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New Mexico State UniversitySanta Fe Conference 2005

Steve RodgersOffice of Markets, Tariffs & Rates—SouthFederal Energy Regulatory Commission

March 22, 2005

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FERC’s Responsibility Under the Federal Power Act--205 Section 205(a): “All rates and charges

made . . . or received by any public utility for . . . the sale of electric energy subject to the jurisdiction of the Commission . . . shall be just and reasonable.”

Section 205(b): No public utility can grant any undue preference or advantage to any person with regard to any FERC-jurisdictional sale, nor can it maintain any unreasonable difference in rates, charges, service, facilities or in any other respect.

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FERC’s 4-Part Test For Market-Based Rate Authority Under Section 205

#1: Generation market power #2: Transmission/vertical market

power #3: Other barriers to entry #4: Affiliate abuse/reciprocal

dealing

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Recent Developments Under Prong #1 (Generation MP) New interim market power test announced

last year, consisting of two indicative screens: Uncommitted pivotal supplier screen Uncommitted market share screen

FERC launches a formal investigation if applicant fails either screen

Applicant proposed mitigation or cost-based rates for those with generation market power

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Retail Customer Protections Under New Screens Explicit recognition of reasonable IOU generation

commitments to native load, operating reserves and l-t firm contracts

Much more cost and rate transparency for states with IOUs found to have market power. States can be sure they’re getting fair share of revenue credits from off-system wholesale sales.

When IOUs buy power at wholesale, they can be assured of lower rates. Retail customer benefits!

When IOUs with market power sell at wholesale, no more cross-subsidies – between states; and between IOUs and munis/coops. Retail customer benefits!

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FERC Actions to Date on IOUs Under New Generation Screens Passes Initial

Screen

Consumers Energy Consolidated Water Power Dayton Power & Light El Paso Electric Alliant (Wisc. P&L and

Interstate) when MISO market is up

AEP companies in PJM or in ERCOT

Avista Corporation Idaho Power Company

Fails Initial Screen

Duke Power Southern Company Entergy Public Service New Mexico Alliant (Wisc. P&L and

Interstate) before MISO market is up

AEP-SPP companies not in ERCOT

Kansas City Power & Light Tampa Electric Company

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Key FERC Orders on Prong #4

Edgar (1991): Three examples of how to show lack of affiliate abuse: head-to-head competition; price evidence of what non-affiliates pay; and benchmark price evidence (e.g., an index).

Detroit Edison (1997): Three conditions: (1) utility can’t sell to an affiliate at lower rate than non-affiliate; (2) any affiliate discounts must be offered to similarly–situated non-affiliates; and (3) simultaneous public posting for any affiliate transaction.

Mountainview/SoCalEd (2004): All affiliate long-term PPAs, whether market- or cost-based, must meet the Edgar standard.

Allegheny (2004): Four guidelines for reviewing RFPs: transparency; product definition; evaluation criteria; and oversight by an independent third party.

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FERC’s Responsibility Under Section 203 of the FPA Section 203: FERC has authority over the

sale, lease or disposition of public utility facilities subject to FERC jurisdiction, and shall approve the same if it finds that they are “consistent with the public interest.”

In reviewing mergers, dispositions and acquisitions under Section 203, FERC for many years has considered the effect on competition, rates and regulation.

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Recent Key FERC Orders Under Section 203

Oklahoma Gas & Electric: IOU acquisition of a generator needed for native load could harm competition; case settled, with IOU offering mitigation, e.g., tx upgrades, redispatch

Ameren Energy/Union Electric: Applied the Edgar standard, and the four Allegheny RFP guidelines, to affiliate plant acquisitions. Objective is “to ensure that the conduct of

competitive solicitations involving affiliates does not harm competitive markets by favoring those affiliates and foreclosing opportunities to competition.”

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Summary

FERC has a responsibility to protect wholesale customers and to ensure market behavior that is not unduly discriminatory.

FERC has a regional perspective and responsibility that is as valid as an individual state’s perspective and responsibility.

FERC and the states need to work cooperatively to address their dual responsibilities – sometimes they overlap, sometimes they’re complementary.