New Mexico State University Santa Fe Conference 2005

1
New Mexico State UniversitySanta Fe Conference
2005

• Steve Rodgers
• Office of Markets, Tariffs RatesSouth
• Federal Energy Regulatory Commission
• March 22, 2005

2
FERCs Responsibility Under the Federal Power
Act--205

• Section 205(a) All rates and charges made . .
  . or received by any public utility for . . . the
  sale of electric energy subject to the
  jurisdiction of the Commission . . . shall be
  just and reasonable.
• Section 205(b) No public utility can grant any
  undue preference or advantage to any person with
  regard to any FERC-jurisdictional sale, nor can
  it maintain any unreasonable difference in rates,
  charges, service, facilities or in any other
  respect.

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FERCs 4-Part Test For Market-Based Rate
Authority Under Section 205

• 1 Generation market power
• 2 Transmission/vertical market power
• 3 Other barriers to entry
• 4 Affiliate abuse/reciprocal dealing

4
Recent Developments Under Prong 1 (Generation
MP)

• New interim market power test announced last
  year, consisting of two indicative screens
• Uncommitted pivotal supplier screen
• Uncommitted market share screen
• FERC launches a formal investigation if applicant
  fails either screen
• Applicant proposed mitigation or cost-based rates
  for those with generation market power

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Retail Customer Protections Under New Screens

• Explicit recognition of reasonable IOU generation
  commitments to native load, operating reserves
  and l-t firm contracts
• Much more cost and rate transparency for states
  with IOUs found to have market power. States can
  be sure theyre getting fair share of revenue
  credits from off-system wholesale sales.
• When IOUs buy power at wholesale, they can be
  assured of lower rates. Retail customer
  benefits!
• When IOUs with market power sell at wholesale, no
  more cross-subsidies between states and
  between IOUs and munis/coops. Retail customer
  benefits!

6
FERC Actions to Date on IOUs Under New Generation
Screens

• Passes Initial Screen
• Consumers Energy
• Consolidated Water Power
• Dayton Power Light
• El Paso Electric
• Alliant (Wisc. PL and Interstate) when MISO
  market is up
• AEP companies in PJM or in ERCOT
• Avista Corporation
• Idaho Power Company

• Fails Initial Screen
• Duke Power
• Southern Company
• Entergy
• Public Service New Mexico
• Alliant (Wisc. PL and Interstate) before MISO
  market is up
• AEP-SPP companies not in ERCOT
• Kansas City Power Light
• Tampa Electric Company

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Key FERC Orders on Prong 4

• Edgar (1991) Three examples of how to show lack
  of affiliate abuse head-to-head competition
  price evidence of what non-affiliates pay and
  benchmark price evidence (e.g., an index).
• Detroit Edison (1997) Three conditions (1)
  utility cant sell to an affiliate at lower rate
  than non-affiliate (2) any affiliate discounts
  must be offered to similarlysituated
  non-affiliates and (3) simultaneous public
  posting for any affiliate transaction.
• Mountainview/SoCalEd (2004) All affiliate
  long-term PPAs, whether market- or cost-based,
  must meet the Edgar standard.
• Allegheny (2004) Four guidelines for reviewing
  RFPs transparency product definition
  evaluation criteria and oversight by an
  independent third party.

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FERCs Responsibility Under Section 203 of the FPA

• Section 203 FERC has authority over the sale,
  lease or disposition of public utility facilities
  subject to FERC jurisdiction, and shall approve
  the same if it finds that they are consistent
  with the public interest.
• In reviewing mergers, dispositions and
  acquisitions under Section 203, FERC for many
  years has considered the effect on competition,
  rates and regulation.

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Recent Key FERC Orders Under Section 203

• Oklahoma Gas Electric IOU acquisition of a
  generator needed for native load could harm
  competition case settled, with IOU offering
  mitigation, e.g., tx upgrades, redispatch
• Ameren Energy/Union Electric Applied the Edgar
  standard, and the four Allegheny RFP guidelines,
  to affiliate plant acquisitions.
• Objective is to ensure that the conduct of
  competitive solicitations involving affiliates
  does not harm competitive markets by favoring
  those affiliates and foreclosing opportunities to
  competition.

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Summary

• FERC has a responsibility to protect wholesale
  customers and to ensure market behavior that is
  not unduly discriminatory.
• FERC has a regional perspective and
  responsibility that is as valid as an individual
  states perspective and responsibility.
• FERC and the states need to work cooperatively to
  address their dual responsibilities sometimes
  they overlap, sometimes theyre complementary.