The Federal Energy Regulatory Commission should not remove the requirement for most existing and prospective market-based rate sellers in regional transmission organization and independent system operator regions to file horizontal market power analyses with the Commission, the American Public Power Association, the American Antitrust Institute and National Rural Electric Cooperative Association said.
It would be a risky move to simply drop the requirement that market-based rate sellers submit horizontal market power screens to the Commission because RTO and ISO monitoring and mitigation is an inadequate substitute for Commission oversight, the three groups said in joint comments filed on March 18.
The comments were filed in response to a notice of proposed rulemaking (NOPR) issued by FERC earlier this year (Dock No. RM19-2).
Details on the NOPR
In the NOPR, FERC proposes to amend its regulations concerning the horizontal market power analysis required for a “public utility” to obtain or retain the authority to sell wholesale energy, ancillary services, and capacity at market-based rates. FERC refers to electric utilities it regulates as “public” utilities; however, these are not municipal utilities, but rather investor-owned utilities.
Specifically, the NOPR would eliminate the requirement for public utilities to submit horizontal market power screens for sales in regions where an RTO or ISO administers energy, ancillary services, and capacity markets subject to Commission-approved RTO/ISO monitoring and mitigation.
If the RTO/ISO does not administer a capacity market, horizontal market power analyses would be required only if a public utility seeks authority to sell capacity at market-based rates, but not if the public utility’s market-based rate authority is limited to energy and ancillary services.
In lieu of submitting horizontal market power analyses, public utilities may state that they are relying on Commission-approved market monitoring and mitigation to address potential horizontal market power sellers may have. The Commission said that these exemptions will reduce the burden on market-based rate sellers while preserving appropriate Commission oversight of its market-based rate program.
Groups point to ongoing competitive concerns in wholesale power markets
The American Public Power Association, AAI and NRECA said that ongoing competitive concerns in wholesale power markets “undermine the Commission’s renewed proposal to abolish the analysis of horizontal market power for many market-based rate sellers.”
FERC’s proposal revives, in large part, the Commission’s 2014 proposal in Docket No. RM14-14-000 to relieve market-based rate sellers in RTO/ISO markets of the requirement to file horizontal market power analyses, the groups said.
In response, the Commission received significant feedback opposing that proposal from a variety of commenters—including AAI, NRECA and the Association -- which raised substantive legal, enforcement, and policy arguments as to why the Commission’s screening of market-based rate sellers’ horizontal market power should be retained.
Based on these arguments, FERC concluded in its Order No. 816 issued in 2015 that it would not adopt a proposal that would have allowed sellers in RTO/ISO markets to rely on market monitoring and mitigation in lieu of submitting indicative screens.
The Association, AAI and NRECA said that “nothing of substance involving competition in wholesale power markets has changed or improved in the last three and a half years that would warrant terminating the requirement that market-based rate sellers submit periodic horizontal market power analyses with the Commission. Indeed, it is arguably now more important than ever that the Commission retain the requirement to collect horizontal market power analyses from market-based rate sellers.”
The groups said that in light of demonstrated and potential abuses of market power in regional markets, abolishing the Commission’s ex ante analysis of a seller’s market power appears particularly ill-conceived.
“Removal of the requirement would be a very attractive prospect for sellers seeking to obtain or retain market-based rate authority, including those that possess market power. But it is likely to be a losing proposition for competition and consumers, and for the Commission, in performing vital oversight of competition in the nation’s wholesale electricity markets,” they added.
Existing RTO/ISO-based regime an “inadequate surrogate” for Commission oversight
Meanwhile, the Association, AAI and NRECA said that the existing multi-regional, RTO/ISO-based regime for monitoring and mitigating market-based rate seller market power is an inadequate surrogate for Commission oversight of markets, particularly the up-front screening for horizontal market power that FERC currently performs.
“Without offering a Commission-administered replacement for the current ex ante screening mechanisms, the NOPR once again proposes to eliminate the market power screening requirement in certain RTO and ISO markets based primarily on the existence of Commission-approved market monitoring and mitigation,” the groups said.
FERC’s proposal is inconsistent with its previous conclusion that, even where RTO/ISO monitoring and mitigation is in place, indicative screens provide critical information regarding the potential market power of sellers in the market, they went on to say.
The Association, AAI and NRECA also argued that exempting market-based rate sellers from providing market power analysis “deprives the Commission of valuable information that supports the agency’s ability to fulfill its mandate to promote competition and protect consumers.”
Recommendations
The groups strongly recommended that the Commission retain some mechanism for screening whether market-based rate sellers in RTO/ISO regions may exercise horizontal market power in centralized and bilateral wholesale electricity markets.
“This is not to say that the present indicative horizontal market power screen requirements and procedures, which have been in place for some years now, necessarily provide the Commission and public with the right information and are the best way to obtain that information. But the Commission should not simply stop collecting such information, stop monitoring sellers’ ability to exercise horizontal market power, and trust private entities—RTOs/ISOs and their market monitoring units—to address the matters under a patchwork of inconsistent and constantly changing market rules.”
The Association, AAI and NRECA said that the Commission should not act on the proposed rulemaking before it has acted on related pending rulemakings in Docket Nos. RM16-17-000 (a data collection NOPR) and RM16-21-000 (a market power notice of inquiry).
The groups said it would be unreasonable to eliminate the Commission’s ex ante analysis of sellers’ horizontal market power as proposed in the NOPR while FERC is also considering earlier proposed changes to its regulations addressing market-based rates and market power monitoring in the data collection NOPR and market power NOI.
“The NOPR, if adopted, would reduce the information available to the Commission for assessing and monitoring the ability of sellers to exercise market power at the same time the Commission is evaluating whether the Commission’s existing market power information requirements and analyses are sufficient.”
Groups float idea of a new NOI
Once the data collection NOPR and the market power NOI proceedings are wrapped up, the Commission should consider issuing a further NOI to solicit public comment on any further required re-assessment of the competition analysis the Commission requires for market-based rate sellers, particularly in RTO and ISO markets, the Association, AAI and NRECA argued.
Such an NOI could solicit comments on the structure and content of the competition analysis and other information the Commission should require in allowing market-based rates consistent with the just-and-reasonable standard of the Federal Power Act.
This pathway to a new NOI could aim at three major goals:
- First, to improve the quality and consistency of market power analysis for market-based rate authority in today’s increasingly complex markets, including an assessment of any problematic inconsistencies in market monitoring and mitigation across various RTOs;
- Second, to reconcile market power analysis for purposes of market-based authority across the other areas where the Commission exercises authority to promote competition and protect consumers, including merger review and transmission policy; and
- Third, to reduce truly unnecessary regulatory burdens, especially for smaller entities.
A technical conference “would be an effective tool to collect and synthesize expertise and commentary on these important issues and would serve valuably to inform Commission policy moving forward,” the groups said.
