Acadia Power Partners, LLC, et al.; Order Implementing New Generation Market Power Analysis and Mitigation Procedures

Before Commissioners: Pat Wood, III, Chairman; Nora Mead Brownell, and Joseph T. Kelliher

1. In this order, the Commission addresses the procedures for implementing the new interim generation market power analysis and mitigation policy announced in the Commission's April 14, 2004 Order in AEP Power Marketing, Inc., et al., 107 FERC ¶ 61,018 (2004), reh'g pending (SMA Rehearing Order). This order benefits customers by implementing the policies adopted in the SMA Rehearing Order, which improve the assessment and mitigation of generation market power in wholesale markets, thus better ensuring that prices charged for jurisdictional sales are just and reasonable.

Background

2. In an order issued on November 20, 2001, the Commission announced a new generation market power test, the Supply Margin Assessment (SMA), to be applied to market-based rate applications on an interim basis pending a generic review of new methods for analyzing market power. It also established mitigation measures applicable to entities that fail the interim generation market power test.

3. In the SMA Rehearing Order, the Commission granted rehearing of the SMA Order to the extent that it replaced the SMA generation market power test with two “indicative screens” for assessing generation market power and modified the mitigation announced in the SMA Order. Concurrently with the SMA Rehearing Order, the Commission issued a notice establishing a generic rulemaking docket to initiate a comprehensive review of the appropriate analysis for granting market-based rate authority, in particular, the analysis of generation market power, transmission market power, other barriers to entry, and affiliate abuse and reciprocal dealing. In the interim, the Commission indicated that the policies it was adopting in the SMA Rehearing Order (which deal with the generation market power part of the analysis) would apply to all pending and future market-based rate applications, including three-year market-based rate reviews, pending the completion of the market-based rate rulemaking. The Commission stated that it intended to issue a subsequent order addressing the implementation process for pending three-year market-based rate reviews as well as pending applications for initial market-based rate authority.

4. In the SMA Rehearing Order, the Commission stated it was not making any findings at that time in connection with the three-year market-based rate review filings of the three applicants that were the subject of the rehearing, nor was it imposing in that order mitigation on those applicants. Instead, each applicant was directed, within 60 days from the date of issuance of the SMA Rehearing Order, to make a filing with the Commission submitting revised generation market power analyses pursuant to the two indicative screens (pivotal supplier and market share) adopted in the order. As the Commission explained, each of these revised filings will be noticed in the Federal Register, with an opportunity for comment by interested parties. The Commission stated that, following its review of these analyses, it would issue an order addressing the filings on the indicative screens. We further stated that applicants that do not pass the two indicative screens (and thus are rebuttably presumed to possess generation market power) will have the option of presenting a more thorough analysis using the Delivered Price Test. In the alternative, the applicants may proceed directly to mitigation. Should they choose this route, we explained that each company will have the option of proposing specific mitigation tailored to its particular circumstances sufficient to alleviate any market power concerns, or adopting default rates, as set forth in the SMA Rehearing Order.

Discussion

5. The purpose of this order is to provide a framework for applying the substantive and procedural requirements of the SMA Rehearing Order to other applicants with: (1) Pending three-year market-based rate reviews; (2) pending filings for initial market-based rate authority; or (3) future applications for initial market-based rate authority or future three-year market-based rate reviews.

6. Because the Commission has adopted a new interim approach for analyzing generation market power, we will require that the generation market power portion of all pending and future three-year reviews, as well as all pending and future initial applications for market-based rate authority, address the indicative screens (pivotal supplier and market share) adopted in the SMA Rehearing Order.

Pending Three-Year Market-Based Rate Reviews

7. Consistent with the procedures set forth in the SMA Rehearing Order, all applicants with three-year market-based rate reviews pending before the Commission on or before the date of issuance of this order are directed to make a filing with the Commission to revise the generation market power portion of their three-year reviews to address the two interim indicative generation market power screens adopted in the SMA Rehearing Order. The revised filings will be treated as amendments to the pending filings, and all pleadings on the pending filings will remain in the record.

8. In order to facilitate the processing of the pending three-year market-based rate reviews, however, we have decided to stagger the time periods within which such revised filings must be made. In doing so, we have attempted to take into consideration resource issues from the standpoint of both the industry and the Commission. A schedule listing the time period within which each applicant's revised three-year market-based rate review filing must be made is set forth in Appendix A. Each applicant's revised filing will be noticed in the Federal Register, with an opportunity for comment by interested parties.

9. We believe it is appropriate to start with transmission-providing utilities because these utilities are required by the SMA Rehearing Order to undertake simultaneous import capability studies for their home control areas and for each of their interconnected first-tier control areas. As other utilities may need such simultaneous import capability information in order to perform their own generation market power analyses, as a practical matter it is necessary to require that the public utilities with the access to such simultaneous import information (the transmission-providing public utilities) be among the first directed to revise their pending three-year market-based rate reviews consistent with the interim screens adopted in the SMA Rehearing Order.

10. Similarly, because of the importance of information accessibility, we will address early on the three-year market-based rate reviews of public utilities located in ISO/RTOs with a single energy market under the control of the ISO/RTO (e.g., PJM, ISO NE, NYISO, and CAISO). Acting on these types of filings will provide other applicants seeking to obtain or retain market-based rate authority with needed market information that will facilitate the completion of their studies.

11. The timing for processing of the remaining filings is generally based on the age of the filings. We will consider the revised applications directed herein to be the next required three-year market-based rate review for the applicants listed in Appendix A. In the event that a public utility with a three-year market-based rate review pending before the Commission is not listed in Appendix A (and, accordingly, has not been assigned a date for submitting its revised generation market power analysis pursuant to the two indicative screens), such omission is inadvertent. Any such omitted public utility is directed, within 30 days of the date of issuance of this order, to identify itself and the pending docket number.

12. We remind applicants that they may provide streamlined applications, where appropriate, to show that they pass both screens. For example, if an applicant would pass both screens without considering competing supplies imported from adjacent control areas, the applicant need not include such imports. Likewise, an applicant need only account for the minimum amount of capacity that would result in the applicant passing both screens. Accordingly, an applicant may not need to consider the capacity of all competitors within the relevant market. For example, if there are seven competitors in the relevant market and the applicant passes both screens when considering only three of those competitors, the applicant need not account for the other four competitors, nor consider competing supplies imported from adjacent control areas. Further, utilities meeting the criteria of section 35.27 of our regulations, as clarified in LG&E Capital Trimble County LLC, 98 FERC ¶ 61,261 at 62,034-35 (2002) (dealing with sales for resale from capacity for which construction commenced on or after July 9, 1996), may provide evidence demonstrating that they satisfy our regulations rather than submit a generation market power analysis.

13. In addition, consistent with the procedures set forth in the SMA Rehearing Order, applicants may forgo submitting a generation market power analysis and go directly to mitigation by proposing case-specific mitigation that eliminates the ability to exercise market power, or agreeing to the default rates.

14. Finally, we understand that there may be a number of utilities whose three-year market-based rate reviews are due to be filed with the Commission within the next 60 days. In order to provide such utilities an opportunity to incorporate the two indicative screens adopted in the SMA Rehearing Order into the generation market power portion of their three-year reviews, we will grant these utilities an extension of time of 60 days from the date of issuance of this order to submit their three-year market-based rate reviews.

Pending Applications for Initial Market-Based Rate Authority

15. A number of utilities have applications for initial market-based rate authority pending before the Commission, which were filed on or before the date of issuance of this order. These utilities are listed in Appendix B. In light of the Commission's decision to analyze generation market power based on the two indicative screens adopted in the SMA Rehearing Order, the generation market power studies submitted in connection with these pending applications have been rendered deficient. Accordingly, the utilities listed in Appendix B are directed to revise their filings within 60 days from the date of issuance of this order to reflect the new interim generation market power screens. In the alternative, these utilities can revise their filings to indicate that they will forgo submitting a generation market power analysis and go directly to mitigation by proposing case-specific mitigation that eliminates the ability to exercise market power, or agreeing to the default rates.

Future Initial Market-Based Rate Applications and Future Three-Year Reviews

16. All future applications for initial market-based rate authority and future three-year market-based rate reviews (i.e., those not currently pending and that are filed after the date of issuance of this order) should include generation market power analyses pursuant to the two indicative screens (pivotal supplier and market share) described in the SMA Rehearing Order, as well as the other three parts of our four-part analysis. In the alternative, new applicants for market-based rate authority, as well as applicants filing three-year market-based rate reviews, can forgo submitting a generation market power analysis and go directly to mitigation by proposing case-specific mitigation that eliminates the ability to exercise market power, or agreeing to the default rates.

The Commission orders:

(A) The applicants listed in Appendix A are directed to file, within the time period set forth in Appendix A, revised applications, as discussed in the body of this order.

(B) The applicants listed in Appendix B are directed to revise their applications for initial market-based rate authority, as discussed in the body of this order.

(C) Applicants with three-year market-based rate reviews due to be filed within the next 60 days are hereby granted an extension of time of 60 days from the date of issuance of this order, as discussed in the body of this order.

(D) The Secretary is hereby directed to promptly publish this order in the Federal Register.

Appendix A

Appendix B