On July 18, 2019, FERC issued Order No. 861, modifying its regulations regarding the horizontal market power analysis required to obtain authorization to sell energy, capacity, or ancillary services at market-based rates. FERC adopted its proposal (see December 20, 2018 edition of the WER) to relieve electric power sellers of the obligation to submit indicative screens 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. Market-based rate sellers (“MBR Sellers”) must continue to submit indicative screens for authorization to make capacity sales in any RTO/ISO that lacks an RTO/ISO-administered capacity market subject to FERC-approved monitoring and mitigation—currently, the California Independent System Operator (“CAISO”) and Southwest Power Pool (“SPP”). FERC stated its intent for the rule is to ease regulatory burdens on MBR Sellers while simultaneously preserving its authority to prevent the exercise of market power.

To make power sales at market-based rates, FERC requires a seller and its affiliates to demonstrate that they do not have, or have adequately mitigated, both horizontal market power (which focuses on generation) and vertical market power (which focuses on transmission and other inputs to electric power generation). To assess horizontal market power within a geographic area (often the RTO/ISO of which the seller is a member and in which it is located), FERC uses two indicative screens—the pivotal supplier screen and the wholesale market share screen.

Order No. 861 relieves MBR Sellers of the obligation to submit indicative screens in any organized, wholesale power market that administers energy, capacity, and ancillary services markets subject to FERC-approved monitoring and mitigation. As such, MBR Sellers must continue to submit indicative screens for authorization to make capacity sales in CAISO and SPP, which do not administer centralized capacity markets with FERC-approved monitoring and mitigation measures. Order No. 861 also eliminated the rebuttable presumption that existing, FERC-approved market power mitigation measures by RTOs/ISOs are sufficient to address market power concerns regarding sales of capacity in CAISO and SPP. As a result, if a CAISO or SPP MBR Seller fails the indicative screens, the Seller must demonstrate that it lacks market power in capacity markets, or propose a capacity-market specific market power mitigation plan. Such MBR Seller may nonetheless rely on the rebuttable presumption that it lacks market power in energy and ancillary services markets as a result of FERC-approved market monitoring and mitigation.

MBR Sellers must still submit ownership information, vertical market power analyses, asset appendices, market monitor reports, and Electronic Quarterly Reports, which show the volumes and prices at which MBR Sellers are transacting and can be used to determine a Seller’s market share of sales and relative prices. A party that seeks to challenge an MBR Seller’s rate must demonstrate that: (1) the seller has market power and (2) that such market power is not addressed by existing FERC-approved RTO/ISO market monitoring and mitigation. To the extent that a complainant successfully rebuts the presumption of sufficiency of market monitoring and mitigation in RTO/ISO-administered markets with FERC-approved monitoring and mitigation measures, FERC clarified that it retains authority to require the MBR Seller to submit indicative screens or other evidence to determine whether the MBR Seller has market power.

Order No. 861 is available here.