On December 20, 2018, FERC proposed to revise the horizontal market power analysis required for electric power sellers seeking to obtain or retain market-based rate authority in certain organized wholesale power markets (“NOPR”). Specifically, FERC proposed to relieve electric power sellers of the obligation to submit indicative screens when seeking to obtain or retain market-based rate authority in any Regional Transmission Organization (“RTO”)/Independent System Operator (“ISO”) market with FERC-approved RTO/ISO monitoring and mitigation, thus easing the regulatory burden for certain market-based rate sellers. However, FERC proposed to continue to require market-based rate sellers in an RTO/ISO to submit indicative screens for authorization to make capacity sales at market-based rates in any RTO/ISO market that lacks an RTO/ISO-administered capacity market subject to FERC-approved RTO/ISO monitoring and mitigation.

In Order No. 697, FERC codified two indicative screens for assessing horizontal market power for market-based rate sellers: the pivotal supplier screen and the wholesale market share screen (with a 20 percent threshold). The pivotal supplier screen generally examines whether demand cannot be met without an individual seller’s supply. The wholesale market share screen generally assesses the relative concentration of a seller’s supply within a defined market. FERC stated that passage of both indicative screens establishes a rebuttable presumption that the seller does not possess horizontal market power. Sellers that fail either indicative screen are rebuttably presumed to have market power and have the opportunity to present evidence through a delivered price test analysis or other evidence demonstrating that, despite a screen failure, they do not have market power.

In the NOPR, FERC proposed to eliminate the obligation for sellers to submit indicative screens when seeking to obtain or retain market-based rate authority in any RTO/ISO market with FERC-approved RTO/ISO monitoring and mitigation. Furthermore, market-based rate sellers in an RTO/ISO that lacks an RTO/ISO-administered capacity market would no longer be required to submit indicative screens if their market-based rate authority is limited to sales of energy and/or ancillary services. FERC explained that removing this requirement would reduce the filing burden on market-based rate sellers in RTO/ISO markets without compromising FERC’s ability to prevent sellers from potentially exercising market power in RTO/ISO markets.

However, under the NOPR, market-based rate sellers in an RTO/ISO market must still submit indicative screens for authorization to make capacity sales at market-based rates in any RTO/ISO market that lacks an RTO/ISO-administered capacity market subject to RTO/ISO monitoring and mitigation. Currently, the only wholesale power markets that do not administer these types of capacity markets are the California Independent System Operator Corp. and the Southwest Power Pool, Inc. According to FERC, for those RTOs and ISOs lacking an RTO/ISO-administered capacity market, it proposes that FERC-approved RTO/ISO monitoring and mitigation no longer be presumed sufficient to address any horizontal market power concerns for capacity sales where there are indicative screen failures. In cases of screen failures, market-based sellers in those markets may submit a delivered-price test or other evidence or propose other mitigation for capacity sales in these markets.

Under FERC’s proposal, all market-based rate sellers would still be required to file a vertical market power analysis as well as an asset appendix, which provides comprehensive information relevant to determine a seller’s market power, including: generators owned or controlled by the seller and its affiliates; long-term firm power purchase agreements of the seller and its affiliates; and electric transmission assets, natural gas intrastate pipelines and intrastate natural gas storage facilities owned or controlled by the seller and its affiliates. Finally, FERC stated that, although its proposal would eliminate the requirement to submit indicative screens in certain RTO/ISO markets, the proposal would not eliminate other market-based rate regulatory reporting requirements. According to FERC, it believes that the RTO/ISO market power monitoring and mitigation combined with the remaining market-based rate reporting requirements will enable FERC to adequately address market power concerns in the RTO/ISO markets.

Comments on the NOPR are due 45 days after publication in the Federal Register.

A copy of the NOPR can be found here.