Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AAI urges FERC to retain generator market-based rate authority filing requirements, (Sep 25, 2014)
Organizations Mentioned:American Antitrust Institute | Federal Energy Regulatory Commission
By Linda O’Brien, J.D., LL.M.
The American Antitrust Institute (AAI) has encouraged the Federal Energy Regulatory Commission (FERC) to retain certain filing requirements for granting generators market-based rate authority in comments filed on September 23 in a FERC Notice of Proposed Rulemaking: “Refinements to Policies and Procedures for Market-Based Rates for Wholesale Sales of Electric Energy, Capacity, and Ancillary Services by Public Utilities.”
The comments address the implications of proposed changes in the Commission’s policies and procedures governing market-based rate authority for competition in wholesale electricity markets. The Commission has proposed a streamlining of the process but the AAI believes that some proposals could impair oversight of competition in U.S. wholesale power markets. In the comments, the AAI encouraged the FERC not to waive the current requirements for market-based rate applicants to: (1) file a market power study; (2) divulge their passive ownership interests; and (3) report acquisitions of generation sites.
Market power study. FERC proposes to permit sellers in Regional Transmission Organizations (RTOs) to address horizontal market power issues in a streamlined manner. In the AAI’s view, the proposal could have serious implications for competition in wholesale electricity markets, since it would eliminate market power analysis which is one of the Commission’s most effective tools in preventing abusive conduct before it occurs. The Commission is in the position to use its authority to grant or deny market-based rates to prevent sellers with market power from exercising it. Under the proposal, this tool would be exchanged for a system that relies entirely on the detection and mitigation of market power.
The proposal also removes the Commission from oversight of the numerous and difficult competitive issues that arise in wholesale power markets and would place an additional burden on market monitoring and mitigation to police the exercise of market power. Further the exemption of sellers in RTOs from a market power study deprives FERC and other market participants of valuable information that supports its ability to ensure just and reasonable rates.
Passive ownership interests. The proposal would dispense with the requirement that generation owners be required to list assets in which a passive ownership interest is claimed. In the comment, the AAI cautioned against eliminating this valuable reporting requirement. A passive interest – even in the absence of any control rights – can still affect competitive dynamics in the market because control is not the sole determining factor in whether a firm exercises market power. Without a requirement to report passive ownership interests, sellers with market-based rate authority would avoid any scrutiny of such interests and the associated ability and incentive to exercise market power.
Generation site acquisition disclosure. The Commission proposed that sellers with market-based rates be relieved of their obligation to file quarterly land acquisition reports and provide information on sites for generation capacity development. While streamlining might be helpful to applicants, the removal of the requirement to disclose the acquisition of generation sites would eliminate an important source of information on barriers to entry, the comment notes.
An inability to obtain land with both renewable energy potential, such as solar or wind, and proximity to transmission lines can be a potent barrier to entry. Unless the Commission has another source of data regarding the control of renewable energy generation sites, it may be unable to identify prospectively whether site leases and ownership are impeding the development of this important generation segment, according to the AAI.
In light of the federal and state political commitment to developing solar and wind resources, the Commission should remain alert to all barriers to entry in generation and continue to collect data on the acquisition of generation sites. A comprehensive database would allow the Commission to monitor this issue in a systematic fashion. Five or ten years of intensive renewable energy development may reveal that the threat is not a serious one. At that point, the Commission might consider revisiting the issue. But given the anticipated high growth in renewable energy, revising reporting rules at the present time would be premature, the AAI concluded.
The American Antitrust Institute is a nonprofit education, research, and advocacy organization based in Washington, D.C. Its mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the U.S. and world economy. Founded in 1998, the Institute’s contributors include foundations, law firms, corporations, associations, individuals, and public entities.
News: Antitrust