On November 18, 2021, FERC issued a Notice of Inquiry (NOI) seeking comments on reactive power capability compensation and market design. (Link to NOI here). Reactive power is a critical component of the bulk electric system. Almost all bulk electric power is generated, transported, and consumed in AC networks. These AC systems consume both real and reactive power. Reactive power supports the voltages necessary for system reliability to allow the supply of real power from generation to load. All balancing authorities must procure enough sources of reactive power to safely manage the grid and generator interconnection agreements contain provisions requiring generators to operate within certain reactive power limits. Reactive power is an ancillary service and costs are recovered separately from the cost of standard transmission service.
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DC Circuit Rejects FERC’s Long-Established Practice of Issuing Tolling Orders
On June 30, the DC Circuit struck down the Federal Energy Regulatory Commission’s (FERC) use of tolling orders to buy additional time in responding to requests for rehearing—a longstanding agency practice that had the effect of materially delaying litigants’ rights to seek judicial review of FERC’s orders. The opinion was issued in a case that
FERC Reaffirms Concurrent Jurisdiction Over PPAs in Bankruptcy
The Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order on May 1, 2019 denying rehearing of its orders asserting concurrent jurisdiction with a bankruptcy court over wholesale power contracts.
In January, prior to Pacific Gas & Electric (“PG&E”) filing for bankruptcy, NextEra Energy, Inc. and Exelon Corporation both filed complaints and petitions for declaratory orders from FERC, requesting that the Commission find that PG&E could not abrogate, amend, or reject in a bankruptcy proceeding any rates, terms, and conditions of its FERC-jurisdictional wholesale power contracts without first obtaining approval from the Commission. The Commission quickly issued a brief order holding that a party to a FERC-jurisdictional wholesale power contract must obtain approval from both the bankruptcy court and the Commission to reject a contract and modify the filed rate, respectively. PG&E then filed its petition for bankruptcy and initiated an adversarial proceeding against FERC, requesting preliminary and injunctive relief. That matter has continued to play out in the Northern District of California and there has not yet been a resolution by the bankruptcy court. Meanwhile, PG&E requested rehearing of the Commission’s decision. The Commission’s order on rehearing offers a more in-depth analysis of its jurisdiction.
The order first highlights the distinct roles that FERC and a bankruptcy court play in evaluating wholesale power contracts. While FERC’s role is to protect the public interest, the bankruptcy court’s role is to provide a path to rehabilitate debtors. The Commission held that the existence of bankruptcy proceedings does not alter its obligation, and exclusive authorization, to consider whether wholesale rates are just and reasonable.
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FERC Issues NOPR to Eliminate Horizontal Market Screens for Certain MBR Sellers
The Federal Energy Regulatory Commission (“FERC”) issued a Notice of Proposed Rulemaking (“NOPR”) on December 20 proposing changes to its regulations regarding the horizontal market power analysis required for market-based rate (“MBR”) sellers. The proposed rulemaking picks up on an earlier effort in Order No. 816 to ease the regulatory burden on MBR sellers in RTO/ISO markets. The current proposal would eliminate the need for certain MBR sellers to submit indicative screens with their initial MBR application, triennial updates, and change in status notices. The exemption would apply to all MBR sellers in RTO/ISO markets with RTO/ISO-administered energy, ancillary service, and capacity markets subject to FERC-approved RTO/ISO market monitoring and mitigation. For RTO/ISO markets that lack an RTO/ISO-administered capacity market (that would be CAISO and SPP), MBR sellers would be exempt from the requirement to submit indicative screens if their MBR authority is limited to sales of energy and/or ancillary services. FERC also proposed eliminating the rebuttable presumption that FERC-approved RTO/ISO market monitoring and mitigation is sufficient to address horizontal market power concerns for capacity sales in CAISO and SPP.
Background
MBR sellers are currently required to submit two indicative screens, a pivotal supplier screen and a wholesale market share screen, in their initial MBR applications, change in status notices, and any updated market power analyses. Passage of both screens creates a rebuttable presumption that the seller does not have horizontal market power. If a seller fails either screen, it is presumed to have horizontal market power. To rebut the presumption of market power, the seller must present evidence through a delivered price test or other means to show that it does not possess market power. However, sellers in an RTO/ISO market who fail the screens have an alternative. They may instead rely on FERC-approved RTO/ISO market monitoring and mitigation to address market power concerns. In 2014, FERC issued a NOPR proposing to eliminate the indicative screen requirement for those RTO/ISO sellers because it yielded little practical benefit due to their ability to rely on RTO/ISO market monitoring and mitigation. FERC decided not to act on that proposal in Order No. 816 but stated that it may consider the issue in the future.
The Current NOPR
In the current NOPR, FERC states that the indicative screens provide marginal additional market power protections given that FERC has found that RTO/ISO market monitoring and mitigation adequately mitigate a seller’s market power and FERC has access to other data regarding horizontal market power. FERC notes that all RTOs/ISOs have mitigation provisions for energy offers. While not all RTOs/ISOs have market power mitigation provisions for ancillary services, concerns about market power in ancillary service offers are mitigated through the mitigation of energy offers, since ancillary service prices are based on the opportunity cost of not generating energy. Finally, ISO-NE, NYISO, PJM, and MISO all have capacity markets with FERC-approved market power mitigation.
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MISO Transmission Owners’ Return on Equity Cut by FERC
Following a decision of the Federal Energy Regulatory Commission (FERC) released last week that cuts transmission owners’ return on equity (ROE) by more than 200 basis points,[1] ratepayers in the Midcontinent Independent System Operator, Inc. (MISO) footprint will save an estimated $200 million per year.
Spurred by industrial customers’ challenge to MISO’s ROE rate in 2013, FERC ultimately found in its September 28, 2016 order that MISO’s ROE of 12.38% – which had been in place since 2002 – was unjust and unreasonable, and reset it to a base rate of 10.32%.[2] Transmission owners may also qualify for transmission incentive ROE adders, although the maximum ROE rate may not exceed 11.35%.[3] FERC also ordered that refunds be issued on a prospective basis for the period from November 12, 2013 through February 11, 2015.[4]
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