In a pair of almost-identical complaints brought by a coalition of wholesale power generators led by the Electric Power Supply Association (Complainants), the Federal Energy Regulatory Commission’s (Commission) affiliate abuse rules were recently put to the test. Electric Power Supply Association v. FirstEnergy Solutions Corp., 155 FERC ¶ 61,101 (2016); Electric Power Supply Association v. AEP Generation Resources, Inc., 155 FERC ¶ 61,102 (2016). Each complaint alleged misconduct by two affiliated companies, one a franchised public utility, and the other a market-regulated power sales entity (generator). In each case, the utility and the generator had entered into a power purchase agreement (PPA), under which the utility had agreed to purchase the generators’ output. The PPA provided for the output to be resold by the utility into the PJM Interconnection, LLC energy market, rather than being used to supply the utility’s retail customers.

Complainants contended that this PPA arrangement constituted affiliate abuse. In general, no wholesale sale of electric energy or capacity may be made between a franchised public utility with captive customers and a market-regulated power sales affiliate without first receiving authorization from the Commission. The Commission has waived this rule where the applicant has shown that the utility’s retail customers are not captive customers, i.e., that they may choose among various retail suppliers. The respondents in the two cases had both been granted waivers that allowed the generators to sell power to their affiliate utilities under other supply agreements (agreements not the subject of the instant complaints). Those waivers had been incorporated into the generators’ market-based rate tariffs.

The Commission’s analysis of the complaints turned on whether the utility’s customers are de factocaptive. The PPAs under review contained a feature—a distribution rate rider—that was not present in the other supply agreements. Upon review, the Commission determined that the distribution rate rider caused certain costs associated with the PPA transactions to be charged to all retail customers of the utilities, regardless of a retail customer’s retail supplier. This, the Commission found, caused the retail customers to become captive. The Commission held that the prior waivers did not apply to the PPAs under review and, accordingly, granted the complaints. In today’s highly competitive wholesale energy market, where generators have seen fuel price variations and a continued influx of renewable resources, utilities and generators need to be cognizant of the Commission’s affiliate rules when formulating PPAs.