Power & Pipes

FERC, CFTC, and State Energy Law Developments

Wholesale electricity sellers that are not government owned are subject to regulation by the Federal Energy Regulatory Commission. Obtaining FERC approval to sell wholesale electricity at “market-based rates” (which is nearly any sale regulated under the Federal Power Act that is not based on cost-of-service accounting) can be an intricate exercise, requiring the applicant to submit statistical horizontal market power screens. Within the FERC-regulated organized markets, the independent system operators and regional transmission organizations (ISOs/RTOs), monitoring staff and procedures, and transparent real-time and long-term demand and pricing information have led many market participants to conclude that the required market power statistical screen studies are of little value and function merely as an administrative impediment to doing business. On July 18, FERC issued a final rule, Refinements to Horizontal Market Power Analysis for Sellers in Certain Regional Transmission Organization and Independent System Operator Markets, Order No. 861, that relieves market-based rate (MBR) entities of the statistical screen requirements in some—but not all—of the ISO/RTO markets. This should streamline both the regulatory approval process for prospective MBR entities and the ongoing compliance process for MBR entities that file notices, triennial renewal applications, and similar documents with FERC.

Order No. 861 relieves MBR entities (most of which are independent generating companies and/or power marketers, and some of which are traditional franchised utilities) of the need to prepare and submit statistical screen analyses if the MBR applicant or holder is within the Northeastern and Central ISO/RTO markets—that is, ISO New England, New York ISO, PJM Interconnection, or Midcontinent Independent System Operator. In these ISO/RTOs, FERC found that the existence of both capacity and energy markets and the vigor of market monitoring and mitigation were sufficient to permit applicants to dispense with the horizontal screen studies.

FERC rejected numerous requests from commenting parties to include the Southwest Power Pool (SPP) and California Independent System Operator (CAISO) within the scope of its relief. FERC found that neither SPP nor CAISO operates a centralized capacity clearing market for FERC to rely on market mechanisms to prevent the accretion of market power in capacity. As a result, Order No. 861 does not dispense with statistical screen requirements for CAISO and SPP capacity sellers, nor for most sellers into the CAISO Energy Imbalance Market.

Market power screens in the Northeast Region in particular can often involve intricate, overlapping geographic markets, resulting in an individual generating company located within certain parts of PJM being subject to up to 20 different statistical analyses (four sets of wholesale market share screens for each of four seasons, plus four pivotal supplier screens). Order No. 861 is welcome relief for MBR entities in the Northeast and Central Regions. However, the limitations of Order No. 861 should not be overlooked:

  • Statistical market power screens can still be required in the FERC-regulated merger, acquisition, divestiture, and change-in-control context.
  • FERC staff retains the right to direct an MBR-holding entity to prepare and submit screens at any time, for any reason, or for no reason at all.
  • As noted, MBR sellers in the SPP and CAISO markets do not benefit from any relaxed treatment.
  • Order No. 861 was never contemplated to take effect outside of organized ISO/RTO markets, so MBR entities in large portions of the southern and northwestern United States will not benefit from these reforms.
  • In companion Order No. 860, FERC is materially modifying (and slightly expanding) the quantity of identifying, background, and other data that an MBR holder must electronically file as part of its initial application and its ongoing compliance filings. The specifics of FERC’s new data requirements (which will not go into effect until later in 2020) have yet to be fully developed.

Order No. 861 will become effective 60 days following its forthcoming publication in the Federal Register.