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.
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. Continue Reading