000 117
---------------------------------------------------------------------------

    \117\ Due to the fact that change in status requirements may 
include the indicative screens in their market power analysis 
depending on the change reported, but are not necessary, we estimate 
the change in burden for change in status filings is de minimis. See 
18 CFR 35.42.

                                                   Burden Reductions as Proposed in NOPR in RM19-2-000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Annual number                  Average burden   Total annual     Annual cost
                       Requirement                           Number of     of responses    Total number     & cost per    burden hours &  per respondent
                                                            respondents   per respondent   of responses      response          cost             ($)
                                                                     (1)             (2)     (1) * (2) =             (4)     (3) * (4) =       (5) / (1)
                                                                                                     (3)                             (5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Market Power Analysis in New Applications for Market-                 72               1              72            -230         -16,560        -$21,203
 based Rates for RTO/ISO Sellers........................                                                        -$21,203     -$1,526,666
Triennial Market Power Analysis Updates for RTO/ISO                   33               1              33            -230          -7,590        -$21,203
 Sellers................................................                                                        -$21,203       -$699,722
    Total...............................................  ..............  ..............             105  ..............         -24,150        -$42,406
                                                                                                                             -$2,226,388
--------------------------------------------------------------------------------------------------------------------------------------------------------

    76. After implementation of the proposed changes, the total 
estimated annual reduction in cost burden to respondents is $2,226,388 
[24,150 hours * $92.19 \118\) = $2,226,388].
---------------------------------------------------------------------------

    \118\ The Commission estimates this figure based on the Bureau 
of Labor Statistics data (for the Utilities sector, at http://www.bls.gov/oes/current/naics2_22.htm, plus benefits information at 
http://www.bls.gov/news.release/ecec.nr0.htm). The salaries (plus 
benefits) for the three occupational categories are:
    Economist: $71.98/hour.
    Electrical Engineer: $60.90/hour.
    Lawyer: $143.68/hour.
    The average hourly cost of the three categories is $92.19 
[($71.98 + $60.90 + $143.68)/3].
---------------------------------------------------------------------------

    Title: Proposed Revisions to Market Based Rates for Wholesale Sales 
of Electric Energy, Capacity and Ancillary Services by Public Utilities 
(FERC-919).
    Action: Revision of Currently Approved Collection of Information.
    OMB Control No.: 1902-0234.
    Respondents for this Rulemaking: Public utilities, wholesale 
electricity sellers, businesses, or other for profit and/or not for 
profit institutions.
    Frequency of Responses:
    Initial Applications: On occasion.
    Updated Market Power Analyses: Updated market power analyses are 
filed every three years by Category 2 sellers seeking to retain market-
based rate authority.
    Change in Status Reports: On occasion.
    Necessity of the Information:
    Initial Applications: In order to retain market-based rate 
authority, the Commission must first evaluate whether a seller has the 
ability to exercise market power. Initial applications help inform the 
Commission as to whether an entity seeking market-based rate authority 
lacks market power, and whether sales by that entity will be just and 
reasonable.
    Updated Market Power Analyses: Triennial updated market power 
analyses allow the Commission to monitor market-based rate authority to 
detect changes in market power or potential abuses of market power. The 
updated market power analysis permits the Commission to determine that 
continued market-based rate authority will still yield rates that are 
just and reasonable.
    Change in Status Reports: The change in status requirement permits 
the Commission to ensure that rates and terms of service offered by 
market-based rate sellers remain just and reasonable.
    Internal Review: The Commission has reviewed the reporting 
requirements and made a determination that revising the reporting 
requirements will ensure the Commission has the necessary data to carry 
out its statutory mandates, while eliminating unnecessary burden on 
industry. The Commission has assured itself, by means of its internal 
review, that there is specific, objective support for the burden 
estimate associated with the information requirements.
    Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street NE, Washington, DC 20426 [Attention: Ellen 
Brown, Office of the Executive Director, email: DataClearance@ferc.gov, 
phone: (202) 502-8663, fax: (202) 273-0873]. Please send comments 
concerning the collection of information and the associated burden 
estimates to the Commission, and to the Office of Management and 
Budget, Office of Information and Regulatory Affairs, 725 17th Street 
NW, Washington, DC 20503 [Attention: Desk Officer for the Federal 
Energy Regulatory Commission, phone: (202) 395-4638, fax: (202) 395-
7285]. For security reasons, comments to OMB should be submitted by 
email to: oira_submission@omb.eop.gov. Comments submitted to OMB should 
include Docket Number RM14-14, FERC-919, and OMB Control Number 1902-
TBD.

V. Environmental Analysis

    77. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\119\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment.\120\ The actions proposed here fall within the categorical 
exclusions in the Commission's regulations for rules that are 
clarifying, corrective, or procedural, or do not

[[Page 1005]]

substantially change the effect of legislation or regulations being 
amended.\121\ In addition, the proposed rule is categorically excluded 
as an electric rate filing submitted by a public utility under Federal 
Power Act sections 205 and 206.\122\ As explained above, this proposed 
rule, which addresses the issue of electric rate filings submitted by 
public utilities for market-based rate authority, is clarifying in 
nature. Accordingly, no environmental assessment is necessary and none 
has been prepared in this NOPR.
---------------------------------------------------------------------------

    \119\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, FERC Stats. & Regs., ] 30,783 (1987) 
(cross-referenced at 41 FERC ] 61,284).
    \120\ 18 CFR 380.4.
    \121\ 18 CFR 380.4(a)(2)(ii).
    \122\ 18 CFR 380.4(a)(15).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act

    78. The Regulatory Flexibility Act of 1980 (RFA) \123\ generally 
requires a description and analysis of proposed rules that will have 
significant economic impact on a substantial number of small entities. 
The Commission is not required to perform this sort of analysis if the 
proposed activities within the NOPR would not have such an effect.
---------------------------------------------------------------------------

    \123\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    79. Out of the market-based rate filers who are potential 
respondents subject to the requirements proposed by this NOPR, the 
Commission estimates approximately 56 percent will be small as defined 
by SBA regulations.\124\
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    \124\ In 13 CFR 121.201, Subsector 221, the Commission uses the 
North American Industry Classification System codes 221122 (Electric 
Power Distribution), 221121 (Electric Bulk Power Transmission and 
Control), 221113 (Nuclear Electric Power Generation), 221114 (Solar 
Power Electric Power Generation), and 221115 (Wind Power Electric 
Generation). The highest threshold among these NAICS codes results 
in any respondent entities below 1,000 employees being considered as 
``small.''
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    80. The proposed rule will eliminate some requirements and reduce 
burden on entities of all sizes (public utilities seeking and currently 
possessing market-based rate authority). Implementation of the proposed 
rule is expected to reduce total annual burden by 24,150 hours per year 
with a related reduced cost of $2,226,388 per year to the industry when 
filing triennial market power analyses and market power analyses in new 
applications for market-based rates, and will further reduce burden 
when filing notices of change in status.
    81. As discussed in Order No. 697,\125\ current regulations 
regarding market-based rate sellers under Subpart H to Part 35 of Title 
18 of the Code of Federal Regulations exempt many small entities from 
significant filing requirements by designating them as Category 1 
sellers.\126\ Category 1 sellers are exempt from triennial updates and 
may use simplifying assumptions, such as sellers with fully-committed 
generation may submit an explanation that their generation is fully 
committed in lieu of submitting indicative screens, that the Commission 
allows sellers to utilize in submitting their horizontal market power 
analysis.
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    \125\ Order No. 697, FERC Stats. & Regs. ] 31,252 at PP 1126-
1129.
    \126\ Category 1 Sellers are power marketers and power producers 
that own or control 500 MW or less of generating capacity in 
aggregate and that are not affiliated with a public utility with a 
franchised service territory. In addition, Category 1 sellers must 
not own or control transmission facilities, and must present no 
other vertical market power issues. 18 CFR 35.36(a)(2).
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    82. The proposed rule to no longer require certain RTO/ISO sellers 
to file indicative screens will reduce the burden on all sellers in 
RTOs, including small entities in RTOs. The changes to the Commission's 
regulations for market-based rate sellers are estimated to cause a 
reduction of 52 percent in total annual burden to market-based rate 
sellers when filing triennial market power analyses and market power 
analyses in new applications for market-based rates, including small 
entities.
    83. Accordingly, the Commission certifies that the revised 
requirements proposed in this NOPR will not have a significant economic 
impact on a substantial number of small entities, and no regulatory 
flexibility analysis is required. The Commission finds that the 
regulations proposed here should not have a significant impact on small 
businesses.

VII. Comment Procedures

    84. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due March 21, 2019. Comments must refer to 
Docket No. RM19-2-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address in their 
comments.
    85. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    86. Commenters that are not able to file comments electronically 
must send an original of their comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE, 
Washington, DC, 20426.
    87. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

VIII. Document Availability

    88. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE, Room 2A, 
Washington DC 20426.
    89. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    90. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at 202-502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

List of subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

    By direction of the Commission. Commissioner McIntyre is not voting 
on this order. Commissioner McNamee is voting present.

    Issued: December 20, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
part 35, chapter I, title 18, Code of Federal Regulations, as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

[[Page 1006]]

    Authority:  16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

Sec.  35.37   [Amended]

0
2. Amend Sec.  35.37 by redesignating paragraph (c)(5) as (c)(7) and 
adding new paragraphs (c)(5) and (c)(6) to read as follows:

Sec.  35.37   Market power analysis required.

* * * * *
    (c) * * *
    (5) In lieu of submitting the indicative market power screens, 
Sellers studying regional transmission organization (RTO) or 
independent system operator (ISO) markets that operate RTO/ISO-
administered energy, ancillary services, and capacity markets may state 
that they are relying on Commission-approved market monitoring and 
mitigation to address potential horizontal market power Sellers may 
have in those markets.
    (6) In lieu of submitting the indicative market power screens, 
Sellers studying RTO or ISO markets that operate RTO/ISO-administered 
energy and ancillary services markets, but not capacity markets, may 
state that they are relying on Commission-approved market monitoring 
and mitigation to address potential horizontal market power that 
Sellers may have in energy and ancillary services. However, Sellers 
studying such RTOs/ISOs would need to submit indicative market power 
screens if they wish to obtain market-based rate authority for 
wholesale sales of capacity in these markets.
* * * * *
[FR Doc. 2019-00459 Filed 1-31-19; 8:45 am]
 BILLING CODE 6717-01-P