FERC Issues NOPR to Eliminate Horizontal Market Screens for Certain MBR Sellers

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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.

Under FERC’s proposed rule, MBR sellers would still be required to file initial MBR applications, change in status notices, and triennial updates, including all of the information currently required, except for the indicative screens for those sellers exempt under the NOPR. A seller relying on the proposed exemption would include a statement in its filing that it is relying on FERC-approved market monitoring and mitigation to mitigate any potential market power.  Sellers would still be required to file electronic quarterly reports and FERC would retain the ability to require an updated market power analysis, including the indicative screens, at any time.

Sellers seeking to sell capacity at MBRs in CAISO and SPP would still be required to submit the indicative screens, since those markets do not have RTO/ISO-administered capacity markets. In addition, any seller that fails the indicative screens in those markets would need to submit a delivered price test or other evidence or propose mitigation.  FERC requested comments on whether CAISO and SPP have adequate additional safeguards in place to prevent the exercise of market power in capacity sales.

Implications

The proposed rulemaking would streamline MBR applications, triennial updates, and change in status notices in most RTO/ISO markets without hindering the Commission’s ability to identify and address market-power concerns. Although sellers with MBR authorization for capacity sales in CAISO and SPP would continue to be required to submit the indicative screens, CAISO and SPP sellers authorized to sell only energy and/or ancillary services would receive the benefit of the proposed rule.  While FERC proposed elimination of the rebuttable presumption that market monitoring and mitigation is sufficient to address market power concerns for capacity sales in CAISO and SPP, it also requested comments on whether CAISO and SPP have adequate additional safeguards in place to prevent the exercise of market power in capacity sales, indicating it is not closed to additional consideration of the CAISO and SPP capacity markets.  FERC’s proposal to lighten regulation in the other RTO/ISO markets is likely to further irk California generators, who have been frustrated by the lack of a centralized capacity market in California.  Comments on the proposed rulemaking will be due 45 days after publication in the Federal Register.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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