Rule: Electric Utilities (Federal Power Act) : Public Utilities Market-Based Rates For Wholesale Sales of Electric Energy Capacity and Ancillary Services

Friday,
July 20, 2007
Part II
Department of
Energy
Federal Energy Regulatory Commission
18 CFR Part 35
Market-Based Rates for Wholesale Sales of
Electric Energy, Capacity and Ancillary
Services by Public Utilities; Final Rule
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39904 Federal Register / Vol. 72, No. 139 / Friday, July 20, 2007 / Rules and Regulations
DEPARTMENT OF ENERGY SUMMARY: The Federal Energy streamline the administration of the
Regulatory Commission (Commission) is market-based rate program.
Federal Energy Regulatory amending its regulations to revise DATES: Effective Date: This rule will
Commission Subpart H to Part 35 of Title 18 of the become effective September 18, 2007.
Code of Federal Regulations governing FOR FURTHER INFORMATION CONTACT:
18 CFR Part 35 market-based rates for public utilities Debra A. Dalton (Technical
pursuant to the Federal Power Act Information), Office of Energy Markets
[Docket No. RM04–7–000; Order No. 697] (FPA). The Commission is codifying and Reliability, Federal Energy
and, in certain respects, revising its Regulatory Commission, 888 First
Market-Based Rates for Wholesale current standards for market-based rates Street, NE., Washington, DC 20426,
Sales of Electric Energy, Capacity and
for sales of electric energy, capacity, and (202) 502–6253.
Ancillary Services by Public Utilities
ancillary services. The Commission is Elizabeth Arnold (Legal Information),
Issued June 21, 2007. retaining several of the core elements of Office of the General Counsel, Federal
AGENCY: Federal Energy Regulatory its current standards for granting Energy Regulatory Commission, 888
Commission, Department of Energy. market-based rates and revising them in First Street, NE., Washington, DC
certain respects. The Commission also 20426, (202) 502–8818.
ACTION: Final rule.
adopts a number of reforms to SUPPLEMENTARY INFORMATION:
TABLE OF CONTENTS
Paragraph
Nos.
I. Introduction ......................................................................................................................................................................................... 1
II. Background ......................................................................................................................................................................................... 7
III. Overview of Final Rule .................................................................................................................................................................... 12
IV. Discussion ......................................................................................................................................................................................... 33
A. Horizontal Market Power ........................................................................................................................................................... 33
1. Whether to Retain the Indicative Screens .......................................................................................................................... 33
2. Indicative Market Share Screen Threshold Levels and Pivotal Supplier Application Period ....................................... 80
a. Market Share Threshold ............................................................................................................................................... 82
b. Pivotal Supplier Application Period ........................................................................................................................... 94
3. DPT Criteria .......................................................................................................................................................................... 96
4. Other Products and Models ................................................................................................................................................. 118
5. Native Load Deduction ........................................................................................................................................................ 125
a. Market Share Indicative Screen ................................................................................................................................... 125
b. Pivotal Supplier Indicative Screen .............................................................................................................................. 143
c. Clarification of Definition of Native Load ................................................................................................................... 150
d. Other Native Load Concerns ........................................................................................................................................ 153
6. Control and Commitment .................................................................................................................................................... 156
a. Presumption of Control ................................................................................................................................................ 164
b. Requirement for Sellers to have a Rate on File .......................................................................................................... 212
7. Relevant Geographic Market ............................................................................................................................................... 215
a. Default Relevant Geographic Market ........................................................................................................................... 215
b. NERC’s Balancing Authority Area and Default Geographic Area ............................................................................. 247
c. Additional Guidelines for Alternative Geographic Market and Flexibility .............................................................. 253
d. Specific Issues Related to Power Pools and SPP ........................................................................................................ 279
e. RTO/ISO Exemption ..................................................................................................................................................... 285
8. Use of Historical Data .......................................................................................................................................................... 292
9. Reporting Format ................................................................................................................................................................. 302
10. Exemption for New Generation (Formerly Section 35.27(a) of the Commission’s Regulations) .................................. 307
a. Elimination of Exemption in Section 35.27(a) ............................................................................................................ 307
b. Grandfathering .............................................................................................................................................................. 327
c. Creation of a Safe Harbor ............................................................................................................................................. 335
11. Nameplate Capacity ........................................................................................................................................................... 339
12. Transmission Imports ........................................................................................................................................................ 346
a. Use of Historical Conditions and OASIS Practices .................................................................................................... 348
b. Use of Total Transfer Capability (TTC) ....................................................................................................................... 363
c. Accounting for Transmission Reservations ................................................................................................................. 365
d. Allocation of Transmission Imports based on Pro Rata Shares of Seller’s Uncommitted Generation Capacity .... 370
e. Miscellaneous Comments ............................................................................................................................................. 376
f. Required SIL Study for DPT Analysis .......................................................................................................................... 382
13. Procedural Issues ............................................................................................................................................................... 387
B. Vertical Market Power ................................................................................................................................................................ 397
1. Transmission Market Power ................................................................................................................................................ 400
a. OATT Requirement ....................................................................................................................................................... 403
b. OATT Violations and MBR Revocation ...................................................................................................................... 411
c. Revocation of Affiliates’ MBR Authority ..................................................................................................................... 422
2. Other Barriers to Entry ........................................................................................................................................................ 428
3. Barriers Erected or Controlled by Other Than The Seller ................................................................................................. 452

4. Planning and Expansion Efforts .......................................................................................................................................... 454
5. Monopsony Power ............................................................................................................................................................... 459
C. Affiliate Abuse ............................................................................................................................................................................ 464
1. General Affiliate Terms and Conditions ............................................................................................................................. 464
Federal Register / Vol. 72, No. 139 / Friday, July 20, 2007 / Rules and Regulations 39905
TABLE OF CONTENTS—Continued
Paragraph
Nos.
a. Codifying Affiliate Restrictions in Commission Regulations ..................................................................................... 464

b. Definition of ‘‘Captive Customers’’ .............................................................................................................................. 469
c. Definition of ‘‘Non-Regulated Power Sales Affiliate’’ ................................................................................................ 484
d. Other Definitions .......................................................................................................................................................... 496
e. Treating Merging Companies as Affiliates .................................................................................................................. 499
f. Treating Energy/Asset Managers as Affiliates ............................................................................................................. 503
g. Cooperatives .................................................................................................................................................................. 518
2. Power Sales Restrictions ..................................................................................................................................................... 529
3. Market-Based Rate Affiliate Restrictions (formerly Code of Conduct) for Affiliate Transactions Involving Power
Sales and Brokering, Non-Power Goods and Services and Information Sharing ............................................................. 544
a. Uniform Code of Conduct/Affiliate Restrictions—Generally ..................................................................................... 546
b. Exceptions to the Independent Functioning Requirement ........................................................................................ 553
c. Information Sharing Restrictions ................................................................................................................................. 570
d. Definition of ‘‘Market Information’’ ............................................................................................................................ 590
e. Sales of Non-Power Goods or Services ........................................................................................................................ 595
f. Service Companies or Parent Companies Acting on Behalf of and for the Benefit of a Franchised Public Utility 599
D. Mitigation .................................................................................................................................................................................... 604
1. Cost-Based Rate Methodology ............................................................................................................................................. 606
a. Sales of One Week or Less ........................................................................................................................................... 606
b. Sales of more than one week but less than one year ................................................................................................. 632
c. Sales of one year or greater .......................................................................................................................................... 658
d. Alternative methods of mitigation ............................................................................................................................... 660
2. Discounting .......................................................................................................................................................................... 699
3. Protecting Mitigated Markets .............................................................................................................................................. 720
a. Must Offer ..................................................................................................................................................................... 720
b. First-Tier Markets ......................................................................................................................................................... 776
c. Sales that Sink in Unmitigated Markets ...................................................................................................................... 794
d. Proposed Tariff Language ............................................................................................................................................. 825
E. Implementation Process ............................................................................................................................................................. 832
1. Category 1 and 2 Sellers ...................................................................................................................................................... 836
a. Establishment of Category 1 and 2 Sellers .................................................................................................................. 836
b. Threshold for Category 1 Sellers and Other Proposed Modifications ....................................................................... 845
2. Regional Review and Schedule ........................................................................................................................................... 869
F. MBR Tariff ................................................................................................................................................................................... 897
1. Tariff of General Applicability ............................................................................................................................................ 901
2. Placement of Terms and Conditions ................................................................................................................................... 925
3. Single Corporate Tariff ........................................................................................................................................................ 928
G. Legal Authority ........................................................................................................................................................................... 938
1. Whether Market-Based Rates Can Satisfy the Just and Reasonable Standard Under the FPA ....................................... 938
Consistency of Market-based Rate Program with FPA Filing Requirements ....................................................................... 956
2. Whether Existing Tariffs Must Be Found to Be Unjust and Unreasonable, and Whether the Commission Must Es-
tablish a Refund Effective Date ............................................................................................................................................ 972
H. Miscellaneous ............................................................................................................................................................................. 975
1. Waivers ................................................................................................................................................................................. 975
a. Accounting Waivers ...................................................................................................................................................... 979
b. Timing ........................................................................................................................................................................... 988
c. Part 34 Waivers Blanket Authorizations ..................................................................................................................... 993
2. Sellers Affiliated with a Foreign Utility ............................................................................................................................. 1000
3. Change in Status .................................................................................................................................................................. 1008
a. Fuel Supplies ................................................................................................................................................................ 1011
b. Transmission Outages ................................................................................................................................................... 1019
c. Control ........................................................................................................................................................................... 1027
d. Triggering Events .......................................................................................................................................................... 1033
e. Timing of Reporting ...................................................................................................................................................... 1035
f. Sellers Affiliated with a Foreign Utility ...................................................................................................................... 1040
4. Third-Party Providers of Ancillary Services ...................................................................................................................... 1046
a. Internet Postings and Reporting Requirements ........................................................................................................... 1052
b. Pricing for Ancillary Services in RTOs/ISOs .............................................................................................................. 1062
5. Reactive Power and Real Power Losses .............................................................................................................................. 1072
a. Reactive Power .............................................................................................................................................................. 1073
b. Real Power Losses ........................................................................................................................................................ 1075
V. Section-by-Section Analysis of Regulations ..................................................................................................................................... 1077
VI. Information Collection Statement ................................................................................................................................................... 1105
VII. Environmental Analysis .................................................................................................................................................................. 1124
VIII. Regulatory Flexibility Act ............................................................................................................................................................. 1125
IX. Document Availability ..................................................................................................................................................................... 1129
X. Effective Date and Congressional Notification ................................................................................................................................. 1132

Regulatory Text
Appendix A to Subpart H: Standard Screen Format
Appendix B to Subpart H: Corporate Entities and Assets sample appendix
Appendix C to the Final Rule: Required Provisions of the Market-Based Rate Tariff
TABLE OF CONTENTS—Continued
Paragraph
Nos.
Appendix D to the Final Rule: Regions and Schedule for Regional Market power Update Process
Appendix E to the Final Rule: List of Commenters and Acronyms
Attachment A to the Final Rule: MOELLER, Commissioner, dissenting in part
Before Commissioners: Joseph T. Kelliher, captive customers; a requirement to file market manipulation, and take steps to
Chairman; Suedeen G. Kelly, Marc Spitzer, post-transaction electric quarterly remedy any violations. These steps
Philip D. Moeller, and Jon Wellinghoff. reports (EQRs) containing specific could include, among other things,
I. Introduction information about contracts and disgorgement of profits and refunds to
transactions; a requirement to file any customers if a seller is found to have
1. On May 19, 2006, the Commission change of status; and a requirement for violated Commission orders, tariffs or
issued a Notice of Proposed Rulemaking all large sellers to file triennial updates.3 rules, or a civil penalty paid to the
(NOPR), pursuant to sections 205 and 4. Second, for wholesale sellers that United States Treasury if a seller is
206 of the Federal Power Act (FPA),1 in have market-based rate authority and found to have engaged in prohibited
which the Commission proposed to sell into day ahead or real-time market manipulation or to have violated
amend its regulations governing market- organized markets administered by Commission orders, tariffs or rules.
based rate authorizations for wholesale Regional Transmission Organizations 6. The Commission recognizes that
sales of electric energy, capacity and (RTOs) and Independent System several recent court decisions by the
ancillary services by public utilities. In Operators (ISOs), they do so subject to United States Court of Appeals for the
the NOPR, the Commission proposed to specific RTO/ISO market rules approved Ninth Circuit 4 have created some
modify all existing market-based by the Commission and applicable to all uncertainty for sellers transacting
authorizations and tariffs so they would market participants. These rules are pursuant to our market-based rate
reflect any new requirements ultimately designed to help ensure that market program. The cases raise issues with
adopted in the Final Rule. After power cannot be exercised in those respect to the circumstances under
considering the comments received in organized markets and include which sellers’ pre-authorized market-
response to the NOPR, the Commission additional protections (e.g., mitigation based rate sales may be subject to
adopts in many respects the proposals measures) where appropriate to ensure retroactive refunds and the
contained in the NOPR, but with a that prices in those markets are just and circumstances under which buyers
number of modifications. reasonable. Thus, a seller in such might be able to invalidate or modify
2. This Final Rule represents a major markets not only must have an contracts based on the argument that the
step in the Commission’s efforts to authorization based on an analysis of contracts were entered into at a time
clarify and codify its market-based rate that individual seller’s market power, when markets were dysfunctional. The
policy by providing a rigorous up-front but it must also abide by additional Commission’s first and foremost duty is
analysis of whether market-based rates rules contained in the RTO/ISO tariffs. to protect customers from unjust and
should be granted, including protective 5. Third, the Commission, through its unreasonable rates; however, we
conditions and ongoing filing ongoing oversight of market-based rate recognize that uncertainties regarding
requirements in all market-based rate authorizations and market conditions, rate stability and contract sanctity can
authorizations, and reinforcing its may take steps to address seller market have a chilling effect on investments
ongoing oversight of market-based rates. power or modify rates. For example, and a seller’s willingness to enter into
The specific components of this rule, in based on its review of triennial market long-term contracts and this, in turn,
conjunction with other regulatory power updates required of market-based can harm customers in the long run. The
activities, are designed to ensure that rate sellers, its review of EQR filings Commission recently provided guidance
market-based rates charged by public made by market-based rate sellers, and in this regard, noting that these Ninth
utilities are just and reasonable. There its review of required notices of change Circuit decisions addressed a unique set
are three major aspects of the in status, the Commission may institute of facts and a market-based rate program
Commission’s market-based rate a section 206 proceeding to revoke a that has undergone substantial
regulatory regime. seller’s market-based rate authorization improvement since 2001, and reiterating
3. First is the analysis that is the if it determines that the seller may have that an ex ante finding of the absence of
subject of this rule: whether a market- gained market power since its original market power, coupled with the EQR
based rate seller or any of its affiliates market-based rate authorization. The filing and effective regulatory oversight
has market power in generation or Commission may also, based on its qualifies as sufficient prior review for
transmission and, if so, whether such review of EQR filings or daily market market-based rate contracts to satisfy the
market power has been mitigated.2 If the price information, investigate a specific notice and filing requirements of FPA
seller is granted market-based rates, the utility or anomalous market section 205.5 Through this Final Rule,
authorization is conditioned on: affiliate circumstances to determine whether the Commission is clarifying and further
restrictions governing transactions and there has been any conduct in violation
conduct between power sales affiliates of RTO/ISO market rules or Commission 4 See State of California, ex rel. Bill Lockyer v.
where one or more of those affiliates has FERC, 383 F.3d 1006 (9th Cir. 2004), cert. denied
orders or tariffs, or any prohibited (S. Ct. Nos. 06–888 and 06–1100, June 18, 2007)
(Lockyer); Public Utility District No. 1 of Snohomish
1 16 U.S.C. 824d, 824e. 3 During the past three years, the Commission has County, Washington v. FERC, 471 F.3d 1053 (9th
2 The Commission also considers whether the initiated over 20 investigations under section 206 Cir. 2006) (Snohomish); Public Utilities Commission
seller or its affiliates can erect other barriers to entry of the FPA because of concerns of possible market of the State of California and California Electric
(e.g., key sites for building new power supply; key power. Several of those investigations led to the Oversight Board v. FERC, 474 F.3d 587 (9th Cir.
inputs to power supply) in the relevant market and revocation or voluntary relinquishing of market- 2007) (California Commission).
whether there is evidence of affiliate abuse or based rate authority and the ordering of refunds by 5 CAlifornians for Renewable Energy, Inc. v. Cal.
reciprocal dealing. sellers. Pub. Util. Com’n, 119 FERC ¶ 61,058 (2007).
improving its market-based rate explained that sellers could choose to (through the submission of a Delivered
program. Moreover, the Commission adopt cost-based rates. On July 8, 2004, Price Test (DPT) analysis)
will explore ways to continue to the Commission addressed requests for demonstrating that, despite a screen
improve its market-based rate program rehearing of the April 14 Order, failure, they do not have market power,
and processes to assure appropriate reaffirming the basic analysis, but and the Commission will continue to
customer protections but at the same clarifying and modifying certain weigh both available economic capacity
time provide greater regulatory and instructions for performing the and economic capacity when analyzing
market certainty for sellers in light of generation market power analysis. Over market shares and Hirschman-
the above court opinions. the next year, the Commission convened Herfindahl Indices (HHIs).
four technical conferences, seeking 14. With regard to control over
II. Background
input regarding all four prongs of the generation capacity, the Commission
7. In 1988, the Commission began analysis. finds that the determination of control
considering proposals for market-based 10. On May 19, 2006, the Commission is appropriately based on a review of the
pricing of wholesale power sales. The issued a NOPR in this proceeding.8 The totality of circumstances on a fact-
Commission acted on market-based rate Commission explained that refining and specific basis. No single factor or factors
proposals filed by various wholesale codifying effective standards for market- necessarily results in control. The
suppliers on a case-by-case basis. Over based rates would help customers by Commission will require a seller to
the years, the Commission developed a ensuring that they are protected from make an affirmative statement as to
four-prong analysis used to assess the exercise of market power and would whether a contractual arrangement
whether a seller should be granted also provide greater certainty to sellers (energy management agreement, tolling
market-based rate authority: (1) Whether seeking market-based rate authority. agreement, specific contractual terms,
the seller and its affiliates lack, or have 11. The regulations proposed in the
adequately mitigated, market power in etc.) transfers control and to identify the
NOPR adopted in most respects the
generation; (2) whether the seller and its party or parties it believes controls the
Commission’s existing standards for
affiliates lack, or have adequately generation facility. Regarding a
granting market-based rates, and
mitigated, market power in proposed to streamline certain aspects presumption of control, the Commission
transmission; (3) whether the seller or of its filing requirements to reduce the will continue its practice of attributing
its affiliates can erect other barriers to administrative burdens on sellers, control to the owner absent a
entry; and (4) whether there is evidence customers and the Commission. The contractual agreement transferring such
involving the seller or its affiliates that Commission received over 100 control, and we provide guidance as to
relates to affiliate abuse or reciprocal comments and reply comments in how we will consider jointly-owned
dealing. response to the NOPR. A list of facilities.
8. The Commission initiated the commenters is attached as Appendix E. 15. The Commission adopts its
instant rulemaking proceeding in April current approach with regard to the
2004 to consider ‘‘the adequacy of the III. Overview of Final Rule default relevant geographic market, with
current analysis and whether and how 12. In this Final Rule, the Commission some modifications. In particular, the
it should be modified to assure that revises and codifies in the Commission will continue to use a
prices for electric power being sold Commission’s regulations the standards seller’s control area (balancing authority
under market-based rates are just and for market-based rates for wholesale area) 9 or the RTO/ISO market, as
reasonable under the Federal Power sales of electric energy, capacity and applicable, as the default relevant
Act.’’ 6 At that time, the Commission ancillary services. The Commission also geographic market. However, where the
noted that much has changed in the adopts a number of reforms to Commission has made a specific finding
industry since the four-prong analysis streamline the administration of the that there is a submarket within an RTO,
was first developed and posed a number market-based rate program. As set forth that submarket becomes the default
of questions that would be explored below, the Final Rule adopts in many relevant geographic market for sellers
through a series of technical respects the proposals contained in the located within the submarket for
conferences. NOPR, but with a number of purposes of the market-based rate
9. On April 14, 2004, the Commission modifications. analysis. The Commission also provides
issued an order modifying the then- guidance as to the factors the
Horizontal Market Power
existing generation market power Commission will consider in evaluating
analysis and its policy governing market 13. In this Final Rule, the Commission whether, in a particular case, to adopt
power mitigation, on an interim basis.7 adopts, with certain modifications, two an alternative geographic market instead
The April 14 Order adopted a policy indicative market power screens (the of relying on the default geographic
that provided sellers a number of uncommitted market share screen (with market.
procedural options, including two a 20 percent threshold) and the 16. The Commission modifies the
indicative generation market power uncommitted pivotal supplier screen), native load proxy for the market share
screens (an uncommitted pivotal each of which will serve as a cross screens from the minimum peak day in
supplier analysis and an uncommitted check on the other to determine whether the season to the average peak native
market share analysis), and the option of sellers may have market power and load, averaged across all days in the
proposing mitigation tailored to the should be further examined. Sellers that season, and clarifies that native load can
particular circumstances of the seller fail either screen will be rebuttably only include load attributable to native
that would eliminate the ability to presumed to have market power. load customers based on the definition
exercise market power. The order also However, such sellers will have full of native load commitment in
opportunity to present evidence § 33.3(d)(4)(i) of the Commission’s
6 Market-Based Rates for Public Utilities, 107
FERC ¶ 61,019 AT P 1(2004) (initiating rulemaking 8 Market-Based Rates for Wholesale Sales of
regulations. In addition, sellers are
proceeding). Electric Energy, Capacity and Ancillary Services by
7 AEP Power Marketing, Inc., 107 FERC ¶ 61,018 Public Utilities, Notice of Proposed Rulemaking, 71 9 As discussed below in the Horizontal Market
(April 14 Order), order on reh’g, 108 FERC ¶ 61,026 FR 33102 (Jun. 7, 2006), FERC Stats. & Regs. ¶ Power section, the Commission adopts the use of
(2004) (July 8 Order). 32,602 (2006) (NOPR). balancing authority area instead of control area.
given the option of using seasonal modifies the requirements when FPA. The Commission also codifies as
capacity instead of nameplate capacity. addressing other barriers to entry. The part of the affiliate restrictions the
17. The Commission retains the Commission also provides clarification requirements that previously have been
snapshot in time approach based on regarding the information that a seller known as the market-based rate ‘‘code of
historical data for both the indicative must provide with respect to other conduct’’ (governing the separation of
screens and the DPT analysis and barriers to entry (including which functions, the sharing of market
disallows projections to that data. A inputs to electric power production the information, sales of non-power goods
standard reporting format is adopted for Commission will consider as other or services, and power brokering), as
sellers to follow when summarizing barriers to entry). The Commission clarified and modified in this Final
their analysis. adopts a rebuttable presumption that Rule. The Commission modifies certain
18. The Commission modifies the ownership or control of, or affiliation of these provisions, including
treatment of newly constructed with an entity that owns or controls, separation of functions and information
generation and adopts an approach that intrastate natural gas transportation, sharing, consistent with certain
requires all sellers to perform a intrastate natural gas storage or requirements and exceptions contained
horizontal analysis for the grant of distribution facilities; sites for in the Commission’s standards of
market-based rate authority. generation capacity development; and conduct.11 In the Final Rule the
19. With regard to simultaneous sources of coal supplies and the Commission defines ‘‘captive
transmission import limit studies (SILs), transportation of coal supplies such as customers’’ as ‘‘any wholesale or retail
the Commission adopts the requirement barges and rail cars do not allow a seller electric energy customers served under
that the SIL study be used as a basis for to raise entry barriers, but intervenors cost-based regulation’’ and provides
transmission access for both the are allowed to demonstrate otherwise. clarification that the definition of
indicative screens and the DPT analysis. The Final Rule also requires a seller to ‘‘captive customers’’ does not include
Further, the Commission clarifies that provide a description of its ownership those customers who have retail choice,
the SIL study as shown in Appendix E or control of, or affiliation with an entity i.e., the ability to select a retail supplier
of the April 14 Order is the only study that owns or controls, intrastate natural based on the rates, terms and conditions
that meets our requirements. The gas transportation, intrastate natural gas of service offered. In addition, among
Commission provides guidance storage or distribution facilities; sites for other clarifications, the Commission
regarding how to perform the SIL study, generation capacity development; and clarifies and modifies the definition of
including accounting for specific OASIS sources of coal supplies and the ‘‘non-regulated power sales affiliate,’’
practices. transportation of coal supplies such as and changes the term to ‘‘market-
20. Finally, the Commission adopts barges and rail cars. The Commission regulated power sales affiliate.’’
procedures under which intervenors in will require sellers to provide this 24. The Commission also provides
section 205 proceedings may obtain description and to make an affirmative clarification as to what types of affiliate
expedited access to Critical Energy statement that they have not erected transactions are permissible and the
Infrastructure Information (CEII) or barriers to entry into the relevant market criteria used to make those decisions,
other information for which privileged and will not erect barriers to entry into and how the Commission will treat
treatment is sought. the relevant market. The Final Rule merging partners. In addition, the
Vertical Market Power clarifies that the obligation in this Commission codifies in the regulations
regard applies both to the seller and its a prohibition on the use of third-party
21. With regard to vertical market affiliates, but is limited to the entities, including energy/asset
power and, in particular, transmission geographic market(s) in which the seller managers, to circumvent the affiliate
market power, the Commission is located. restrictions, but does not adopt the
continues the current policy under
Affiliate Abuse NOPR proposal to treat energy/asset
which an open access transmission tariff
managers as affiliates. The Commission
(OATT) is deemed to mitigate a seller’s 23. With regard to affiliate abuse, the also provides clarification regarding the
transmission market power. However, in Commission adopts the NOPR proposal Commission’s market-based rate
recognition of the fact that OATT to discontinue considering affiliate policies as they relate to cooperatives.
violations may nonetheless occur, the abuse as a separate ‘‘prong’’ of the
Commission states that a finding of a market-based rate analysis and instead Mitigation
nexus between the specific facts relating to codify affiliate restrictions in the 25. With regard to mitigation, in the
to the OATT violation and the entity’s Commission’s regulations and address Final Rule the Commission retains the
market-based rate authority may subject affiliate abuse by requiring that the incremental cost plus 10 percent
the seller to revocation of its market- provisions provided in the affiliate methodology as the default mitigation
based rate authority or other remedies restrictions be satisfied on an ongoing for sales of one week or less; the default
the Commission may deem appropriate, basis as a condition of obtaining and mitigation rate for mid-term sales (sales
such as disgorgement of profits or civil retaining market-based rate authority. of more than one week but less than one
penalties. In addition, the Commission As codified in this Final Rule, the year) priced at an embedded cost ‘‘up
creates a rebuttable presumption that all affiliate restrictions include a provision to’’ rate reflecting the costs of the unit(s)
affiliates of a transmission provider prohibiting power sales between a expected to provide the service; and the
should lose their market-based rate franchised public utility with captive existing policy for sales of one year or
authority in each market in which their customers and any market-regulated more (long-term) sales.12 The
affiliated transmission provider loses its power sales affiliates10 without first
market-based rate authority as a result of receiving Commission authorization for 11 18 CFR part 358.
an OATT violation. the transaction under section 205 of the 12 We note here that we expect mitigated sellers
22. With regard to other barriers to adopting the default cost-based rates or proposing
entry, the Commission adopts the NOPR 10 In the NOPR, the Commission proposed to new cost-based rates will propose a cost-based rate
define the term ‘‘non-regulated power sales tariff of general applicability for sales of less than
proposal to consider a seller’s ability to affiliate.’’ As discussed below, this Final Rule uses one year, and sales of power for one year or longer
erect other barriers to entry as part of the term ‘‘market-regulated power sales affiliate’’ will be filed with the Commission on a stand-alone
the vertical market power analysis, but instead. basis.
Commission will continue to allow the requirement to automatically submit (through the submission of a DPT
sellers to propose alternative cost-based updated market power analyses, with analysis) demonstrating that, despite a
methods of mitigation tailored to their certain clarifications and modifications. screen failure, they do not have market
particular circumstances. The Final In addition, the Commission adopts the power. No screen is perfect, but we
Rule also states that the Commission NOPR proposal to implement a regional believe this approach appropriately
will make its stacking methodology approach to updated market power balances the need to protect against
available for the public.13 In addition, analyses, but reduces the number of market power with the desire not to
the Commission will continue the regions from nine to six. place unnecessary filing burdens on
practice of allowing discounting and 31. As for a standardized tariff, the utilities.
will permit selective discounting by Commission does not adopt the NOPR 34. The first screen is the wholesale
mitigated sellers provided that the proposal to adopt a market-based rate market share screen, which measures for
sellers do not use such discounting to tariff of general applicability that all each of the four seasons whether a seller
unduly discriminate or give undue market-based rate sellers will be has a dominant position in the market
preference. required to file as a condition of market- based on the number of megawatts of
26. The Commission concludes that based rate authority and to require each uncommitted capacity owned or
use of the Western Systems Power Pool corporate family to have only one tariff, controlled by the seller as compared to
(WSPP) Agreement may be unjust, with all affiliates with market-based rate the uncommitted capacity of the entire
unreasonable or unduly discriminatory authority separately identified in the relevant market.14
or preferential for certain sellers. tariff. Instead, the Commission adopts 35. The second screen is the pivotal
Therefore, in an order being issued specific market-based rate tariff supplier screen, which evaluates the
concurrently with this Final Rule, the provisions that the Commission will potential of a seller to exercise market
Commission is instituting a proceeding require to be part of a seller’s market- power based on uncommitted capacity
under section 206 of the FPA to based rate tariff. However, the at the time of the balancing authority
investigate whether, for sellers found to Commission will allow a seller to area’s annual peak demand. This screen
have market power or presumed to have include seller specific terms and focuses on the seller’s ability to exercise
market power in a particular market, the conditions in its market-based rate tariff, market power unilaterally. It examines
WSPP Agreement rate for coordination but the Commission will not review any whether the market demand can be met
energy sales is just and reasonable in of these provisions, as they are absent the seller during peak times. A
such market. presumed to be just and reasonable seller is pivotal if demand cannot be
27. The Commission does not impose based on the Commission’s finding that met without some contribution of
an across-the-board ‘‘must offer’’ the seller and its affiliates lack or have supply by the seller or its affiliates.15
requirement for mitigated sellers. While adequately mitigated market power in 36. Use of the two screens together
wholesale customer commenters have the relevant market. enables the Commission to measure
raised concerns relating to their ability Miscellaneous Issues market power at both peak and off-peak
to access needed power, the 32. The Commission also provides times, and to examine the seller’s ability
Commission concludes that there is clarifications in the Final Rule with to exercise market power unilaterally
insufficient record evidence to support regard to accounting waivers, Part 34 and in coordinated interaction with
instituting a generic ‘‘must offer’’ blanket authorizations, sellers affiliated other sellers. Use of the two screens,
requirement. with foreign entities, and the change in therefore, provides a more complete
28. The Commission limits mitigation status reporting requirement. Further, picture of a seller’s ability to exercise
to the market in which the seller has the Commission abandons the posting market power.16
been found to possess, or chosen not to requirements for third party sellers of 37. As discussed more fully in the
rebut the presumption of, market power ancillary services at market-based rates following sections, with regard to
and does not place limitations on a as redundant of other reporting determining the total supply in the
mitigated seller’s ability to sell at requirements. relevant market, the horizontal market
market-based rates in areas in which the power analysis centers on and examines
seller has not been found to have market IV. Discussion the balancing authority area where the
power. A. Horizontal Market Power seller’s generation is physically located.
29. Finally, regarding mitigation, the Total supply is determined by adding
Final Rule allows mitigated sellers to 1. Whether To Retain the Indicative the total amount of uncommitted
make market-based rate sales at the Screens capacity located in the relevant market
metered boundary between a mitigated 33. As discussed in detail below, the (including capacity owned by the seller
balancing authority area and a balancing Commission is adopting in this Final and competing suppliers) with that of
authority area in which the seller has Rule two indicative horizontal market uncommitted supplies that can be
market-based rate authority under the power screens, each of which will serve imported (limited by simultaneous
conditions set forth herein, including a as a cross-check on the other to transmission import capability) into the
record retention requirement, and determine whether sellers may have relevant market from the first-tier
provides a tariff provision to allow for market power and should be further markets.
such sales. examined. Although some sellers 38. Uncommitted capacity is
disagree with the use of two screens or determined by adding the total
Implementation Process
find flaws in them, we conclude that nameplate or seasonal capacity 17 of
30. The Commission adopts the NOPR this conservative approach will allow
proposal to create a category of sellers the Commission to more readily identify 14 April 14 Order, 107 FERC ¶ 61,018 at P 100.
(Category 1 sellers) that are exempt from
15 Id. at P 72.
potential market power. Sellers that fail
16 Id.
13 This
either screen will be rebuttably
is addressed in the Mitigation section 17 As discussed more fully below, in this Final
discussion concerning the cost-based rate

presumed to have market power. Rule, the Commission gives sellers the option of
methodology for sales of more than one week but However, such sellers will have full using seasonal capacity instead of nameplate
less than one year. opportunity to present evidence capacity.
generation owned or controlled through (needle peak) less the proxy for native market for any season will have a
contract and firm purchases, less load obligation (i.e., the average of the rebuttable presumption of market power
operating reserves, native load daily native load peaks during the but can present historical evidence to
commitments and long-term firm month in which the annual peak load show that the seller satisfies our
sales.18 Uncommitted capacity from a day occurs). Peak load is the largest generation market power concerns.
seller’s remote generation (generation electric power requirement (based on
Commission Proposal
located in an adjoining balancing net energy for load) during a specific
authority area) should be included in period of time, usually integrated over 45. In the NOPR, the Commission
the seller’s total uncommitted capacity one clock hour and expressed in proposed to retain the indicative screens
amounts. Any simultaneous megawatts, for the native load and firm (pivotal supplier and market share) to
transmission import capability should wholesale requirements sales. assess horizontal market power that
first be allocated to the seller’s 42. To calculate the net uncommitted were initially adopted in April 2004.22
uncommitted remote generation. Any supply available to compete at Because the indicative screens are
remaining simultaneous transmission wholesale, the pivotal supplier analysis intended only to identify the sellers that
import capability would then be deducts the wholesale load from the require further review, the Commission
allocated to any uncommitted total uncommitted supply. If the seller’s proposed to retain the 20 percent
competing supplies. uncommitted capacity is less than the threshold for the wholesale market
39. Capacity reductions as a result of net uncommitted supply, the seller share indicative screen, stating that the
operating reserve requirements should satisfies the pivotal supplier portion of 20 percent market share threshold
be no higher than State and Regional the generation market power analysis strikes the right balance in seeking to
Reliability Council operating and passes the screen. If the seller’s avoid both ‘‘false negatives’’ and ‘‘false
requirements for reliability (i.e., uncommitted capacity is equal to or positives.’’ The Commission also
operating reserves). Any proposed greater than the net uncommitted proposed to continue to measure pivotal
amounts that are higher than such supply, then the seller fails the pivotal suppliers at the time of the annual peak
requirements must be fully supported supplier analysis which creates a load in the pivotal supplier indicative
and will be considered on a case-by-case rebuttable presumption of market screen, which is the most likely point in
basis. Moreover, if an intervenor power. time that a seller will be a pivotal
provides conclusive evidence that a 43. With regard to the wholesale supplier. For this reason, the
seller did not in actual practice comply market share analysis, which measures Commission did not propose to expand
with the NERC or regional reliability for each of the four seasons whether a the pivotal supplier analysis to other
council operating reserve requirements, seller has a dominant position in the time periods.
then we will take this into account in market based on the number of
Comments
determining the amount of the operating megawatts of uncommitted capacity
reserve deduction. However, we owned or controlled by the seller as 46. Numerous commenters question
emphasize that we expect each utility to compared to the uncommitted capacity whether the Commission should retain
meet its NERC and regional reliability of the entire relevant market, the current indicative screens in whole
council reserve requirements, and that uncommitted capacity amounts are or in part. For example, Southern, Duke
absent a clear showing to the contrary used, as described above, with the and EEI advocate abandoning the
by an intervenor, the required operating following variation. Planned outages market share indicative screen
reserve requirement is what we will use (that were done in accordance with altogether. They argue that the market
as the deduction in the market-based good utility practice) for each season share indicative screen is ‘‘fatally
rate calculation.19 will be considered. Planned outage flawed’’ because it does not take into
40. The Commission does not expect amounts should be consistent with account wholesale demand in the
that sellers will have planned those as reported in FERC Form No. relevant market 23 which makes it
generation outages scheduled for the 714. To determine the amount of difficult for traditional utilities outside
annual peak load day. However, on a planned outages for a given season, the of RTOs/ISOs to pass.24 E.ON. US. and
case-by-case basis, the Commission will total number of MW-days of outages is PNM/Tucson separately argue that one
consider credible evidence that planned divided by the total number of days in must consider the level of demand that
generation outages for the peak load day the season. For example, if 500 MW of is seeking supply and, more
of the year should be included based on generation that is out for six days during particularly, what ability sellers have to
the particular circumstances of the the winter period the calculation of exercise market power over those
seller.20 planned outages would be: (500 MW × buyers.25 In this regard, E.ON. US. and
41. With regard to the pivotal supplier 6)/91 or 33 MW.
22 See April 14 Order, 107 FERC ¶ 61,018.
analysis, after computing the total 44. The market share analysis adopts
23 Southern at 11, Duke at 20, EEI at 6–7.
uncommitted supply available to serve an initial threshold of 20 percent. That
24 Duke at 17, EEI at 8–9.
the relevant market, the next step in this is, a seller who has less than a 20 25 E.ON. US. at 16–17 and PNM/Tucson at 5–6.
analysis involves identifying the percent market share in the relevant According to E.ON. US. and PNM/Tucson, the past
wholesale market. The proxy for the market for all seasons will be decade has seen strong development in the West of
wholesale load is the annual peak load considered to satisfy the market share open access to transmission and the ownership of
analysis.21 A seller with a market share generating assets, solely or jointly, by formerly
‘‘captive’’ wholesale customers. As a result, any
18 Sellers may deduct generation associated with of 20 percent or more in the relevant analysis that has as its foundation division of the
their long-term firm requirements sales, unless the market into suppliers and presumptively captive
Commission disallows such deductions based on 21 The 20 percent threshold is consistent with customers is at odds with present reality, in which
extraordinary circumstances. § 4.134 of the U.S. Department of Justice 1984 wholesale customers have a host of suppliers
19 April 14 Order, 107 FERC ¶ 61,018 at P96.

Merger Guidelines issued June 14, 1984, reprinted seeking their business. E.ON. US. and PNM/Tucson
20 As noted below, the market share screen in Trade Reg. Rep. P13,103 (CCH 1988): ‘‘The state that an illustration of how open access in the
deducts generation capacity used for planned Department [of Justice] is likely to challenge any West has enhanced the ability of load serving
outages (that were done in accordance with good merger satisfying the other conditions in which the entities to secure competitive resources on an
utility practice) in all four seasons in order to reflect acquired firm has a market share of 20 percent or efficient scale across control areas is provided by
the typical operation of generation units. more.’’ a recent Southwest Public Power Resources Group
PNM/Tucson argue that to the extent the a result, the ‘‘false positives’’ arising to oversight and substantial penalties
market share screen does not consider from the market share screen dampen under the antitrust laws and the
wholesale demand, it is not a useful the vigor of competitive wholesale Commission’s recently adopted rule
indicator, and in fact is almost market participation by unnecessarily prohibiting market manipulation.
universally a false indicator of the curtailing the market-based authority of Further, Duke claims that the nearly
ability of a seller to exercise market entities that, in fact, lack market power universal failure rate of load-serving
power over demand. Also, EEI argues (to the extent such entities choose not utilities under the market share
that because of design flaws inherent in to pursue a costly and uncertain effort indicative screen in their control areas
the market share screen as well as the to rebut the presumption of market underscores its limited value as an
negative impact that the use of this test power created by the screen failure).28 indicator of off-peak market power.34
has had since 2004 on the development 49. Duke and Southern suggest that a 51. Duke states that a review of filings
of competitive wholesale markets wholesale contestable load analysis by vertically integrated utilities that are
(through the inappropriate exclusion of (also described as a ‘‘competitive not RTO participants shows that the
the majority of non-RTO utilities from alternatives’’ analysis) 29 should be vast majority have failed the market
participating in that market), the market added to the indicative screens, which share screen in their control areas, and
share screen should be eliminated for all would consider the amount of excess most have subsequently been forced to
market power screening and analysis market supply available to serve the adopt some form of cost-based
purposes.26 amount of wholesale demand seeking mitigation for wholesale sales in that
47. EEI contends that the Commission supply.30 Generally, if available non- market. Yet Duke is unaware of any
should use only the pivotal supplier applicant supply is at least twice the credible evidence suggesting that any
screen for indicative screening purposes contestable load, advocates of the form of generation market power has
and the DPT pivotal supplier and contestable load analysis believe that is been exercised by these utilities.
market concentration analyses for the sufficient to make a finding that the Instead, Duke states that the
purposes of rebutting the presumption market is competitive.31 Other Commission has revoked market-based
of generation market power that would commenters agree that the market share rate authority and imposed mitigation
result from the failure of the indicative indicative screen can diminish on the basis of indicative screen results
pivotal supplier screen. EEI argues that competition because sellers that are that suggest the potential for market
if the Commission continues to use the subjects of an FPA section 206 power.35 APPA/TAPS counter that the
market share screen as an initial screen, investigation tend to choose mitigation Commission should not limit its
the Commission should not include a rather than challenge the presumption response to market power only to
market share test as a component of any of market power.32 instances of its actual exercise; they
subsequent DPT analysis of market 50. Duke argues that the Commission note that the Commission considers
power. has yet to establish a need for using the
48. E.ON U.S. and PNM/Tucson whether a seller and its affiliates have
market share indicative screen in market power or have mitigated it, not
generally agree, stating that market addition to the pivotal supplier
share is an unreliable measure of market whether it has been exercised.36
indicative screen in assessing the 52. Another commenter suggests
power in competitive energy markets potential for the exercise of generation
and that the courts have long recognized substituting the HHI for the market
market power. In this regard, Duke share indicative screen or
that market share is not a reliable argues that the Commission itself
indicator of market power in regulated supplementing the indicative screens
acknowledged in the April 14 Order with the HHI, reasoning that the market
markets.27 In particular, E.ON U.S. and (establishing the new indicative market
PNM/Tucson argue that even a marginal must be evaluated, not just the
power screens) that if a supplier passes individual market share.37
failure of the market share screen results the pivotal supplier indicative screen, it
in a rebuttable presumption of market would not be able to exercise generation 53. Southern states that the
power that has tremendous market power. Thus, Duke concludes Commission should rely upon any
consequences by forcing sellers to that the use of any other indicative indicative screens only in conjunction
proceed to costly and time-consuming screens would appear to be redundant with an optional ‘‘expedited track’’ safe
DPT analysis or agree to mitigation. As and an unwarranted burden on market- harbor review. Under Southern’s
based rate sellers.33 Further, Duke proposal, the indicative screens would
request for proposals for 255 MW in 2007, growing
submits that neither of the rationales be voluntary and those submitting to
to 962 MW by 2014 in four control areas—Arizona and passing the screens would be
Public Service, Salt River Project, Western Area originally cited by the Commission in
Power Administration-Desert Southwest Region and support of the market share screen—its permitted to retain or obtain market-
Tucson Electric. (The Southwest Public Power ability to identify ‘‘coordinating based rate authority, subject to a
Resources Group represents thirty-nine public
behavior,’’ or its ability to detect the proceeding under section 206 of the
power entities in Arizona, California, and Nevada.) FPA, under which the party seeking to
See Southwestern Public Utilities Issue Long-Term exercise of market power in off-peak
RFP, ELECTRIC POWER DAILY, July 14, 2006, at periods—has been validated. In this challenge the rate must submit
3. regard, Duke submits that the potential substantial evidence justifying
26 EEI at 10.
for ‘‘coordinating behavior’’ should revocation. If a seller fails the screen(s),
27 Citing Cost Mgmt. Servs., Inc. v. Wash. Natural
consider overall market concentration or if it elects to submit a DPT rather
Gas Co., 99 F.3d 937, 950–51 (9th Cir. 1996) (Cost than voluntarily submit the indicative
Management); Rebel Oil Co., Inc. v. Atl. Richfield levels as measured by HHIs and in any
Co., 51 F.3d 1421, 1439 (9th Cir. 1995) (Rebel); S. event, such behavior is already subject screens, then a robust market power
Pac. Communications Co. v. AT&T Co., 740 F.2d assessment should be used to determine
980, 1000 (D.C. Cir. 1984) (Southern Pacific 28 E.ONU.S. at 16; PNM/Tucson at 5–6. whether (or the extent to which) the
Communications); MCI Communications Corp. v. 29 Dr.
Pace at 12.
AT&T Co., 708 F.2d 1081, 1107 (7th Cir. 1983) (MCI 30 Duke at 21, Southern at 16–17. 34 Duke
Communications); Mid-Tex. Communications Sys., reply comments at 15 and n. 22.
31 Dr. Pace at 16. 35 Duke at 16.
Inc. v. AT&T Co., 615 F.2d 1372, 1386–89 (5th Cir.
32 E.ON U.S. at 15–16; PNM/Tucson at 5–6, EEI 36 APPA/TAPS reply comments at 6–7, citing
1980) (Mid-Tex Communications); Almeda Mall,
Inc. v. Houston Lighting & Power Co., 615 F.2d 343, at 10. Duke at 16.
354 (5th Cir. 1980) (Almeda). 33 Duke reply comments at 15 and n. 21. 37 Drs. Broehm & Fox-Penner at 2–4.
seller should be permitted to sell power therefore, it is inappropriate to make the supplier indicative screen may
at market-based rates. deduction for the market power tests. compromise market power detection.43
54. In Southern’s view, failure of the 57. While EPSA does not agree with 60. With regard to the suggestion that
indicative screens should not give rise the Commission adopt a contestable
some of the Commission’s proposed
to a presumption of market power.38 load analysis, several commenters
changes to the horizontal analysis in the
Southern argues that mere failure to criticize the contestable load analysis,
NOPR (i.e., changes to the post-1996
pass a screen, without more robust stating that it changes the focus of the
market power assessments, is an exemption and the native load proxy), market power analysis from the seller to
insufficient basis upon which to base a in general, EPSA supports the two the market. They counter that the
presumption of market power. Southern indicative screens as a means for contestable load analysis is unsound,
argues this is because, in the case of the indicating that an entity might have with APPA/TAPS citing Federal Trade
pivotal supplier screen, the Commission market power. Commission (FTC) comments in this
itself admits that it does not give a full 58. EPSA notes that it is time to move proceeding that such an analysis is
picture and that the DPT provides better beyond the battle over crafting the flawed.44 NRECA states that
information. With regard to the market perfect screens, arguing: (1) It is likely commenters have not provided
share screen, Southern argues that the no such perfect screens exist, as sufficient justification for using a
market share screen has even more basic evidenced by the fact that stakeholders contestable load analysis.
problems as an indicator of market and the Commission have gone through 61. With regard to Southern’s
power. Southern states that, because of several iterations to get to today’s suggestion that the indicative screens be
the market share analysis’ serious flaws, screens; and (2) in the end, the screens made voluntary and function as a safe
the great majority of integrated are only indicative measures. EPSA harbor, such that screen failure would
franchised public utilities inevitably notes that failure of one or both of the simply mean that further review of the
will fail the market share screen. Thus, screens does not brandish an entity with seller would be appropriate, but not
with respect to integrated franchised market power, but merely raises a flag merit a section 206 investigation,
public utilities, the market share screen that further analysis is necessary in NRECA states that Southern’s argument
serves no real purpose other than to order to assess an entity’s ability to is contrary to law. NRECA argues that,
state the obvious: Integrated franchised exercise market power. The current state as the proponent of a tariff allowing it
public utilities build and maintain to charge market-based rates, the public
of wholesale electricity markets, EPSA
adequate resources to serve their native utility has the burden of proof to
argues, requires indicative screens that
loads and inevitably will have market demonstrate that its wholesale rates will
are neither definitive nor an aperture
shares greater than 20 percent in their be disciplined by competition. NRECA
home control areas under the letting everything pass, but rather a
submits that failing the indicative
Commission’s computational sieve that catches potential problems for
screens indicates that the seller has not
procedures. Southern states that, since further examination. EPSA agrees with yet provided ‘‘ ‘empirical proof’ ’’ that
the DPT reduces the level of false retention of both of the current competition will drive down prices to
positives and is a more definitive means indicative screens and the ‘‘next steps’’ just and reasonable levels as the FPA
for determining the existence of market set forth for those entities that fail one requires.45
power, the Commission should use the or both of those screens.
DPT as the default test.39 PPL agrees Commission Determination
59. Several other commenters also
with Southern’s proposal that the support retention of the indicative 62. We adopt the proposal in the
indicative screens be made voluntary.40 screens. Some of these commenters state NOPR to retain both of the indicative
55. Southern states that if the market that, because section 205 of the FPA screens. The intent of the indicative
share screen is retained, it should be requires rates to be just and reasonable, screens is to identify the sellers that
adjusted for forced outages because such a market share indicative screen is raise no horizontal market power
capacity is not available. Southern also appropriate to ensure that outcome. concerns and can otherwise be
notes that forced outages are tracked NRECA adds that ‘‘[b]ecause of past or considered for market-based rate
and reported to the North American present State regulation, many authority. At the same time, sellers that
Electric Reliability Corporation (NERC), traditional public utilities have acquired do not pass the indicative screens are
which presents generating unit dominant market shares of generation allowed to provide additional analysis
availability statistics data for generator capacity in their own control areas—
unit groups.41 43 Morgan Stanley reply comments at 10–11.
sufficient to enable them to exercise
56. NRECA disagrees with Southern’s 44 APPA/TAPS reply comments at 11, NRECA
proposal, stating that forced outage market power absent regulation of their reply comments at 13–14. The FTC filed comments
deductions have little effect when behavior. NRECA submits that in this proceeding in January 2006 on the
regardless of the cause the incumbent contestable load test. FTC states that ‘‘the historical
applied to all sellers.42 It also believes contestable load proposal fails to include a number
that sellers do not make forced outage public utilities will remain the of potentially important considerations in its
deductions in long-term contracts; dominant firms in their own control framework for assessing horizontal market power,
areas absent significant new market and the elements that it does include are not
38 Southern argues that, in the context of the entry in the form of new generation considered in an economically sound manner. In
sum, the proposal does not represent an analytical
indicative screens, the prejudice associated with construction in the control area by advance over existing techniques to evaluate
integrated franchised public utility status is severe independent firms, or significant horizontal market power, and it falls far short of the
and instead of providing a fair or meaningful transmission construction to permit economically sound framework for market power
measure of market power, the market share screen analysis presented in the Merger Guidelines.’’ The
operates to create a priori evidentiary presumption entry by generation outside the control
FTC defines the following specific problems with
of guilt, the screen is improper, creates due process area. Morgan Stanley also favors the contestable load analysis: the price is not
concerns, and should not be adopted for purposes retaining the market share indicative
considered in the assessment of available supply,

of the final rule.
39 Southern at 8, 11–13.
screen, noting that failure of the market contractual and legal restrictions on supply are
share indicative screen does not mean ignored, and the contestable load analysis ignores
40 PPL reply comments at 8.
transmission discrimination and transmission
41 Southern at 14–15. the process is unfair, and asserting that constraints, which delineate the market.
42 NRECA reply comments at 18. exclusive reliance on the pivotal 45 NRECA reply comments at 20–21.
for Commission consideration. Because at peak periods. The uncommitted contestable load analysis is essentially a
the indicative screens are intended to market share analysis provides a variant on the pivotal supplier screen
screen out only those sellers that raise measure as to whether a supplier may with differences in the calculation of
no horizontal market power concerns, as have a dominant position in the market, wholesale load and the test thresholds,
opposed to other sellers that raise which is another indicator of potential because, like the pivotal supplier
concerns but may not necessarily unilateral market power and the ability screen, it addresses whether suppliers
possess horizontal market power, we of a seller to effect coordinated other than the seller can meet the
find it appropriate to use conservative interaction with other sellers. The demand in the relevant market.
criteria and to rely on more than one market share screen is also useful in Therefore incorporating such an
screen. A conservative approach at the measuring market power because it analysis would not improve our ability
indicative screen stage of the proceeding measures a seller’s size relative to others to establish a presumption of whether a
is warranted because, if a seller passes in the market, in particular, the seller’s seller has market power. The
both of the indicative screens, there is share of generating capacity contestable load analysis therefore
a rebuttable presumption that it does uncommitted after accounting for its would add little useful information, and
not possess horizontal market power. obligations to serve native load. The without the market share indicative
63. The rebuttable presumption of market share screen provides a snapshot screen, the Commission would have
horizontal market power that attaches to of these market shares in each season of insufficient information because there
sellers failing one of the indicative the year. Taken together, the indicative would be no analysis of a seller’s size
screens is just that—a rebuttable screens can measure a seller’s market relative to the other sellers in the
presumption. It is not a definitive power at both peak and off-peak times.48 market, and no information on the
finding by the Commission; sellers are Both market share and pivotal supplier seller’s market power during off-peak
provided with several procedural indicative screens are appropriate first periods.
options including the right to challenge steps for the Commission to use in 67. In addition, the contestable load
the market power presumption by determining if it needs a more robust analysis fails to consider the relative
submitting a DPT analysis, or, analysis to determine whether the seller price of the competing supplies.
alternatively, sellers can accept the has market power. We conclude that Commenters have argued that if
presumption of market power and adopt having two screens as backstops to one available non-applicant supply is at
some form of cost-based mitigation.46 another will better assist us in least twice the contestable load, the
Accordingly, we will adopt the proposal determining the existence of potential market is competitive. However, this
to continue to use the two indicative market power. Accordingly, we reject analysis fails to consider whether the
screens and find that failure of either the suggestion of several commenters to available non-applicant supply is
indicative screen creates a rebuttable abandon the market share indicative competitively priced and, thus, in the
presumption of market power. We screen. We will retain both the pivotal market. This weakness in the
reiterate our finding that ‘‘[f]ailure to supplier and market share indicative contestable load analysis is addressed in
pass either of the indicative screens screens as described in the NOPR, as the DPT analysis which considers only
* * * will constitute a prima facie well as apply the rebuttable supply that is competitively priced.
presumption of market power for those 68. We also reject arguments by E.ON
showing that the rates charged by the
sellers that fail either indicative U.S. and PNM/Tucson that the
seller pursuant to its market-based rate
screen.49 wholesale market share screen should
authority may have become unjust and
66. In addition, the Commission will be replaced because, they argue, it does
unreasonable and that continuation of
not adopt suggestions to alter the not consider the size of the wholesale
the seller’s market-based rate authority
indicative screens in order to supply in the relevant market relative to
may no longer be just and the wholesale demand in that market.
incorporate a contestable load analysis,
reasonable.’’ 47 E.ON. U.S. and PNM/Tucson are
as proposed by EEI and others. As noted
64. This approach, contrary to the requesting an analysis very similar to
by the FTC, APPA/TAPS, and NRECA,
claims of several commenters, will help the contestable load analysis, whose
the contestable load analysis is flawed
to further competitive markets by defining characteristic is measuring the
because, among other things, it does not
allowing sellers without market power wholesale supply market relative to
consider control of generation through
to sell power at market-based rates, and wholesale demand, which, as stated
contracts. The Commission explained in
it will similarly give customers security the April 14 Order that the roles of the above, is essentially the same as the
that sellers that fail the screens are indicative screens are meant to be pivotal supplier screen, and would
required to submit to further scrutiny complementary. The pivotal supplier therefore add little useful information to
and/or mitigation. indicative screen indicates whether the screening process.
65. The pivotal supplier and market demand can be met without some 69. We reject Duke’s claim that
share indicative screens measure contribution of supply by the seller at because neither of the rationales
different aspects of market power. As peak times, while the market share originally cited by the Commission in
the Commission stated in the April 14 indicative screen indicates whether the support of the market share indicative
Order, the uncommitted pivotal seller has a dominant position in the screen—its ability to identify
supplier indicative screen measures the market and may therefore have the ‘‘coordinating behavior,’’ or its ability to
ability of a firm to dominate the market ability to exercise horizontal market detect the exercise of market power in
power, both unilaterally and in off-peak periods—has been validated,
46 In the April 14 Order, the Commission stated
coordination with other sellers.50 The the wholesale market share indicative
that proposals for alternative mitigation in these
circumstances could include cost-based rates or screen is unnecessary. Specifically, the
other mitigation that the Commission may deem 48 April
14 Order, 107 FERC ¶ 61,018 at P 72. Commission believes that the ability of
appropriate. For example, a seller could propose to 49 As

we noted in the July 8 Order, a number of market participants to exercise market
transfer operational control of enough generation to those commenters that proposed eliminating the power through ‘‘coordinating behavior’’
a third party such that the applicant would satisfy market share screen had supported it as a viable
our generation market power concerns. April 14 alternative in the past. July 8 Order, 108 FERC is a legitimate concern under the FPA,
Order, 107 FERC ¶ 61,018 at n. 142. ¶ 61,026 at P 87. in addition to the fact that it has long
47 April 14 Order, 107 FERC ¶ 61,018 at P 209. 50 April 14 Order, 107 FERC ¶ 61,018 at P 72. been recognized by the antitrust
authorities.51 The Commission also statute prohibiting trade monopolies. HHI can be the result of high market
believes it is possible to exercise market The focus in such cases (whether a shares of sellers in the market other than
power in off-peak periods because company has violated the Sherman Act) the seller, and the focus of our analysis
during such times the amount of supply and the standard for making such a is on the seller’s ability to exercise
in the market may be greatly reduced determination is different than the focus market power, so the HHI would
(e.g., because of planned outages for of the Commission at the indicative provide little additional information to
plant maintenance), meaning that a screen stage of the horizontal market allow us to identify those sellers who
seller that is not dominant at peak times power analysis (identifying sellers that clearly do not have market power.
might be at off-peak. require further horizontal market Finally, the HHI primarily provides
70. Moreover, we agree with APPA/ analysis without making a definitive information on the ability of sellers to
TAPS that market-based rate finding regarding market power). exercise market power through
assessments are used to determine the 73. On both theoretical and practical coordinated behavior, while the market
ability to exercise, not the exercise of, grounds, we reject the argument by EEI share screen primarily provides
market power. The Commission need and others that the market share information on a particular seller’s
not wait passively until market power is indicative screen can diminish ability unilaterally to exercise market
exercised. Rather, it is incumbent on the competition because some sellers that power. We will not supplement the
Commission to set policies that will are the subject of a section 206
ensure that rates remain just and indicative screens with the HHI screen
investigation choose mitigation rather
reasonable under section 205 of the because the indicative screens are
than challenge the presumption of
FPA. Requiring sellers to submit screens sufficiently conservative to identify
market power. First, mitigating a seller
that analyze the sellers’ potential to those sellers that have a rebuttable
with market power ensures that the
exercise market power is consistent presumption of market power, without
other sellers in the market cannot
with such a policy. having to add an additional layer of
benefit from an artificially high market
71. We are unpersuaded by E.ON price due to the seller with market review at the initial stage.
U.S.’s and PNM/Tucson’s argument that power exercising market power. Second, 75. We clarify that sellers and
‘‘false positives’’ arising from the market in our experience, sellers that choose intervenors may present alternative
share screen dampen the vigor of mitigation rather than challenge the evidence such as a DPT study or
competitive wholesale market presumption of market power have historical sales and transmission data to
participation by unnecessarily curtailing market shares that are likely to indicate support or rebut the results of the
the market-based rate authority of a dominant position in a geographic indicative screens. For example,
entities that, according to E. ON. U.S. market.54 In addition, many sellers have intervenors could present evidence
and PNM/Tucson, lack market power. successfully rebutted the presumption based on historical wholesale sales data
We recognize that a conservative screen of market power after failing one of the or challenge the assumption that
may result in some false positives, but indicative screens.55 competing suppliers inside a balancing
must weigh that against the cost of the 74. Further, we will not adopt the authority area have access to the market
false negatives that would occur if we suggestion to substitute the HHI for the (such a challenge could take into
adopted a less conservative screen or market share indicative screen or to account both the actual historical
eliminated the market share indicative supplement the indicative screens with transmission usage at the time of the
screen. the HHI. The indicative screens are used
72. E.ON U.S. and PNM/Tucson, to study as well as the amount of available
to separate sellers who are presumed to transmission capacity at that time).57 A
support their point, cite several court have market power from those that,
cases in which market shares were seller may present evidence in support
absent extraordinary and transitory of a contention that, notwithstanding
alleged not to be reliable indicators of circumstances, clearly do not. We will
market power in regulated markets. the results of the indicative screens, it
not substitute the market share screen does not possess market power.58
However, the cases cited are not with an HHI screen because, as we have
relevant to the issue of whether the However, sellers should not expect that
stated above, the seller’s market share the Commission will postpone initiating
Commission should retain the
conveys useful information about its a section 206 investigation to protect
wholesale market share screen. The
ability to exercise market power, so customers while it examines this
purpose of our indicative screens is to
eliminating the market share screen in supplemental information if screen
distinguish sellers that may raise
favor of the HHI could increase the risk failures are indicated.59 Nevertheless,
horizontal market power concerns and
of false negatives.56 In addition, a high the Commission may factor in this
those that do not; the market share
screen is not the end of our horizontal alternative evidence before deciding
nations, shall be deemed guilty of a felony, and, on
market power analysis. In contrast, the conviction thereof, shall be punished by fine not whether to initiate a section 206
cases cited by E.ON U.S. and PNM/ exceeding $100,000,000 if a corporation, or, if any investigation if the alternative evidence
Tucson 52 involve allegations of other person, $1,000,000, or by imprisonment not is appropriately supported,
exceeding 10 years, or by both said punishments, comprehensive and unambiguous, and
unlawful restraint of trade in violation in the discretion of the court.’’
of the Sherman Act,53 a Federal antitrust 54 See, e.g., Aquila, Inc., 112 FERC ¶ 61,307
(2005); Carolina Power & Light Co., 113 FERC 5 percent market shares, the HHI would be 1,550
51 See 1992 FTC/DOJ 1992 Horizontal Merger ¶ 61,130 (2005); The Empire District Electric Co., (1,225 + 13(25)), which would not fail the 2,500
Guidelines sec. 2.1. 116 FERC ¶ 61,150 (2006); MidAmerican Energy HHI threshold or even the proposed lower 1,800
52 Cost Management, 99 F.3d 937; Rebel Oil, 51 Co., 117 FERC ¶ 61,178 (2006); Xcel Energy Services HHI threshold. In such a market, a firm with a 35
F.3d 1421; S. Pac. Communications, 740 F.2d 780; Inc., 117 FERC ¶ 61,180 (2006). percent market share could have the ability to
MCI Communications, 708 F.2d 1081; Mid-Tex 55 See, e.g., Kansas City Power and Light Co., 113 exercise market power, which would not be picked
Communications, 615 F.2d 1372; and Almeda, 615 FERC ¶ 61,074 (2005); PPL Montana, LLC, 115 FERC up by an HHI screen.
57 Id. at P 37.
F.2d 343. ¶ 61,204 (2006); PacifiCorp, 115 FERC ¶ 61,349
53 15 U.S.C. 2, which states: ‘‘Every person who (2006); Tucson Electric Power Co., 116 FERC 58 Id. at n. 11.
shall monopolize, or attempt to monopolize, or ¶ 61,051 (2006); Acadia Power Partners, LLC, 113 59 See, e.g., LG&E Energy Mtkg. Inc., 111 FERC
combine or conspire with any other person or FERC ¶ 61,073 (2005). ¶ 61,153 at P 21, 22 (2005); Tampa Electric Co., 110
persons, to monopolize any part of the trade or 56 For example, in a market with one seller with FERC ¶ 61,206 at P 24, 25 (2005); Entergy Services,
commerce among the several States, or with foreign a 35 percent market share and 13 sellers each with Inc., 109 FERC ¶ 61,282 at P 36 (2004).
conducive to prompt review by the improper, and create due process 2. Indicative Market Share Screen
Commission. concerns. Threshold Levels and Pivotal Supplier
76. We will not adopt Southern’s Application Period
78. With regard to Southern’s
suggestion that the indicative screens be
suggestion that we use the DPT as the Commission Proposal
made voluntary. We will continue to
require that sellers submit the indicative default test, we find that if we were to 80. In the NOPR, the Commission
screens or concede the presumption of do so our ability to protect customers proposed to retain the 20 percent
market power before they file a DPT. while the analysis is evaluated could be threshold for the wholesale market
However, as discussed above, a seller compromised. The DPT is a more share screen (i.e., with a market share of
may submit with its indicative screens involved and complex analysis. The less than 20 percent, the seller would
a DPT as alternative evidence. As stated Commission has also at times set a DPT pass the screen). The Commission stated
above, submission of a DPT analysis as analysis for evidentiary hearing which that since the screens are indicative, not
alternative evidence at the same time a greatly extends the time between when definitive, a relatively conservative
seller submits the indicative screens the DPT is submitted to the Commission threshold for passing them was
may result in the Commission and when a final decision is rendered. appropriate. Indeed, pursuant to the
instituting a section 206 proceeding to The rates customers are subject to horizontal market power analysis, the
protect customers, based on failure of an during the time period before the Commission will not make a definitive
indicative screen, while the issuance of a Commission order finding that a seller has market power
Commission considers the merits of the addressing a seller’s DPT would not be unless and until the more robust
DPT analysis. analysis, the DPT, is considered.
subject to refund and, accordingly, the
77. We do not agree with Southern’s 81. The Commission proposed to
customers would be unprotected if the continue the use of annual peak load in
view that failure of the indicative seller ultimately is found to have market
screen(s) does not provide a sufficient the pivotal supplier analysis and not to
power. However, under our current expand the pivotal supplier analysis to
basis to establish a rebuttable
policy, and as adopted herein, if a seller include monthly assessments. It stated
presumption of market power. The
indicative screens are intended to wishes to file a DPT rather than the that the pivotal supplier analysis
identify the sellers that raise no indicative screens it may do so. In doing examines the seller’s market power
horizontal market power concerns and so, the seller concedes that it fails the during the annual peak, and that the
can otherwise be considered for market- indicative screens, which concession hours near that point in time are the
based rate authority. Sellers failing one establishes a rebuttable presumption of most likely times that a seller will be a
or both of the indicative screens, on the market power, and the Commission will pivotal supplier.
other hand, are identified as sellers that issue an order initiating a section 206 a. Market Share Threshold
potentially possess horizontal market proceeding to investigate whether the
power and for which a more robust seller has market power and Comments
analysis is required. The uncommitted establishing a refund effective date for 82. A number of commenters argue
pivotal supplier screen focuses on the the protection of customers while the that 20 percent is too low a threshold for
ability to exercise market power Commission evaluates the filed DPT. In the market share indicative screen.
unilaterally. Failure of this screen the case of a seller that concedes the Some point out that, given native load
indicates that some or all of the seller’s failure of one or both of the screens and requirements, it is very difficult for
generation must run to meet peak load. submits the DPT in the same filing, the investor-owned utilities outside of
The uncommitted market share analysis Commission is able to establish a refund RTOs/ISOs to fall below the 20 percent
indicates whether a supplier has a effective date at an earlier time than if threshold for the market share
dominant position in the market. the seller were able to skip the screen indicative screen.61 Duke also notes that
Failure of the uncommitted market the 20 percent criterion is incompatible
stage entirely and file a DPT without
share screen may indicate the seller has with regional planning requirements
unilateral market power and may also conceding a screen failure.
because, according to Duke, the amount
indicate the presence of the ability to 79. We will reject Southern’s request of capacity needed to satisfy regional
facilitate coordinated interaction with that forced outages be deducted from planning reserve margins ‘‘would place
other sellers. It is on this basis that we capacity. As we stated in the July 8 the utility at substantial risk of
find that a rebuttable presumption of Order, ‘‘forced outages are non-recurring exceeding the 20 percent threshold.’’ 62
market power is warranted when a events that do not reflect normal 83. E.ON U.S. argues that, because the
seller fails one or both of the indicative operating conditions.’’ 60 Allowing courts have not considered a 20 percent
screens. However, we agree with deduction of forced outages will market share to indicate a market power
Southern that the DPT is a more generally not change indicative screen concern, associating a market share
definitive means for determining the results, because all sellers will be able indicative screen failure with a
existence of market power. As a result, to deduct forced outages, offsetting each presumption of market power is
we allow sellers that have failed one or other. In the unlikely event that forced inappropriate.63 Additionally, Progress
both of the indicative screens to rebut outage numbers were not completely
the presumption of market power by 61 See, e.g., Southern at 8–9, Duke at 15–16, EEI
offsetting, allowing forced outages in the
performing the DPT. Further, because at 8–9.
indicative screens would benefit owners 62 Duke at 17.
failure of one or both of the indicative
screens only creates a rebuttable of relatively unreliable fleets at the 63 See E.ON U.S. at 14–15, n.18, citing PepsiCo,
presumption of market power and expense of owners of relatively reliable Inc. v. Coca-Cola Co., 315 F.3d 101, 109 (2d Cir.
fleets. 2003) (‘‘Absent additional evidence, such as an
sellers have a Commission-endorsed ability to control prices or exclude competition, a
analysis that they can use to rebut that 64 percent market share is insufficient to infer
presumption (the DPT), we find without monopoly power.’’); AD/SAT v. Associated Press,
181 F.3d 216, 229 (2d Cir. 1999) (concluding that
merit Southern’s view that the 33 percent market share is insufficient to show a
indicative screens create a priori dangerous probability of monopoly power); United
evidentiary presumption of guilt, are 60 July 8 Order, 108 FERC ¶ 61,026 at P 68. Continued
Energy argues that it is inappropriate to Duke asserts that virtually any supplier, six companies satisfied the
associate failure of the market share regardless of its market share, has some Commission’s concerns for the grant of
screen with a presumption of market ability to manipulate market outcomes market-based rate authority at the DPT
power when U.S. Department of Justice by engaging in anomalous bidding phase. In addition, intervenors have the
(DOJ) merger guidelines state that only practices. opportunity to present other evidence
firms with 35 percent or more market such as historical data in order to rebut
Commission Determination
share have market power.64 the presumption that sellers lack market
84. PPL states that it agrees that the 89. The Commission will retain the 20 power.75 Moreover, no commenter
20 percent threshold should be replaced percent market share threshold for the advocating a 15 percent threshold for
by a 35 percent threshold in the market indicative market share screen. EEI and the market share has shown why it is
share screen and argues that such an others argue that the Commission superior to the current 20 percent
increase will avoid the false-positive should use a 35 percent threshold as a threshold. Therefore, we find that the 20
failure rate of the indicative screens, presumption of market power because percent market share threshold strikes
and the cost, time and repercussions in the DOJ merger guidelines state that the right balance in seeking to avoid
the financial markets of the extended only firms with 35 percent or more both ‘‘false negatives’’ and ‘‘false
pendency of a market-based rate market share have market power. As the positives’’ and we will not reduce the
renewal proceeding while a DPT is Commission stated in the July 8 Order, wholesale market share screen to 15
conducted and considered.65 however, in a market comprised of five percent, as suggested by TDU Systems.
85. In reply, APPA/TAPS state that equal-sized firms with 20 percent 92. The Commission does not accept
there is no reason to raise the market market shares, the HHI is 2,000, which Duke’s assertion that the market share
share indicative screen threshold above is above the DOJ/FTC HHI threshold of indicative screen is incompatible with
20 percent simply because investor- 1,800 for a highly concentrated market, regional planning requirements. The
owned utilities have trouble passing the and in markets for commodities with April 14 Order allows operating reserves
market share indicative screen.66 low demand price-responsiveness like necessary for reliability, as determined
NRECA and TDU Systems note that the electricity, market power is more likely by State or regional reliability
factors that EEI believes make it difficult to be present at lower market shares councils,76 to be deducted from total
to pass the indicative screens—a large than in markets with high demand capacity attributed to the seller.
amount of reserves and little available elasticity.72 Therefore, we will retain a 93. We also reject the argument that
transfer capability—are precisely the conservative 20 percent threshold for the 20 percent threshold is too low
factors to consider when evaluating this indicative screen. because of native load obligations of
whether a market is competitive.67 90. When arguing that a 20 percent investor-owned utilities outside of
86. Rather than raising the threshold threshold for the market share screen is RTOs. First, the calculation of 20
level, TDU Systems propose to lower too low, E.ON. U.S. and PNM/Tucson percent is the same regardless of
the threshold to 15 percent for the ignore that the indicative screens are whether a seller is located in an RTO or
market share indicative screen, claiming based on uncommitted capacity, not not. Second, as discussed herein, we
that 20 percent was never justified by total capacity. When calculating allow for a native load deduction in the
the Commission or shown to be the right uncommitted capacity for the market wholesale market share screen and are
balance.68 Citing Commission and share screen, a seller deducts from its increasing the deduction to address
judicial precedent, TDU Systems also total capacity the capacity dedicated to concerns raised by investor-owned
note that the grant of market-based rate long-term sales contracts, operating utilities and others. Given the increased
authority cannot be made without the reserves,73 planned outages, and native native load deduction, our market share
discipline of market forces.69 load 74 as measured by the appropriate screen adequately incorporates investor-
87. These commenters cite a recent native load proxy. As a result, a owned utilities’ native load obligations
decision of the U.S. Court of Appeals for substantial amount of seller capacity while necessarily maintaining the
the Ninth Circuit 70 to buttress their may not be counted in measures of conservative nature of the screens.
positions, arguing that even market market share. Therefore, it is
shares lower than 20 percent can lead to inappropriate to compare market shares b. Pivotal Supplier Application Period
market manipulation. based on uncommitted capacity to the Comments
88. In reply to these arguments, Duke market shares in the cases that E.ON.
states that certain commenters’ reliance 94. Some commenters recommend
U.S. and PNM/Tucson cite. that the pivotal supplier indicative
on this is mistaken because that 91. We further note that other
decision addressed market screen should be applied monthly,
commenters have argued that the 20 rather than just in a seller’s peak month.
manipulation, not market power.71 percent threshold is too high. We They reason that sellers, though not
disagree. The 20 percent threshold is pivotal in the highest demand period,
Air Lines, Inc. v. Austin Travel Corp., 867 F.2d 737,
742 (2d Cir. 1989) (finding that 31 percent market
meant to strike a balance between might be pivotal at different times of the
share does not constitute a national monopoly). having a conservative but realistic year or in off-peak periods, such as in
64 Progress Energy at 7, citing EEI at 6–10. screen and imposing undue regulatory the spring or fall when power plants are
65 PPL reply comments at 7.
burdens. The Commission’s experience on planned outages.77
66 APPA/TAPS reply comments at 12.
in the context of market-based rate
67 NRECA reply comments at 16, TDU Systems
proceedings demonstrates this point. In Commission Determination
reply comments at 10, citing EEI at 8.
68 TDU Systems at 7. the three years since the April 14 Order, 95. The Commission will not require
69 TDU Systems at 5. the Commission has revoked the the pivotal supplier indicative screen to
70 Pub. Utils. Comm’n of Calif. v. FERC, 462 F.3d market-based rate authority of two be applied monthly, as some
1027, at 1039 (9th Cir. 2006) (CPUC) (‘‘As became sellers, thirteen sellers relinquished commenters suggest, because we believe
clear in hindsight, even those who controlled a their market-based rate authority, and
relatively small percentage of the market [in the
75 Id.at P 97.
California market during 2000 and 2001] had
72 July 8 Order, 108 FERC ¶ 61,026 at P 96. 76 April
sufficient market power to skew markets 14 Order, 107 FERC ¶ 61,018 at P 96.
artificially.’’). 73 April 14 Order 107 FERC ¶ 61,018 at P 94. 77 See, e.g. APPA/TAPS at 66–67, NRECA at 19–
71 Duke reply comments at 18, citing CPUC. 74 Id. at P 100. 20.
it is unnecessary and overly notes that even using the available addition, they assert that a DPT does not
burdensome to do so. Even though economic capacity measure, a seller consider the differences between
conditions of tight supply may occur at with a market share above 35 percent fundamentally different types of market
other times of the year or in abnormal would fail the DPT ‘‘even though there structures: short-term energy only
operating conditions, the combination is no real market power problem markets, short-term capacity markets,
of the pivotal supplier analysis and the because the in-area wholesale customers ancillary service markets, and long-term
wholesale market share screen is have access to ample supplies of contract markets for energy and
sufficient, because suppliers with competitively priced power.’’ 81 In this capacity.86
market power at such times are also regard, he argues that the DPT should be 100. A number of commenters believe
likely to fail at least one of these changed to take into account that the HHI threshold sufficient for
screens. Moreover, if intervenors believe ‘‘competitive alternatives available for passage of the DPT should remain at
that a seller is pivotal during non-peak wholesale customers.’’ 82 2,500.87 PPL states that lowering the
periods, they are permitted to file 98. Several other commenters disagree HHI threshold to 1,800 will cause more
evidence to that effect. Accordingly, with the 2,500 HHI threshold for the false positives and direct capital away
using only the peak month in the DPT. Some reason that a 2,500 HHI from the generation sector.
pivotal supplier indicative screen is threshold is not well justified and that 101. EEI and Progress Energy
appropriate. We note that if a seller fails an 1,800 HHI threshold is more recommend that only the pivotal
the indicative screens and submits a appropriate because this is the criterion supplier and HHI analyses of the DPT
DPT, it is required to provide a pivotal used in a highly concentrated market. should be retained, particularly if the
supplier analysis for each season and for They argue that if a 2,500 HHI threshold market share analysis under the
both peak and non-peak hours. is used, it should be used with a 15 indicative screens is retained. They
percent market share because these are argue that the pivotal supplier and HHI
3. DPT Criteria analyses are more than sufficient to
the criteria of the oil-pipeline test from
Commission Proposal which the HHI 2,500 criterion is determine whether the potential for
96. With regard to the DPT analysis, obtained.83 State AGs and Advocates market power exists.88
the Commission proposed to retain the note that the Commission has never 102. A few commenters are skeptical
current thresholds (20 percent for the systematically attempted to correlate the about the need for a DPT. Southern
market share analysis and 2,500 for the results of the pivotal supplier indicative states that ‘‘granting market-based rates
HHI analysis), as well as the current screen, the market share indicative should not require the same analysis as
practice of weighing all the relevant screen, or the DPT (including HHI for a merger,’’ and that the Commission
factors presented in determining results) proposed in the NOPR with should reconsider using the DPT.89 In
whether a seller does or does not have actual independently derived data and this regard, Southern argues that unlike
horizontal market power. The measures as to the existence of market mergers, which are difficult and costly
Commission proposed to continue to do to undo, the Commission has the ability
power in any wholesale electricity
so on a case-by-case basis, weighing to continuously police the exercise of
market in the U.S.84 Without having
such factors as available economic market power. Further, Southern states
done this type of systematic and
capacity, economic capacity, market that the Energy Policy Act of 2005
quantitative evaluation of the proposed
share, HHIs, and historical sales and provides for stiff civil and criminal
market power tests based on some type
transmission data.78 penalties. Southern adds that the
of independent verification, State AGs
Commission recently issued new rules
Comments and Advocates contend that the
against market manipulation to thwart
Commission cannot be confident that
97. Several commenters suggest exercises of market power.
the three proposed tests are reasonably 103. AARP expresses concern about
changes to the DPT criteria. One accurate and, therefore, useful tests to
suggested change is to emphasize 79 or the lack of competition in wholesale
determine the existence of market electric markets. It argues that market-
rely exclusively 80 on the available power in any electricity market. For
economic capacity measure, in order to based rate reviews are intended to
example, State AGs and Advocates ask determine whether the seller’s market-
properly account for native load. For how the Commission knows if an HHI
example, one commenter argues that the based rates will be just and reasonable,
corresponds to the point at which not whether a seller passes the various
economic capacity prong of the DPT market power begins, and whether it
analysis is not a useful indicator of the tests. AARP argues that real-world
varies by factors such as input price, evidence that may not fit neatly within
presence or absence of market power generation mix and different market
when applied to vertically integrated the specified market-based rate criteria
structures through the country.85 must be considered before the
utilities in their home control areas 99. Furthermore, State AGs and
because that analysis completely Commission can conclude that a seller
Advocates claim that the DPT is not an
disregards native load obligations, lacks market power. AARP states that,
adequate tool for assessing market
making this prong virtually unpassable as the NOPR recognizes (PP 63–64),
power ‘‘in any context.’’ First, they state
by such utilities. This commenter also both historical and forward-looking
that the DPT will not discern bidding
evidence should be considered.
78 Economic capacity means the amount of
strategies of different suppliers. In
generating capacity owned or controlled by a
81 Dr.
Pace at 11–12.
potential supplier with variable costs low enough
82 Dr. Pace at 12–13.
104. The Commission will continue to
that energy from such capacity could be use the DPT for companies that fail the
economically delivered to the destination market. 83 APPA/TAPS at 78–79, TDU Systems at 18,
Available economic capacity means the amount of Montana Counsel at 15 (referring to APPA/TAPS
86 State AGs and Advocates reply comments at 6–
generating capacity meeting the definition of comments).
economic capacity less the amount of generating 84 State AGs and Advocates state that by 7.
capacity needed to serve the potential supplier’s ‘‘independently’’ derived measures of market power 87 MidAmerican reply comments at 2, citing EEI
native load commitments. See generally April 14 they mean measures derived using different comments; PPL reply comments at 8; EEI reply
Order, 107 FERC ¶ 61,018 at Appendix F. methodologies (and more accurate methodologies) comments at 23.
79 Dr. Pace at 9. than the Commission proposed in the NOPR. 88 EEI at 10–12, Progress at 8.
80 Southern at 20–21, EEI at 15. 85 States AGs and Advocates at 36–37. 89 Southern at 19–20.
market power indicative screens. The competing supply (the sum of the presumption that a pipeline does not
DPT is a well-established test that has economic capacities of the competing possess market power.’’ 94
been used routinely by the Commission suppliers). The seller will be considered 111. A showing of an HHI less than
to analyze market power in the merger pivotal if the sum of the competing 2,500 in the relevant market for all
context. The fact that it is used in suppliers’ economic capacity is less season/load conditions for sellers that
section 203 cases does not demonstrate than the load level (plus a reserve have also shown that they are not
that it is inappropriate for market-based requirement that is no higher than State pivotal and do not possess a 20 percent
rate cases. Rather, it provides a well- and Regional Reliability Council or greater market share in any of the
established tool for assessing market operating requirements for reliability) season/load conditions would constitute
power that is known and widely used in for the relevant period. The analysis a showing of a lack of market power,
the electric industry. Moreover, in both should also be performed using absent compelling contrary evidence
contexts, the DPT allows for the available economic capacity to account from intervenors. Concentration
calculation of market shares and market for sellers’ and competing suppliers’ statistics can indicate the likelihood of
concentration values under a wide range native load commitments. In that case, coordinated interaction in a market. All
of season and load conditions. native load in the relevant market else being equal, the higher the HHI, the
105. Sellers failing one or more of the would be subtracted from the load in more firms can extract excess profits
initial screens will have a rebuttable each season/load period. The native from the market. Likewise a low HHI
presumption of market power. If such a load subtracted should be the average of can indicate a lower likelihood of
seller chooses not to proceed directly to the native load daily peaks for each coordinated interaction among suppliers
mitigation, it must present a more season/load condition. and could be used to support a claim of
thorough analysis using the DPT. The a lack of market power by a seller that
DPT is also used to analyze the effect on 109. Each supplier’s market share is is pivotal or does have a 20 percent or
competition for transfers of calculated based on economic capacity. greater market share in some or all
jurisdictional facilities in section 203 The market shares for each season/load season/load conditions. For example, a
proceedings,90 using the framework condition reflect the costs of the sellers’ seller with a market share of 20 percent
described in Appendix A of the Merger and competing suppliers’ generation, or greater could argue that that it would
Policy Statement and revised in Order thus giving a more complete picture of be unlikely to possess market power in
No. 642.91 the sellers’ ability to exercise market an unconcentrated market (HHI less
106. The DPT defines the relevant power in a given market. For example, than 1,000). As with our initial screens,
market by identifying potential in off-peak periods, the competitive sellers and intervenors may present
suppliers based on market prices, input price may be very low because the evidence such as historical wholesale
costs, and transmission availability, and demand can be met using low-cost sales. Those data could be used to
calculates each supplier’s economic capacity. In that case, a high-cost calculate market shares and market
capacity and available economic peaking plant that would not be a viable concentration and could be used to
capacity for each season/load competitor in the market would not be refute or support the results of the DPT.
condition.92 The results of the DPT can considered in the market share The Commission encourages the most
be used for pivotal supplier, market calculations, because it would not be complete analysis of competitive
share and market concentration counted as economic capacity in the conditions in the market as the data
analyses. DPT. Sellers must also present an allow.
107. Using the economic capacity for analysis using available economic 112. We will continue to weigh both
each supplier, sellers should provide capacity and explain which measure available economic capacity and
pivotal supplier, market share and more accurately captures conditions in economic capacity when analyzing
market concentration analyses. the relevant market. market shares and HHIs. Based on our
Examining these three factors with the substantial experience in applying the
110. Under the DPT, sellers must also DPT over the past decade, we have
more robust output from the DPT will
calculate the market concentration using found that both analyses are useful
allow sellers to present a more complete
the HHI based on market shares.93 HHIs indicators of suppliers’ potential to
view of the competitive conditions and
have been used in the context of exercise market power, and we are
their positions in the relevant markets.
108. Under the DPT, to determine assessing the impact of a merger or unwilling to rely solely on one measure
whether a seller is a pivotal supplier in acquisition on competition. However, as or the other.95 For example, in markets
each of the season/load conditions, noted by the U.S. Department of Justice where utilities retain significant native
sellers should compare the load in the in the context of designing an analysis load obligations, an analysis of available
destination market to the amount of for granting market-based pricing for oil economic capacity may more accurately
pipelines, concentration measures can assess an individual seller’s
90 16 U.S.C. 824b (2000). also be informative in assessing whether competitiveness, as well as the overall
91 Inquiry Concerning the Commission’s Merger a supplier has market power in the competitiveness of a market, because
Policy Under the Federal Power Act: Policy relevant market. ‘‘The Department and available economic capacity recognizes
Statement, Order No. 592, 61 FR 68,595 (1996), the Commission staff have previously
FERC Stats. & Regs., Regulations Preambles July
the native load obligations of the sellers.
1996-December 2000 ¶ 31,044 (1996),
advocated an HHI threshold of 2,500, On the other hand, in markets where the
reconsideration denied, Order No. 592–A, 62 FR and it would be reasonable for the
33,341 (1997), 79 FERC ¶ 61,321 (1997) (Merger Commission to consider concentration 94 See Comments of the United States Department
Policy Statement); see also Revised Filing in the relevant market below this level of Justice in response to Notice of Inquiry Regarding
Requirements Under Part 33 of the Commission’s Market-Based Ratemaking for Oil Pipelines, Docket
Regulations, Order No. 642, 65 FR 70,983 (2000),
as sufficient to create a rebuttable
No. RM94–1–000 (January 18, 1994).
FERC Stats. & Regs., Regulations Preambles July 95 See, e.g., Tampa Electric Company, 117 FERC
1996-December 2000 ¶ 31,111 (2000), order on 93 The HHI is the sum of the squared market
¶ 61,311 (2006); PacifiCorp, 115 FERC ¶ 61,349
reh’g, Order No. 642–A, 66 FR 16,121 (2001), 94 shares. For example, in a market with five equal (2005); Tucson Electric Power Company, 116 FERC
FERC ¶ 61,289 (2001). size firms, each would have a 20 percent market ¶ 61,051(2006); Duke Power, a Division of Duke
92 Super-peak, peak, and off-peak, for Winter, share. For that market, HHI = (20) 2 + (20) 2 + (20) 2 Energy Corporation, 111 FERC ¶ 61,506 (2005); and
Shoulder and Summer periods and an additional + (20) 2 + (20) 2 = 400 + 400 + 400 + 400 + 400 = Kansas City Power and Light Company, 113 FERC
highest super-peak for the Summer. 2,000. ¶ 61,074 (2005).
sellers have been predominantly the state of the market and the ability of more balanced review afforded by a
relieved of their native load obligations, sellers to alter prices within it. generic rulemaking. ELCON states that
an analysis of economic capacity may 115. We also reject Southern’s its concern is that the practices unduly
more accurately reflect market argument that the DPT analysis is shift the burden of proof to potential
conditions and a seller’s relative size in unnecessary because of the victims of market power abuse. This
the market. Commission’s enhanced civil penalty concern would only be academic,
113. Likewise, we find the HHI authority and continuing policing of ELCON continues, if the market
market concentration measure to be sellers with market-based rate structures were truly competitive and
useful in assessing the market power of authorization. While those are critical there were strong structural protections
individual sellers, and it complements components of our program to ensure against the exercise of market power.
the market share and pivotal supplier just and reasonable market-based rates, But the hybrid nature of most regional
measures in the DPT stage of the they are not a substitute for an analysis markets, combined with inadequate
analysis. Furthermore, no commenter of the potential market power of sellers infrastructure, creates an environment
has presented a compelling argument seeking market-based rate authority. In that discourages trust in market
for why the Commission should lower addition, Southern’s argument that rules outcomes.99
or raise the HHI threshold in the DPT. against market manipulation will thwart 119. Some commenters urge the
Accordingly, we will retain 2,500 as the all exercises of market power is Commission to allow different product
appropriate threshold for passing this speculative. definitions, e.g., short-term power and
part of the DPT for the reasons we stated 116. We will not change the DPT to long-term power, in the calculation of
in the April 14 Order.96 We will not take into account competitive the indicative screens and the DPT. For
adopt the suggestion to lower the market alternatives available for wholesale example, NRECA argues that the Final
share threshold to 15 percent from 20 customers as proposed by a commenter. Rule must require sellers to identify the
percent, for the reasons set forth above, We stated above our reasons for relevant product markets, including the
in the NOPR and July 8 Order.97 rejecting use of a contestable load distinct products for which they seek
Commenters have presented no analysis in the indicative screens, and market-based rate authority, and
compelling reason to do so, and in our we reject it for the DPT for the same demonstrate that they lack market
experience since the April 14 Order, we reasons. power in those product markets.100 The
have not seen cases where the HHI was 117. AARP and State AGs and Montana Counsel argues that the
over 2,500 and the seller’s market share Advocates argue that the Commission Commission’s screens and DPT analysis
was between 15 and 20 percent, which should consider evidence from actual models measure market power during
would be the type of situation about market data in determining whether certain test days for current time
which APPA/TAPS and others are market power exists rather than rely on periods,101 and that capacity that is
concerned. Accordingly, such a reform the results of the DPT to determine available to make short-term energy
would not likely result in additional whether a seller has market power. We sales may not be available for long-term,
findings of market power. agree that actual market data is an firm power sales. Thus, the Montana
114. State AGs and Advocates claim important part of a determination of Counsel asserts that the Commission
that the DPT is not an adequate tool for whether a seller may have market may not rely exclusively on short-term
assessing market power because it will power. In this regard, we look at actual or spot markets to measure whether
not discern bidding strategies of market data, both in the initial analysis there are competitive long-term markets.
120. Other commenters remain
different suppliers. However, State AGs and in ongoing monitoring of the EQR
divided over whether long-term power
and Advocates miss the point of the data. As the Commission stated in the
markets should be included in the
analysis: by determining whether a April 14 Order, ‘‘[a]s with our initial market power analysis. PPL urges that
seller has capacity that can compete in screens, applicants and intervenors may long-term markets should not be
the market under various season and present evidence such as historical considered in a market power analysis
load conditions, the DPT provides an wholesale sales. Those data could be because of infeasibility and also because
accurate picture of market conditions. used to calculate market shares and it violates the Commission’s precedent
Examining market conditions allows the market concentration and could be used that there is no long-term market power
Commission to determine whether a to refute or support the results of the unless there exist barriers to entry.102 In
seller has market power. The DPT does Delivered Price Test.’’ 98 In addition, as contrast, NRECA and TDU Systems state
this by examining short-term energy part of our ongoing monitoring that long-term markets need to be
markets and, in particular, sellers’ activities, we examine the EQR data in analyzed in the market power analysis
available generation capacity. In an effort to identify whether market because monopolies will probably
addition, absent entry barriers, and a prices may indicate an exercise of persist into the future for many
specific finding of market power, the market power. consumers 103 and these consumers
Commission has said that long-term need protection. TDU Systems suggest
4. Other Products and Models
markets are competitive. With regard to using an installed capacity indicative
ancillary services, as discussed herein, Comments screen for long-term markets.104
the Commission requires market power 118. ELCON expresses concern over 121. State AGs and Advocates and
analyses for those services to support a the entire horizontal market power NASUCA suggest that the Commission
request for market-based rate authority. analysis process: indicative screens, adopt behavioral modeling, such as
Assessing competing suppliers’ bidding followed by DPT or mitigation for those
strategies, ex ante, would not illuminate that fail the indicative screens. ELCON 99 ELCON at 4–5.
100 NRECA at 16–18.
notes that the evolution of these
96 April 14 Order, 107 FERC ¶ 61,018 at P 111 101 Montana Counsel at 5–8.
practices generally occurred in a series 102 PPL reply comments at 2–3 and n.6, citing
(explaining that at less than 2,500 HHI in the
relevant market for all season/load conditions there
of highly contested proceedings, and Exelon Corp., 112 FERC ¶ 61,011 at P 136 (2005).
is little likelihood of coordinated interaction among did not benefit from the broader and 103 NRECA reply comments at 11, TDU Systems
suppliers in a market). reply comments at 5–7.

97 July 8 Order at P 95–97 and NOPR at P 41. 98 April 14 Order, 107 FERC ¶ 61,018 at P 112. 104 TDU Systems reply comments at 9.
game theory, rather than structural 5. Native Load Deduction Commission ultimately allows market-
analysis, because the latter cannot a. Market Share Indicative Screen based rate authorization.108
capture market power behavior.105 128. In addition, APPA/TAPS state
NASUCA suggests that the Commission Commission Proposal that, as well as lacking evidentiary
hold a technical conference to consider 125. To reduce the number of ‘‘false basis, the proposed adjustment is not
behavioral modeling. Duke disagrees positives’’ in the wholesale market share based on sound economic principles.
with NASUCA’s and others’ calls for indicative screen, the Commission APPA/TAPS argue that when the
behavioral models, contending that they proposed in the NOPR to adjust the Commission originally adopted the
are theoretically complex and data- native load proxy for this screen. The native load proxy for the market share
intensive and do not meet the Commission proposed to change the screen, it said the screen should reflect
prerequisite of being simple, easily allowance for the native load deduction ‘‘all of the capacity that is available to
understood and readily verifiable by the under the market share indicative compete in wholesale markets at some
Commission. screen from the minimum native load point during the season.’’ 109 APPA/
peak demand for the season to the TAPS state that now the Commission
Commission Determination proposes to eliminate even more of the
average native load peak demand for the
122. We will not generically alter the season. This change makes the capacity that is available to compete at
indicative screens or the DPT to allow deduction for the market share some point in the season by increasing
different product analyses for short-term indicative screen consistent with the the proxy to the average native load
or long-term power as some commenters deduction allowed under the pivotal peak demand for the season.
suggest. As the Commission has stated supplier indicative screen. 129. APPA/TAPS further argue that
in the past, absent entry barriers, long- adoption of the Commission’s proposal
term capacity markets are inherently Comments would mean that the market-based rate
competitive because new market 126. TDU Systems argue that the screens would make no assessment of
entrants can build alternative generating Commission provides no empirical off-peak periods, even though the
supply. There is no reason to generically evidence supporting this change—i.e., Commission has said that the market
require that the horizontal analysis no evidence of an excessive number of share screen is intended to measure
consider those products that are affected false positives produced by the market power during off-peak times.110
by entry barriers. Instead, we will Commission’s current policy. TDU They state that ‘‘screens should examine
consider intervenors’ arguments in this Systems also state that the Commission market power for the on-peak and off-
regard on a case-by-case basis. does not explain why it believes its peak periods of the different
123. We reject ELCON’s contentions current proxy ‘‘results in too much seasons.’’ 111
regarding the development of our uncommitted capacity attributable to 130. Finally, APPA/TAPS argue that
horizontal market power analysis. While the seller.’’ 106 In particular, TDU consistency across the two screens
the screens and DPT criteria did arise Systems state that the Commission does defeats the purpose of having more than
out of specific cases, there have been not explain what factors it used to one screen. The market share screen is
numerous opportunities in this determine the appropriate level of intended to reflect capacity that could
rulemaking for interested parties to uncommitted capacity to which it compete, including during off-peak
express any concerns and propose compared the current proxy. periods. By contrast, the pivotal
alternatives, including technical 127. APPA/TAPS agree, adding that supplier screen is specifically intended
conferences and numerous rounds of the Commission proposal appears to be to measure market power risks at system
written comments. We believe that this a results-driven effort to eliminate the peak.
rulemaking has given all interested need for some public utilities to submit 131. APPA/TAPS offer that if the
parties ample opportunity to voice any a DPT.107 APPA/TAPS argue that the Commission nonetheless believes some
and all options for revising the screens Commission’s ‘‘false positives’’ consistency is desired it can achieve it
and DPT criteria and proposing justification loses sight of the stakes by using a native load proxy for the
alternatives, and has given us the involved in the market-based rate market share screen based upon the
opportunity to evaluate whether these determination. They state that the price average minimum loads. Such a proxy
tools remain appropriate. We conclude of a false positive associated with the would be consistent with the
that they do. initial screens will be the seller’s Commission’s original intent of a screen
124. Finally, we will not adopt the submission of the DPT. APPA/TAPS that identifies ‘‘all of the capacity that
suggestion by some commenters that argue that that price pales in is available to compete in wholesale
behavioral modeling be used in addition comparison to the unreasonably high markets at some point during the
to, or in place of, the indicative screens prices and market power exercise that season.’’ 112
and the DPT. Although game theory has can result from a false negative. 132. Other commenters generally
been used in laboratory experiments According to APPA/TAPS, it is thus support the Commission’s proposal to
and in theoretical studies where the entirely appropriate for the Commission use seasonal average native load as the
number of players and choices available to take a closer look when a utility fails native load proxy for the market share
to players are limited, we do not the initial screens, even when the indicative screen. Many state that the
consider it a practical approach for the proposed native load proxy is a more
volume of analyses we must perform, 106 TDU
Systems at 13. accurate representation of native load
particularly since a vast amount of 107 APPA/TAPS at 68, citing Acadia Power obligations.113 Several commenters
Partners LLC, 111 F.E.R.C. ¶ 61,239 (2005), and
choices are available and many of those Kansas City Power & Light Co., 111 FERC ¶ 61,395 108 APPA/TAPS at 68–70.
are unobservable. The data gathering (2005), where the applying utilities failed the 109 APPA/TAPS at 69, citing April 14 Order, 107
and analysis burden imposed on sellers market share screen, but passed the pivotal supplier
FERC ¶ 61,018 at P 92.
and the Commission would be overly screen. In both cases, the company opted to submit 110 April 14 Order, 107 FERC ¶ 61,018 at P 72.
a DPT, and after consideration, the Commission
burdensome and impractical. allowed the utilities to retain their market-based
111 APPA/TAPS at 70, citing Kirsch SMA
rate authority. Acadia Power Partners, LLC, 113 Affidavit at 8–9.

105 State AGs and Advocates at 29–30, NASUCA 112 April 14 Order, 107 FERC ¶ 61,018 at P 92.
FERC ¶ 61,073 (2005); Kansas City Power & Light
at 14–15. Co., 113 FERC ¶ 61,074 (2005). 113 See, e.g., Ameren at 3, FirstEnergy at 4–5.
suggest excluding weekends and season, making the native load proxy for peak seasons, because such a proxy
holidays from the proxy native load the market share indicative screen considers peak native load of each day
calculation because these periods are consistent with the native load proxy in each season. Combined with the
not representative of normal load under the pivotal supplier indicative pivotal supplier screen that captures the
hours.114 screen. annual peak conditions, we find that the
133. EEI argues that even with this 136. In this regard, we find that the two screens adequately capture market
proposed change, the generation market share screen should be conditions over the year.
capacity required by a utility to serve its calculated using as accurate a 140. We also reject APPA/TAPS’
native load is still being understated.115 representation of market conditions for argument that consistency across the
It states that utilities are required to each season studied as possible. We find two screens defeats the purpose of
meet the peak demands of their native that using the current native load proxy having more than one screen. The
load customers plus maintain a reserve using the minimum native load level for screens in and of themselves are
margin for reliability purposes. This the season does not provide an accurate inherently different methodologies in
requirement directly determines the picture of the conditions throughout the that the pivotal supplier screen
amount of generation capacity that a season. considers whether the seller’s
supplier can commit to the wholesale 137. We recognize that increasing the generation must run to meet peak load,
opportunity sales market. As such, EEI native load proxy will have the effect of whereas the market share screen looks
argues that the change proposed in the reducing the market share for traditional at the seller’s size relative to other
NOPR is a step in the right direction in utilities with significant native load sellers in the market. We are looking for
terms of more accurately recognizing the obligations, and therefore may result in an assessment of the uncommitted
amount of generation capacity required fewer failures of the wholesale market seasonal capacity available to sellers to
by a utility to meet native load share screen for some sellers. However, compete in wholesale markets and, as
requirements, but still understates the we believe that such a result is justified. stated above, find that the average of the
actual requirements. We are seeking a screen that provides a daily peak loads in a season more
134. EEI contends that from a reasonably accurate picture of a seller’s accurately reflects seller’s commitments.
generation planning perspective, no one position given market conditions across 141. APPA/TAPS suggest that if we
with any expertise in that area doubts seasons, so that we can eliminate those do raise the native load deduction, we
the native load proxy described in the sellers who clearly do not have market only raise it to the average minimum for
April 14 Order underestimates the power and focus our analysis on those the season, rather than the average
amount of capacity that a supplier needs who might. We believe that a native native load peak demand for the season.
to meet native load requirements and load proxy based on the average of peak The intent of the wholesale market
therein both overstates the amount of load conditions is more representative, share screen is to assess market
capacity that the supplier has to and thus more accurate, than a proxy conditions during the season, not only
compete in the wholesale market as well based on extreme (i.e., minimum) peak during off-peak hours. APPA/TAPS is
as the supplier’s market share. As a load conditions. We also believe that misplaced in its assertion that our
result of this overestimation of the basing the native load proxy on the original intent was for the market share
capacity that a supplier would have to average of the peaks will make the screen to focus solely on off-peak
compete in the wholesale market, EEI screens more accurate in eliminating conditions. In the April 14 Order we
contends that non-RTO vertically sellers without market power while stated that ‘‘by using the two screens
integrated utilities have failed the focusing on ones that may have market together, the Commission is able to
market share screen using the current power. measure market power both at peak and
native load proxy when many simply do 138. For sellers that contend that the off-peak times.’’ 117 Our statement
not have market power.116 EEI proposed native load proxy will result simply recognizes that a seller with a
concludes that such a high number of ‘‘e in too many false positives, we note that dominant position in the market could
positives’’ for market power that have under the existing native load proxy, have market power in the off-peak as
occurred using the current proxy clearly fewer than 25 companies have been the well as the peak. Clearly the pivotal
supports the Commission’s proposal to subject of section 206 investigations supplier analysis is designed to assess
move the native load proxy to the since the April 14 Order. For entities market power at peak times, but that
average peak load in the season. that fear this change in native load does not imply that the wholesale
proxy will lead to too many ‘‘false market share screen is designed only to
Commission Determination negatives,’’ (companies with market assess market power in the off-peak
135. We adopt the NOPR proposal to power passing under the indicative period.
change the native load proxy under the screens), we note that intervenors can 142. Finally, we will not exclude
market share indicative screen from the always challenge the presumption of no weekends and holidays from the market
minimum native load peak demand for market power. Moreover, no intervenor share native load proxy. Since we adopt
the season to the average of the daily in this proceeding has pointed to herein the use of an average peak
native load peak demands for the specific companies that have passed the demand for the native load proxy for the
screens but still have market power. market share screen, the exclusion of
114 See, e.g., EEI at 17, PG&E at 6–7, Allegheny 139. We reject APPA/TAPS’ argument weekends and holidays would
at 7–8, and Pinnacle at 34, both citing Pinnacle that changing the native load proxy inappropriately skew the results. Use of
West Capital Corp., 109 FERC ¶ 61,295 (2004). would result in the market-based rate an average load addresses the issue of
Several commenters disagree with the suggestion
that weekends and holidays should be excluded
screens making no assessment of off- the variability between unusually high
from the native load proxy, stating that it is peak periods. In fact, the native load or low load days, is more objective, and
unsupported and, moreover, excluding these hours proxy we approve here is based on the easily applied. If weekends and
means that native load proxy ceases to be average. average of the native load daily peaks holidays are excluded, only
TDU Systems reply comments at 8–9, NRECA reply
comments at 16–17.
which also include low load days. The approximately 70 percent of total load
115 EEI at 24–25; see also Puget reply comments use of the average peak demand for the hours would be accounted for. The
at 2. native load proxy provides for an
116 EEI reply comments at 24. assessment of all periods, peak and off- 117 April 14 Order at P 72.
average native load measure that asserts that such a reform would be load requirements is warranted here.
includes weekends and holidays, and relatively easy to implement and would However, wholesale and retail markets
which we adopt, is truly an average of yield much more meaningful results.120 are not so easily separated such that a
all load conditions. 146. NRECA disagrees with clear distinction can be made between
Southern’s proposed modification to the generation serving native load and
b. Pivotal Supplier Indicative Screen
pivotal supplier screen to use actual generation competing for wholesale
Commission Proposal wholesale load, stating Southern load. Most utility generation units are
143. In the NOPR, the Commission provides no evidence that this not exclusively devoted to serving
proposed to retain the pivotal supplier modification would provide a more native load, or selling in wholesale
screen’s native load proxy at its current accurate estimate of the wholesale load markets.’’ 123
level of the average of the daily native than the current approach.121 149. For these reasons we continue to
load peaks during the month in which believe that the average of the native
Commission Determination load peaks in the peak month is a
the annual peak day load occurs.118
147. We retain the average daily peak reasonable proxy for the native load
Comments native load as the native load proxy deductions under this screen. Moreover,
144. Southern states that the pivotal used in the pivotal supplier screen, as we also find that Southern’s proposed
supplier screen is conceptually sound; proposed in the NOPR, and we reject method of estimating the actual
however, the manner of its current Southern’s argument that our method of wholesale load is inappropriate because
implementation reflects a significant computing the native load proxy is it would artificially reduce the seller’s
flaw. In particular, Southern claims that unreasonable. Southern argues that share of that load. This is because
the wholesale load (market size) is because the wholesale demand is Southern’s methodology only deducts
determined by the difference between determined by subtracting the average the seller’s native load peak from the
the control area’s needle peak demand daily peaks in the peak month from a control area peak (not the native load
and the average of the daily peaks in single needle peak, the Commission is peaks of any other sellers in the control
that peak month. Southern argues that it relying on an invalid assumption with area), leaving the seller with a
is not at all clear how or why this regard to the wholesale demand during disproportionately small share of the
mathematical exercise (which in its any relevant period. However, remaining market.
opinion reflects an ‘‘apples and Southern’s claim that our deduction of c. Clarification of Definition of Native
oranges’’ comparison) provides any the average of the daily native load Load
meaningful measure of competitive peaks from the needle peak is a ‘‘mixing
wholesale demand during any relevant of apples and oranges’’ ignores our Commission Proposal
period. reasoning in the April 14 Order: 150. In the NOPR, the Commission
145. For example, Southern conditions in peak periods can provide expressed its belief that there has been
continues, under some circumstances, significant opportunity to exercise market some inconsistency in the way in which
all or a large portion of the wholesale power. As capacity is utilized to meet sellers have reflected native load in
load determined in this fashion could be demand there is less available to sell on the performing both the screens and the
the seller’s own native load. Subtracting margin and often less competition. Only DPT analysis. Because the states are
the average daily peaks in the peak focusing on needle peaks that occur for a under various degrees of retail
single hour and that are only known after the
month from a single needle peak to fact does not give an accurate reflection of restructuring, the definition of native
derive a ‘‘proxy’’ for competitive the competitive dynamics of peak periods. As load customers has lacked precision.
wholesale demand necessarily assumes demand increases during peak periods, Accordingly, the Commission proposed
that all of this difference is unsatisfied buyers and sellers are positioning themselves to clarify that, for the horizontal market
wholesale market demand that is subject in the market with similar but incomplete power analysis, native load can only
to competition. Southern argues that information. Buyers are projecting their include load attributable to native load
this is not a valid assumption and the needs and trying to secure needed power, customers as defined in § 33.3(d)(4)(i) of
while sellers are negotiating to obtain the
Commission has provided no reason to the Commission’s regulations,124 as it
highest price for that power. With increasing
believe that it is. Southern therefore demand, fewer units are available to serve may be revised from time to time.
urges the Commission to abandon this anticipated peak needs and buyers bid to Comments
aspect of the interim pivotal supplier secure dwindling supply load increases. In
analysis and instead use an estimate of addition, buyers must be prepared for the 151. APPA/TAPS support the native
actual wholesale load, rather than contingency that a unit will be forced out and load clarification, without providing
deriving it indirectly through an they will need to purchase in a period of additional explanation. A number of
arithmetic exercise. For example, the even greater scarcity.[122] other commenters discussed the native
seller’s native load peak could be 148. Further, both native load proxies load clarification in the context of
subtracted from the control area peak provide an adequate solution to a defining retail contracts or provider of
load on an ‘‘apples to apples’’ basis (for complicated issue. Resources used to last resort (POLR) load as native load.
example, needle peaks, seasonal peaks, serve native load fluctuate over the PPL Companies request that this
or average daily peaks) to derive, in course of the day and through the clarification not be adopted unless the
Southern’s view, a much better seasons. As the Commission stated in Commission provides further
wholesale load proxy.119 Southern the April 14 Order, ‘‘we recognize that clarification that an entity selling power
not all generation is available all of the to a retail customer under a long-term
118 NOPR at P 44. time to compete in wholesale markets
119 Southern 123 Id.at P 67.
notes that this suggested calculation and that some accounting for native
would still overstate the amount of wholesale load 124 18 CFR 33.3(d)(4)(i) provides: Native load
open to competition because some portion of that commitments are commitments to serve wholesale
wholesale load would undoubtedly be covered with market resources deemed to be competing to serve and retail power customers on whose behalf the
existing supply arrangements. It states that if it were the net wholesale load. potential supplier, by statute, franchise, regulatory
120 Southern at 18–19.
required to net out the amount of wholesale load requirement, or contract, has undertaken an
121 NRECA reply comments at 19–20.
covered by those existing supply arrangements, a obligation to construct and operate its system to
similar amount should be subtracted from the 122 April 14 Order, 107 FERC ¶ 61,018 at P 91. meet their reliable electricity needs.
contract is able to deduct that terms as those utilities.129 Unlike tied to generation owned or controlled
capacity.125 franchised public utilities, IPPs may by the seller and that assign operational
choose to exit the market once the control of such capacity to the buyer.131
contracts they sell power under have The Commission further stated that
152. We will adopt the NOPR expired. However, we remind IPPs that long-term firm load following contracts
proposal that, for the horizontal market POLR contracts with a term of one year may be deducted to the extent that the
power analysis, native load can only or more may be deducted from total seller has included in its total capacity
include load attributable to native load capacity under some circumstances. As a corresponding generating unit or long-
customers as defined in § 33.3(d)(4)(i) of the Commission explained in the July 8 term firm purchase that will be used to
our regulations. We address the Order, ‘‘applicants may deduct ‘load meet the obligation even if such
comments of PPL Companies’ and following’ and ‘provider of last resort’ contracts are not tied to a specific
others below in the ‘‘Other Native Load contracts for terms of one year or more generating unit and do not convey
Concerns’’ section. under certain conditions. Specifically, operational control of the generation.132
we will allow sellers to deduct long- 157. Noting that contracts can confer
d. Other Native Load Concerns term firm load following contracts to the the same rights of control of generation
Comments extent that the seller has included in its or transmission facilities as ownership
total capacity a corresponding of those facilities, the Commission
153. Some commenters suggest generating unit or long-term firm stated that if a seller has control over
alterations to the definition of native purchase contract that will be used to certain capacity such that the seller can
load or to the circumstances when meet the obligation. The seller’s affect the ability of the capacity to reach
contract capacity may be deducted from contractual peak load obligation under the relevant market, then that capacity
total capacity. One commenter the contract should be used as the should be attributed to the seller when
recommends that POLR load be counted capacity adjustment in the pivotal performing the generation market power
as native load.126 Sempra argues that supplier analysis and the seasonal screens. The capacity associated with
generators should be allowed to take baseline demand levels served under contracts that confer operational control
native load deductions for power the contract should be used as the of a given facility to an entity other than
supplied to franchised utilities that adjustments in the market share the owner must be assigned to the entity
divested their generation.127 It argues analysis. The residual capacity will be exercising control over that facility,
that allowing such suppliers to claim considered available for sales in the rather than to the entity that is the legal
native load deductions correctly assigns wholesale spot markets and treated as owner of the facility.133
these obligations to the entities that uncommitted capacity.’’ 130 Also, in 158. In the NOPR, the Commission
actually commit the generation response to PPL Companies, we note stated that in recent years some owners
resources necessary to serve native load that long-term (one year or more) firm have outsourced to third parties
and results in a more accurate contracts that cede control may always pursuant to energy management
assessment of the suppliers’ remaining be deducted from total capacity. agreements the day-to-day activities of
uncommitted capacity. It notes that 155. We will allow IPPs to deduct running and dispatching their
such sales may be for terms of less than short term native load obligations if they generating plants and/or selling output.
one year, and that under the can show that the power sold to the The Commission noted that the
Commission’s policy such suppliers utility was used to meet native load. We agreement may, directly or indirectly,
cannot deduct those commitments as agree with Sempra that allowing such transfer control of the capacity. The
long-term firm sales. Sempra further suppliers to claim native load Commission expressed concern that
points out that franchised utilities do deductions correctly assigns these under such third-party agreements,
not need a one-year or greater obligations to the entities that actually there may be instances where control of
commitment to take a native load commit the generation resources capacity has changed hands, but this
deduction. It concludes that marketers necessary to serve native load and capacity has not been attributed to the
and other suppliers should thus be results in a more accurate assessment of correct seller for the purposes of the
allowed to account for the native load the suppliers’ remaining uncommitted generation market power screens.134
capacity, and that such sales may be for 159. In cases examining whether an
commitments they undertake, regardless
terms of less than one year. Under our entity is a public utility, the
of the term of each underlying
current policy such suppliers cannot Commission has examined the totality
contract.128
deduct those commitments as long-term of the circumstances in evaluating
Commission Determination firm sales, whereas franchised utilities whether the entity effectively has
do not need a one-year or greater control over capacity that it manages.135
154. We will not adopt suggestions commitment to take a native load Likewise, in providing guidance
that sellers receive native load deduction. regarding events that trigger a
deductions for all their POLR contracts requirement to submit a notice of
or for all contracts that serve utilities 6. Control and Commitment change in status, the Commission has
that have divested their generation. Commission Proposal
Even in cases where independent power 131 NOPR at P 46.
producers (IPPs) serve what used to be 156. The Commission noted in the 132 Id.
franchised public utilities’ native load, NOPR that uncommitted capacity is 133 Reporting Requirement for Changes in Status
IPPs do not serve it under the same determined by adding the total capacity for Public Utilities with Market-Based Rate
of generation owned or controlled Authority, Order No. 652, 70 F. R. 8253 (Feb. 18,
through contract and firm purchases 2005), FERC Stats. & Regs., Regulations Preambles
125 PPLCompanies at 14–17. 2001–2005 ¶ 31,175 at P 47, order on reh’g, Order
less, among other things, long-term firm
126 Drs.
Broehm and Fox-Penner at 11–12. No. 652–A, 111 FERC ¶ 61,413 (2005).
127 Sempra reply comments at 4–5. requirements sales that are specifically 134 NOPR at P 48.
128 PSEG Companies in their reply comments also 135 D.E. Shaw Plasma Power, L.L.C., 102 FERC ¶
129 See 18 CFR 33.3(d)(4)(i) for the definition of
make similar arguments about native load that are 61,265 at P 33–36 (2003) (D.E. Shaw); R.W. Beck
noted above in the ‘‘Control and Commitment of native load. Plant Management, Ltd., 109 FERC ¶ 61,315 at P
Generation’’ section. 130 See July 8 Order, 108 FERC ¶ 61,026 at P 66. 15 (2004) (Beck).
indicated that, to determine whether desire to provide greater clarity and point out that generic findings or
control has been acquired, sellers certainty regarding the determination of presumptions would be helpful only if
should examine whether they can affect control.140 In this regard, many the particulars of a contract aligned with
the ability of capacity to reach the commenters express concerns that the factual assumptions underlying a
relevant market. attributing generation capacity to sellers presumption. Otherwise, they state that
160. The Commission asked in the that do not necessarily control that a presumption could produce wrong
NOPR whether, in the interest of generation may result in the seller results.144 APPA/TAPS suggest that any
providing greater certainty and clarity falsely appearing to have market power arrangement that could create
regarding the determination of control, and ultimately result in unnecessary opportunities for sellers to coordinate
it should make generic findings or mitigation. Commenters also express the their behavior with other competitors
create generic presumptions regarding need for the determination of control to should be reported and that as part of
what constitutes control. In particular, be consistent for both the market-based the seller’s assigning control over long-
the Commission sought comment on rate authorizations and the change in term contracts for purposes of the
whether any of the following functions status filings. screens/DPT, the Commission should
should merit a finding or presumption 165. However, most commenters also require a seller to submit the relevant
of control and, if so, on what basis: oppose the Commission’s proposal to contracts with the market-based rate
directing plant outages, fuel establish generic findings or generic application or triennial update and
procurement, plant operations, energy presumptions regarding what identify the contractual provisions that
and capacity sales, and/or credit and constitutes control, arguing that such support the seller’s control
liquidity decisions.136 findings must be made on a case-by-case determinations.145 APPA/TAPS suggest
161. Alternatively, rather than basis. Others suggest a rebuttable that marketing alliances or joint
focusing on these discrete functions, the presumption that control lies with the operating agreements can affect a
Commission asked if it should establish owner unless specific facts indicate seller’s market position and should be
a presumption of control for any entity otherwise. considered in the determination of
that has some discretion over the output i. Fact Specific Determinations control.146
of the plant(s) that it manages. The 169. Powerex argues that clarity is
Commission asked whether such an Comments particularly important as the new
approach would promote greater 166. Various commenters argue for a market manipulation rule makes it
certainty. The Commission also asked, if fact specific determination of control.141 unlawful ‘‘to omit to state a material fact
it adopted such a presumption, how it For example, Alliance Power Marketing, necessary in order to make the
should address instances where a supplier of energy management statements made, in the light of the
discretion over plant output may be services, argues that a case-by-case circumstances under which they were
shared between more than one party.137 approach provides increased certainty made, not misleading.’’ 147 In this
162. The Commission proposed to for generators and asset managers who regard, Powerex urges the development
clarify that, in the event it adopted any relied upon Commission precedent in of a single principle or set of principles
such presumptions, an individual seller developing their current that need to be met to establish control
could rebut the presumption of control arrangements.142 over an asset. Powerex argues that the
on the basis of its particular facts and 167. Several commenters state that development of such principles will
circumstances. In addition, the they have some sympathy with the help take the guesswork out of
Commission proposed to clarify that an Commission’s desire to provide compliance and provide greater
entity that controls generation from certainty and clarity in this area, certainty for the market, as compared to
which jurisdictional power sales are however, they do not agree that there a laundry list of possible contract types.
made is required to have a rate on file should be generic presumptions Powerex states that the control principle
with the Commission. If the rate regarding the indicia of control. One should focus on physical output as
authority sought is market-based rate commenter argues that details of each opposed to financial terms, since it is
authority, then that entity is subject to contract vary, depending upon parties physical output that addresses the
the same conditions and requirements and circumstances involved as well as Commission’s physical withholding
as any other like seller.138 on conditions in the market place, and concerns and relates to the agency’s
163. The intent of the Commission’s therefore it must be reviewed and market screens.148
proposals was to provide greater evaluated with care.143 This commenter 170. EEI, EPSA, and Reliant argue that
certainty and clarity as to the treatment suggests that an individual seller should the Commission should continue to look
of capacity that is subject to energy be obligated to submit its contracts to at the totality of circumstances and
management agreements and the Commission for review, and allowed attach the presumption of control when
outsourcing of functions so that the to present its case on the basis of its an entity can affect the ability of
capacity is properly reported (and particular facts and circumstances. capacity to reach the market.149
studied) and to make clear that any 168. Similarly, APPA/TAPS believe 171. NYISO states that based on its
entity to which control is attributed that the Commission is correct to assign experience in the administration of bid-
must receive the necessary capacity to a seller for purposes of based markets, what matters in the
authorizations under the FPA in order running the screens/DPT; however, they control of a plant is the ability to
to provide jurisdictional services.139 determine or significantly influence (a)
140 See, e.g., Constellation at 18; EEI reply
a. Presumption of Control comments at 25; Financial Companies at 4;
144 APPA/TAPS at 76.
145 Id.APPA/TAPS further note that
164. As an initial matter, most FirstEnergy at 5; Pinnacle at 4; Powerex at 7; SCE
at 2. confidentiality concerns can be addressed with
commenters support the Commission’s appropriate protective orders.
141 See, e.g., Constellation at 18; Duke at 24; EPSA

146 APPA/TAPS at 77 and 89.
at 38; PPL at 9 and reply comments at 11; APPA/
136 NOPR at P 49. TAPS at 76. 147 Powerex at 7 (quoting 18 CFR 1c.2(a)(2)).
137 Id. 142 Alliance Power Marketing reply comments at 148 Powerex at 8.
138 Id. at P 50. 7. 149 See, e.g., EEI at 19; EPSA at 37–38; Reliant at
139 Id. 143 Drs. Broehm and Fox-Penner at 6–7. 5–6; SoCal Edison at 9.
The levels of the bids from the plant, the seller can affect the ability of the contractual arrangement transfers
and (b) the level of output from the capacity to reach the relevant market, control and to identify the party or
plant. Accordingly, the Commission then that capacity should be attributed parties it believes controls the
should focus directly on these critical to the seller when performing the generation facility. Nevertheless, the
facts, rather than creating presumptions generation market power screens.154 Commission retains the right at the
based on indirect indicia of an ability to 175. Though we note the widespread Commission’s discretion to request the
control these key competitive support among commenters for the seller to submit a copy of the underlying
parameters. NYISO claims that plant Commission’s effort to provide greater agreement(s) and any relevant
engineering or technical operations may clarity and certainty regarding the supporting documentation.
be outsourced without conferring an determination of control, there are
ii. Rebuttable Presumption Regarding
ability to control price or output, so that differing points of view as to what
Ownership
the outsourcing is not of particular circumstances or combination of
competitive significance. If, however, an circumstances convey control. These Comments
entity could determine or significantly circumstances vary depending on the 178. MidAmerican argues that the
influence bids or output, then it would attributes of the contract, the market and Commission should adopt a
be reasonable for the Commission to the market participants. Thus, we presumption of control based on
place a burden on that entity to conclude that it would be inappropriate physical ownership of the generation (as
demonstrate that it is not in a position to make a generic finding or generic adjusted for long-term sales or purchase
to benefit from a possible exercise of presumption of control, but rather that power agreements). MidAmerican states
market power. NYISO claims that if it is appropriate to continue making our that it is physical ownership that
more than one party is in a position to determinations of control on a fact- typically determines which entity
exercise control over bids or output, specific basis. controls the output of the generation
then both such parties should have the 176. We agree with commenters such and determines its ability to reach
burden of rebutting this presumption. as Powerex and Westar that the relevant markets. While many entities
NASUCA concurs.150 Because of the Commission should rely on a set of may have partial control over a unit’s
fact-specific nature of these issues, the principles or guidelines to determine output, it is the owner that is most
NYISO endorses the Commission’s what constitutes control. This has been likely to affect market power.156
proposal to allow individual sellers to our historical approach and we find no 179. Morgan Stanley states that as a
rebut the presumption on the basis of compelling reason to modify our general rule, when assessing market
their particular facts and approach at this time. Accordingly, as power, the Commission should
circumstances.151 suggested by EEI, EPSA and others, we specifically adopt a rebuttable
172. Westar argues determinations of will consider the totality of presumption that the entity that
control over generating plants are circumstances and attach the owns 157 the generation asset controls
essential elements of the negotiated risk presumption of control when an entity the generation capacity.158 This
sharing arrangement in virtually every can affect the ability of capacity to reach presumption would shift if the asset
energy management contract and that the market. Our guiding principle is that owner relinquishes to a third-party the
the Commission should not change its an entity controls the facilities when it final decision-making authority over
precedent absent clear evidence of controls the decision-making over sales whether a unit runs (i.e., if the third-
market uncertainty or a finding that the of electric energy, including discretion
established guidelines are as to how and when power generated by 156 MidAmerican at 4 and 6–7.
inappropriate.152 these facilities will be sold.155 157 Morgan Stanley states that consistent with
173. Southern suggests that the 177. With regard to suggestions that Commission precedent, the generation owner
approach taken in Order No. 652, where we require all relevant contracts to be would not include entities that have a ‘‘passive’’
the Commission provided an illustrative filed for review and determination by
ownership interest where, due to the nature of the
list of contracts and arrangements that interest, the interest holder does not have the right
the Commission as to which entity or ability to direct, manage, or control the day-to-
involve changes of control, is controls a particular asset (e.g., with an day operations of jurisdictional facilities. Citing
reasonable.153 initial application, updated market D.E. Shaw, 102 FERC ¶ 61,265, at 61,823 (2003)
(noting that passive owners may possess certain
Commission Determination power analysis, or change in status consent or veto rights over fundamental business
filing), we will not adopt this decisions in order to preserve their financial
174. As discussed in the sections that
follow, the Commission concludes that suggestion. Under section 205 of the investment, including, but not limited to, the right
FPA, the Commission may require any to grant or withhold consent regarding: (1) Material
the determination of control is amendments to an LLC agreement under certain,
appropriately based on a review of the contracts that affect or relate to specified circumstances; (2) issuance of new
totality of circumstances on a fact- jurisdictional rates or services to be interests senior to the then-existing member
specific basis. No single factor or factors filed. However, the Commission uses a interests in an LLC entity; (3) adoption of a new
rule of reason with respect to the scope LLC agreement (or other operative or constituent
necessarily results in control. The documents) in connection with mergers,
electric industry remains a dynamic, of contracts that must be filed and does consolidations, combinations, or conversions in
developing industry, and no bright-line not require as a matter of routine that all certain instances; (4) appointment of a liquidator
standard will encompass all relevant such contracts be submitted to the (but only if the managing member of the LLC does
Commission for review. Our historical not appoint one); and (5) assignment of investment
factors and possibilities that may occur advisory contracts under certain circumstances);
now or in the future. If a seller has practice has been to place on the filing GridFlorida LLC, 94 FERC ¶ 61,363, at 62,332
control over certain capacity such that party the burden of determining which (2001).
entity controls an asset. As discussed 158 Morgan Stanley would define final control
150 NASUCA reply comments at 15 (quoting below, we will require a seller to make over physical output as resting with the market
participant that, under normal operating conditions,
an affirmative statement as to whether a
NYISO at 6). can override all other entities on the decision of

151 NYISO at 5–6.
whether to dispatch the generation unit or that can
152 See, e.g., Westar at 27–28. 154 NOPR at P 47–48 (citing July 8 Order, 108
otherwise hold an entity accountable for a dispatch
153 Southern at 23 (citing Order No. 652, FERC FERC ¶ 61,026 at P 65.) decision. It submits that such authority typically
Stats. & Regs. Regulations Preambles 2001–2005 ¶ 155 Order No. 652, FERC Stats. & Regs. rests with the generation owner. Morgan Stanley at
31,175 at P 83. Regulations Preambles 2001–2005 ¶ 31,175 at P 18. 4.
party can trump the asset owner’s joint operating committee) and result in transfer control. In these cases, the
dispatch instruction, then the third- unintentional double counting. Pinnacle Commission has stated that control
party has control over whether the also raises a concern that where joint refers to arrangements, contractual or
capacity reaches the market). Morgan plant owners appoint one of the joint otherwise, that confer control of
Stanley states that such final decision- owners to operate the plant, the entire generation or transmission facilities just
making authority would include plant will be attributed to the operator, as effectively as they could through
authority to schedule outages.159 rather than being attributed to each of ownership.167 The capacity associated
180. FirstEnergy proposes that where the joint owners in shares. According to with contracts that confer operational
a generation owner is a public utility Pinnacle, the Final Rule should clarify control to an entity other than the owner
under Part II of the FPA, the that capacity of jointly-owned plants thus must be assigned to the entity
Commission should adopt a rebuttable operated by one of the owners will be exercising control over that facility,
presumption that such owner controls assigned to each joint owner based on rather than to the entity that is the legal
all of the generating capacity that it its percentage interest.163 Pinnacle owner of the facility, when performing
owns.160 FirstEnergy asserts that even states that the current rules under the the generation market power screens.168
where another entity is responsible for interim screens with regard to assigning 185. With regard to FirstEnergy’s
day-to-day operation of a generating generating capacity to an entity appear suggestion that the affected parties make
unit, the generation owner generally to be workable.164 a determination regarding the entity to
will retain managerial discretion over 182. Many other commenters raise whom capacity available in the
the operation of the unit and over the concerns about double counting in cases generating unit will be attributed in
sale of power from that unit into the of shared control.165 For example, with order to avoid any unwarranted double
market.161 regard to shared facilities, FirstEnergy counting in the attribution of control,169
181. A number of commenters argue states that control of the plant should be the Commission agrees that this is a
that jointly-owned plants should be attributed to the entity that is deemed to constructive and appropriate approach.
assigned based on percentage of own the energy supplied from the plant. However, although we wish to avoid
ownership.162 For example, Pinnacle FirstEnergy offers that, if circumstances double counting as a general matter, the
states that, in the Southwest region, the arise in which discretion over plant Commission will not rule out the
joint ownership of base-load generating output is shared among more than one possibility of double counting in
plants is the norm, and there is typically party, the Commission should permit circumstances where it is unclear what
one party that has operational control the affected parties to resolve between entity has control. For example, if
over the facility. However, if the themselves the entity to which capacity different parties could control dispatch
Commission refines the criteria for available in the unit will be attributed. decisions under various circumstances,
assigning generation to an entity based FirstEnergy concludes that if the to err on the conservative side, the
on factors such as directing plant Commission adopts a regional approach Commission may attribute generation to
outages, fuel procurement, and plant to updated market power analyses, the more than one seller for the purposes of
operations (or similar factors), there is Commission will be able to monitor the horizontal analysis.
concern that jointly-owned generation those circumstances in which specified 186. To determine whether there are
may be attributed in whole to each of generation capacity is attributed to the contracts transferring control to a seller
the owners if there is joint decision- seeking market-based rate authority,
wrong market participant.166
making on such factors (e.g., if such similar to the requirements for change
decisions are made through a Commission Determination in status filings,170 the Commission will
consortium of utilities forming a plant’s 183. With regard to the suggestion
167 Citizens Power and Light Corp., 48 FERC
that we adopt a rebuttable presumption
159 See also Financial Companies at 6. ¶ 61,210 at 61,777 (1989). See also Bechtel Power
160 FirstEnergy similarly argues that there should
that the owner of the facility controls Corp., 60 FERC ¶ 61,156 (1992) (finding that an
be a rebuttable presumption that generation the facility, our historical approach has entity that was contractually engaged to provide
capacity purchased by an electric utility from a been that the owner of a facility is operation and maintenance services was not an
Qualified Facility (‘‘QF’’) as a result of a mandatory presumed to have control of the facility ‘‘operator’’ of jurisdictional facilities because the
power purchase requirement established pursuant entity did not ‘‘operate’’ the facilities at issue but
to the Public Utility Regulatory Policies Act
unless such control has been transferred rather, in essence, was functioning merely as the
(PURPA), 16 U.S.C. 824a–3(a), will be attributed to to another party by virtue of a owner’s agent with respect to the operation of the
the seller rather than the purchaser. FirstEnergy contractual agreement. We will adopt jurisdictional facilities); D.E. Shaw, 102 FERC
argues that in many cases, the purchaser has little, that approach. Accordingly, while we ¶ 61,265 at P 33–36 (finding that a power marketer’s
if any, discretion over the dispatch of such units or ‘‘investment adviser’’ affiliate was a public utility
the price at which energy is purchased.
do not specifically adopt a rebuttable where it had sole discretion to determine the trades
161 In its reply comments, PPL disagrees stating presumption that the owners control the to be entered into by the power marketer, as well
that, in assessing the entity that should be deemed facility, we will continue our practice of as the power to execute the contracts, and therefore
to control capacity, whether assessing a contract to assigning control to the owner absent a operated jurisdictional facilities rather than acted as
sell capacity or an asset management contract, the merely an agent of the owner); R.W. Beck, 109 FERC
contractual agreement transferring such ¶ 61,315 at P 15 (finding R.W. Beck Plant
Commission should ask which party can benefit
from an exercise of market power with regard to the control. Management, Ltd. (Beck) was a public utility
supply at issue. PPL asserts that the flaw in 184. We note that the Commission has subject to the FPA in connection with its activities
FirstEnergy’s proposal is that when a firm developed precedent regarding the as manager of public utility Central Mississippi
obligation to sell power is in effect, the seller Generating Company, LLC because Beck effectively
contractual arrangements that can governed the physical operation of certain
cannot benefit from exercising market power with
regard to the MWs sold pursuant to that firm jurisdictional transmission and interconnection
163 Pinnacle at 4–5. See also MidAmerican at 6– facilities and served as the decision-maker in
obligation. Likewise, a buyer that can count on
delivery of firm power is the ultimate decision- 7. determining sales of wholesale power).
164 EEI agrees that in such a situation, if both 168 NOPR at P 47–48 (citing July 8 Order, 108
maker as to its resale. The seller will have to buy
replacement power (at the prevailing market rate) owners have input on how and where the capacity FERC ¶ 61,026 at P 65).
if its expected source is not available, and therefore is sold, then the asset should be allocated based on 169 FirstEnergy at 7.
cannot benefit from withholding that amount of ownership percentages. EEI at 20. 170 See Calpine Energy Services, L.P., 113 FERC
power. Thus such an approach would overstate one 165 See, e.g., Alliance Power Marketing reply
¶ 61,158 at P 13 (2005) (sellers making a change in
counter party’s controlled capacity and understate comments at 8–9; Constellation at 6; MidAmerican status filing to report an energy management
the other’s. PPL reply comments at 11–13. at 6; PG&E at 8. agreement are required to make an affirmative
162 See, e.g., Duke at 25. 166 FirstEnergy at 7–8. statement in their filing as to whether the agreement
require sellers when filing an assets for which they have control, or those that do not meet the legal
application for market-based rate relinquished control, through contract. definition of agents, suggesting that a
authority or an updated market power market facilitator meeting the criteria of
iii. Energy Management Agreements
analysis, to make an affirmative an agent should be exempt from
statement as to whether any contractual Comments attribution of control. The agent criteria
arrangements result in the transfer of 190. Most commenters state that identified by Alliance Power Marketing
control of any assets, including whether energy management agreements and the are: (1) The entity holds legal indicia of
the seller is conferring control to functions listed in the NOPR (directing an agent’s role; (2) the entity is neither
another entity or obtaining control of plant outages, fuel procurement, plant a market participant nor an affiliate of
another entity’s assets. Moreover, in operations, energy and capacity sales, a market participant; (3) the entity has
addition to requiring such affirmative and/or credit and liquidity decisions) limited, if any, financial stake in power
statements as to whether any should not be presumed to convey market outcomes; and (4) the entity is
contractual arrangements result in the control. Financial Companies state that subject to supervision or control in its
transfer of control of any assets,171 the a generic presumption of control by activities on behalf of its principals.177
Commission will require sellers, when energy managers will ‘‘chill a seller’s Alliance Power Marketing submits that
filing an application for market-based willingness to provide energy agents do not control generation if they
rates, an updated market power are acting on behalf of their clients, do
management services.’’ 172 Others
analysis, or a required change in status not assume the risk of transactions, and
suggest that the Commission should not
report with regard to generation, to never take title to power. Constellation
adopt such a presumption and, in the
specify the party or parties they believe notes that the Commission has
alternative, should consider the specific
has control of the generation facility and previously recognized that an agent who
aspects of an agreement. Additionally,
to what extent each party holds control. is acting subject to the direction of the
some commenters request clarification
187. We understand that affected owner should be not found to have
on contract terms that are widely used
parties may hold differing views as to control of a facility.178
in energy management agreements and 195. Financial Companies disagree
the extent to which control is held by may or may not convey control.
the parties. Accordingly, we also will with Alliance Power Marketing’s
191. Sempra and financial entities differentiation. They caution the
require that a seller making such an argue that the Commission should not
affirmative statement seek a ‘‘letter of Commission about imposing overly
adopt a presumption that energy restrictive limitations on which entities
concurrence’’ from other affected parties management agreements confer control
identifying the degree to which each qualify as agents or independent
over generating capacity.173 They state contractors and recommend that the
party controls a facility and submit that energy management and
these letters with its filing. Absent Commission reject Alliance Power
comparable agreements do not convey Marketing’s proposal and suggest
agreement between the parties involved, unlimited discretion and should not instead that ultimate decision-making
or where the Commission has additional shift the presumption of control away authority is most relevant whether or
concerns despite such agreement, the from the entity that has final authority not an agent is or is not a market
Commission will request additional to dispatch the physical output of the participant.179
information which may include, but not plant. 196. In contrast, NASUCA submits
be limited to, any applicable contract so 192. Constellation agrees that the that the Commission should presume
that we can make a determination as to Commission should focus on whether that energy management agreements
which seller or sellers have control. an energy manager may make decisions convey control when energy managers
188. With regard to Pinnacle’s about physical operation without final can control generation output or the
concern regarding joint plant owners authority from a plant owner.174 price or quantity of service offered.180
appointing one of the joint owners to 193. Westar expresses concerns that Even more specifically, NASUCA
operate the plant, we reserve judgment the NOPR’s invitation to consider recommends that the Commission reject
as a general matter. However, we ultimate control to reside with any formulations that would cloak market
understand that there may be situations entity that has some discretion over the power of energy managers who control
where a jointly-owned generation output of a plant would invite confusion or affect electricity pricing, or the
facility is operated by one of the joint- and undercut the Commission’s pricing of critical cost components such
owners for the benefit of and on behalf declared objective to provide greater as fuel. Instead the Commission should
of all of the joint-owners. Under these certainty and clarity in this area.175 adopt a rule that at a minimum
circumstances, it may be reasonable to Alliance Power Marketing also encompasses the exercise of control
allocate capacity based on ownership expresses concern that a presumption over prices, bids, or output, including
percentages. Such a determination that some discretion constitutes control the ability to affect the cost of fuel and
should be made on a case-specific basis. will discourage innovation in the other inputs to generation.181
189. We remind sellers that in market, particularly with regard to
performing the horizontal market power Commission Determination
option contracts and third-party
analysis all capacity owned or arrangements.176 197. After careful consideration of the
controlled by the seller must be 194. Alliance Power Marketing comments, the Commission will not
accounted for. In this regard, we expect differentiates between asset/energy adopt a presumption of control
that sellers, in performing such market managers acting purely as agents and regarding energy management
power analyses, will clearly identify all agreements or the functions outlined in
172 Financial
Companies at 9.
173 Sempra 177 Id. at 10–11.
at issue transfers control of any assets and whether at 12–13; Morgan Stanley at 5–6;
the agreement results in any material effect on the Financial Companies at 7–8 and reply comments at 178 Constellation at 20 (citing Bechtel Power
conditions that the Commission relied upon in the 3–5. Corp., 60 FERC ¶ 61,156 at 61,572 (1992)).
174 Constellation at 18. 179 Financial Companies reply comments at 3–4.
grant of their market-based rate authority).
171 Such a statement should include contracts that 175 Westar at 28. 180 NASUCA reply comments at 13 (citing NYISO
transfer control to another party as well as contracts 176 Alliance Power Marketing reply comments at at 6).
that transfer control to the seller. 8–9. 181 Id. at 15.
the NOPR.182 We agree with NOPR. In particular, EEI argues that an approach will be more effective than
commenters that energy management establishing presumptions for these establishing presumptions based on
and comparable agreements do not individual functions would be difficult, individual functions, as various factors
necessarily convey unlimited discretion because often it would be a combination may intersect or combine to provide this
and control away from the entity that of various functions that would result in control. Relevant factors include
owns the plant. In this regard, as noted the ability to affect bringing the capacity authority over the use or provision of
above, it is the totality of the to market.185 fuel to the plant.187
circumstances that will determine 202. Duke believes that the 204. PPL expresses concern that any
which entity controls a specific asset. Commission should avoid simplistic arrangement in which a gas supplier
198. Further, the Commission will not presumptions as to what constitutes could receive the output of a gas-fired
adopt a presumption of control in the control over resources for market power generator as payment for the gas it
case of shared discretion over the output purposes and how and when specific supplies to the generator, if it is the only
and physical operation of a plant. The generation should be imputed to market supplier to that generator, may convey
Commission is aware that varying participants for purposes of the screen control. PG&E appears to agree, stating
degrees of discretion may be shared in analysis. Duke argues that in a market that authority over the use or provision
some cases, and believes that the power context, such determinations of fuel to the plant is a relevant factor
determination of control in these cases should be fact-driven and based on a with regard to control.188
is best addressed on a fact-specific basis. pragmatic assessment of which party 205. EEI also appears to agree that fuel
As noted by Sempra, there may always has the ability to withhold a specific ownership may result in a change in
be an element of discretion associated amount of capacity from the market. For control of plant output when, in the
with the implementation of instructions example, the Commission should not context of what triggers a change in
or guidelines included in energy automatically impute control over status filing, it states: ‘‘The Commission
management agreements.183 capacity based solely on contract should continue the current policy that
199. With regard to Alliance Power language that appears to convey some changes in the ownership of fuel
Marketing’s differentiation between element of discretion over unit supplies in and of themselves need not
asset/energy managers acting purely as operation to a particular party, be reported. Only if the change in
agents and those that do not meet the notwithstanding the absence of any real ownership of inputs results in a change
legal definition of agents, and world ability for that entity to withhold of control of the output of the plant
suggestion that ‘‘a market facilitator that capacity from the market. Duke should a change in status filing be
meeting the criteria of an agent should states that the Commission should required. If a public utility acquires fuel
be exempt from attribution of control,’’ recognize that the ability to supplies, there is no need to notify the
we find this differentiation in and of economically or physically withhold Commission, unless the business
itself not determinative. Instead, output from the market rests with the structure, like a tolling agreement,
consistent with our conclusion that the party that makes the final determination actually results in discretion over the
determination of control is of whether generation (energy and/or plant output.’’ 189
appropriately based on a review of the capacity) will be offered into the market. 206. Sempra states that the
totality of the circumstances on a fact- Even a purchaser with dispatch rights Commission has generally treated
specific basis such that no single factor may not have the ability to withhold energy management agreements as
or factors necessarily results in control, supply, if the capacity owner has the tolling agreements and requests that the
it is the combination of the rights right to schedule energy when the Commission acknowledge the
conveyed that determine control, not purchaser chooses not to do so. differences between the two.190 APPA/
whether an entity considers itself to be Similarly, a party with a contractual TAPS state that particularly under
an agent and not a market participant. right to capacity (as opposed to energy), tolling arrangements, while the supplier
iv. Specific Functions and Contract even with a call option for energy priced of fuel may not be operating the plant,
Terms at market, does not have operational it controls the plants’ production of
control over energy. Duke states that any energy for sale, thus affecting market
Comments contract in which rights to the energy outcomes.191 Constellation argues that
200. With regard to specific functions ultimately revert to the owner/operator plant operations and sales of output are
and specific contract terms, many or for which energy is available only at functions that may convey control, but
commenters do not believe that a market price leaves control in the notes that the variety of case-specific
functions such as directing plant hands of the owner/operator. According facts limits the benefit of a blanket
outages, fuel procurement, plant to Duke, there should not be a blanket presumption of control.
operations, energy and capacity sales, presumption that certain types of 207. Commenters also request that the
and credit and liquidity merit a commercial arrangements or contractual Commission provide guidance regarding
presumption of control. language imply control in all other contract types and terminology
201. NYISO and FirstEnergy both instances.186
suggest that the functions listed in the 203. PG&E argues that any 187 PG&E at 7.
NOPR may be outsourced without presumptions about control over 188 Id.
conveying ultimate control. According generation should be based on whether 189 EEI at 21.
to EEI, the list of functions described in a seller controls the dispatch of energy 190 Sempra at 11–12. According to Sempra, under
(i.e., can affect the ability of the capacity energy management agreements, energy managers
the NOPR would not provide greater typically sell power according to instructions or
guidance.184 Rather, EEI believes a focus to reach the relevant market). This guidelines provided by the owner, and the energy
on the ability to withhold will be more general presumption should cover all manager is compensated on a fee-basis. Sempra
effective than establishing presumptions types of transactions and business states that in the case of tolling agreements, the
arrangements, rather than trying to tolling party generally has complete discretion over
based on the functions described in the sales of output and assumes risk of sales
address every possible function. Such transactions with the owner typically receiving a
182 NOPR at P 49. flat compensation and retaining authority over
183 Sempra at 13. 185 EEI at 22. when to operate the facility.
184 EEI reply comments at 25. 186 Duke at 24–25. 191 APPA/TAPS at 90.
such as call option contracts (with Commission declines to address such a (including the requirement to
liquidated damages), contracts that specific contractual arrangement demonstrate lack of generation market
allow variance in volume or delivery generically. power by the submission of market
point, QF contracts, RMR contracts, screens as spelled out in the horizontal
b. Requirement for Sellers To Have a
capacity contracts, and load Rate on File market power section of this Final
obligations.192 Rule). If an entity is a public utility and
208. Finally, EEI seeks clarification Comments making jurisdictional sales without
that energy only contracts over 100 MW 212. Alliance Power Marketing having a rate on file, those sales may be
for a term greater than one year that do questions the Commission’s proposal to subject to refund, and the entity may be
not include rights to specific capacity clarify that any entity that controls subject to a civil penalty.198
are one type of contract that does not generation from which jurisdictional 214. In response to Pinnacle, we
transfer control. sales are made is required to have a rate clarify that if an entity has control of a
on file. Alliance Power Marketing jurisdictional facility and that entity is
believes that this proposal appears more making jurisdictional sales, it would be
209. In Order No. 652, the akin to an inquiry than a Proposed a public utility subject to the
Commission provided a non-exclusive, Rulemaking.194 Pinnacle requests jurisdiction of the Commission and
illustrative list of contractual clarification as to whether a non- would be required to have a rate on file
arrangements that are subject to the jurisdictional entity is required to have with the Commission. However, if an
change in status filing requirement. The a rate on file if that entity is the operator entity is specifically exempted from the
list includes agreements that relate to of a facility jointly-owned by Commission’s regulation pursuant to
‘‘operation (including scheduling and jurisdictional and non-jurisdictional FPA section 201(f), it would not be
dispatch), maintenance, fuel supply, entities.195 considered a public utility under the
risk management, and marketing [of FPA and, accordingly, would not be
plant output]. These types of Commission Determination required to have a rate on file.
arrangements have in some cases also 213. With regard to comments
been referred to as energy management concerning the Commission’s statement 7. Relevant Geographic Market
agreements, asset management in the NOPR as to the need for an entity a. Default Relevant Geographic Market
agreements, tolling agreements, and that controls generation from which Commission Proposal
scheduling and dispatching jurisdictional power sales are made to
agreements.’’ 193 The Commission have a rate on file, the Commission is 215. In the NOPR, the Commission
clarifies that the illustrative list reiterating, not modifying, the existing proposed to continue to use its
included in Order No. 652 provides obligation to make rate filings. Under historical approach with regard to the
guidance with regard to new section 205 of the FPA, relevant geographic market. The
applications for market-based rate Commission stated that the default
every public utility shall file with the
authority and updated market power Commission * * * schedules showing all relevant geographic market is the
analyses as well as to change in status rates and charges for any * * * sale subject control area where the generation
filings. to the jurisdiction of the Commission, and owned or controlled by the seller is
210. With respect to requests for the classifications, practices, and regulations physically located and each of the
clarification of whether certain affecting such rates and charges, together control areas directly interconnected to
contractual arrangements transfer with all contracts which in any manner affect that control area (with the exception of
or relate to such rates, charges, a generator interconnecting to a non-
control (such as call option contracts;
classifications, and services.[196]
liquidated damages contracts; contracts affiliate owned or controlled
that allow variance in volume, source, Part II of the FPA defines a public utility transmission system, in which case the
or delivery point; QF contracts; RMR as ‘‘any person who owns or operates relevant market is only the control area
contracts; capacity contracts; and load facilities subject to the jurisdiction of in which the seller is located). The
obligations), for the reasons stated the Commission.’’ 197 Any entity not Commission also proposed to continue
above, the Commission declines to otherwise exempted from the to designate RTOs/ISOs with sufficient
address particular contractual Commission’s regulations that owns or market structure and a single energy
terminology in isolation. The label operates jurisdictional facilities from market in which a seller is located and
placed on a specific contract does not which jurisdictional power sales are is a member as the default relevant
determine whether it conveys control. made is a public utility required to have geographic market. In such
Such determination necessarily must be a rate on file with the Commission, circumstances the Commission would
made on a fact-specific basis. unless the Commission has determined not require sellers to consider the first-
211. Similarly, with regard to EEI’s that such an entity does not in fact have tier markets to such RTOs/ISOs as being
request for clarification that energy-only ‘‘control’’ over the jurisdictional part of the default relevant geographic
contracts over 100 MW for a term facilities sufficient to deem it a public markets. In addition, the Commission
greater than one year that do not include utility (for example, if its ownership is noted in the NOPR that its experience
rights to specific capacity are one type passive, or its operation of facilities is with corporate mergers and acquisitions
of contract that does not transfer as an agent subject to the control of the indicates that the same RTOs/ISOs that
control, for the reasons stated above, the owner of the facilities). For any entity the Commission has identified as
that is a public utility, if its rate meeting the criteria for being considered
192 See, e.g., EEI reply comments at 25; EPSA at authority is market-based, then it is a single market for purposes of
38; Financial Companies reply comments at 7; subject to the conditions of performing the generation market power
FirstEnergy at 6; Reliant at 5; Duke at 25; PG&E at authorization by the Commission screens have, at times, been divided into
7–8; PowerEx at 9–13; PPL at 13; PPL reply

comments at 13; PSEG at 13 and 18; Sempra reply smaller submarkets for study purposes
194 Alliance Power Marketing at 16.
comments at 4; SoCal Edison at 10; Southern
195 Pinnacle at 5.
Company at 23. 198 Vermont Electric Cooperative, Inc., 108 FERC
193 Order No. 652, FERC Stats. & Regs. 196 16 U.S.C. 824d(c).
¶ 61,223 (2004), order on reh’g, 110 FERC ¶ 61,232
Regulations Preamles 2001–2005 ¶ 31,175 at P 83. 197 16 U.S.C. 824(e). (2005).
because frequently binding transmission Commission’s market power analysis. the relevant portion of the RTO/ISO. In
constraints prevent some potential Sempra states that notably, only RTOs such cases, the Commission should give
suppliers from selling into the and ISOs with sufficient market due consideration to any existing
destination market. Therefore, the structure and a single energy market can Commission-approved market
Commission sought comment on its be used as default geographic markets. monitoring and mitigation regime
approach under the market-based rate These attributes allow RTOs, ISOs, and already in place within the RTO/ISO
program of considering the entire their members to adopt mechanisms, that provides for mitigation of the
geographic region under control of the including local markets or mitigation, submarket. If the relevant RTO/ISO does
RTO/ISO, with a sufficient market that address potential concerns about not have in place a mitigation program
structure and a single energy market, as local market power resulting from for an identified submarket, the
the default relevant market. We asked transmission constraints.200 Commission may then consider
whether the Commission should 218. Similarly, EPSA, PG&E, PPL, appropriate submarket-specific
continue its approach of considering the ISO–NE, CAISO and NYISO support use mitigation in connection with granting
entire geographic region as the default of the entire RTO/ISO as the relevant market-based rate authorization.
market for purposes of the indicative geographic market where the RTOs/ISOs 222. On the other side of the issue,
screens but consider RTO/ISO operate a single centralized market and several commenters urge the
submarkets for purposes of the DPT. generally where there are measures for Commission to consider internal
monitoring and oversight.201 transmission constraints and possible
Comments submarkets within RTOs/ISOs. The
219. In addition, EPSA offers that
216. With regard to the RTO/ISO changes to the size of markets can be California Board proposes that the
market, several commenters state that, addressed on a case-by-case basis by Commission permit RTOs to identify
based on all the protections associated sellers or when an intervenor presents submarkets within their control area, as
with structured RTO/ISO markets with specific evidence supporting reduction needed, to help determine possible local
Commission-approved market of the relevant geographic market.202 market power. The California Board
monitoring and mitigation, the PG&E states that in the case of a single states that if the Commission develops
Commission should continue its current control area like CAISO, there is little or approves criteria which sellers may
approach of allowing the entire rationale or basis to determine how to use to expand their geographic market,
geographic region of an RTO/ISO to be subdivide a control area. Where there then the same criteria must be
the default relevant market for the may be intermittent congestion within applicable in RTOs to limit the size of
horizontal market power analysis.199 certain areas, the control area as a whole a geographic market. The New Jersey
They state that retention of this standard has regional planning and monitoring, Board states that intervenors should be
will simplify preparation of market avoiding the need to subdivide. In allowed to present evidence that the
power analyses by sellers within addition, the empirical fact that most relevant geographic market is smaller
qualified RTOs. sellers make no effort to justify an (or larger) than the default RTO/ISO
217. Several commenters as well urge alternate geographic market—whether market and states that evidence of
the Commission not to consider RTO or larger or smaller—supports the control binding transmission constraints is
ISO submarkets. Sempra states that it area as the appropriate measure.203 relevant when examining horizontal
recognizes that RTOs are at times 220. PPL states that if the Commission market power.204
divided into submarkets, such as for were to impose stringent market power 223. State AGs and Advocates state
purposes relating to corporate merger tests based upon temporary that almost any large default geographic
and acquisition analyses, but it submits transmission limitations beyond market will have many transmission-
that the Commission should not generators’ control (e.g., infrequent constrained areas (load pockets) within
consider RTO or ISO submarkets when intra-control area transmission system it and that the Commission must require
conducting a market power analysis. limitations), the Commission could applicants for market-based rate
Sempra states that the use of submarkets make worse an already tenuous authority to do a proper analysis of the
will result in uncertainty, confusion, financial situation for existing degree of market power that is likely to
and increased litigation as to the generators in such areas and continue to be exercised by all sellers, including the
geographic boundaries of the ‘‘right’’ deter new generation investment. applicants, in all relevant load pockets
submarket that should be analyzed. Defining a geographic market smaller or transmission-constrained regions or
According to Sempra, sellers that than a control area may lead to high subregions in which the sellers control
operate in RTO and ISO markets failure rates of the screens. PPL states generation capacity. They state that all
currently know with certainty the that associated loss of market-based rate load pockets must be considered as
relevant geographic market for purposes authority (if that is the remedy imposed appropriate geographic markets
of regulatory obligations such as by the Commission) could precipitate whenever they exist.
reporting relevant changes in status, and 224. APPA/TAPS state that the
economic retirements of those needed
the use of submarkets will eliminate presumption of the RTO footprint as the
generators.
that certainty and will open the door to 221. Finally, Ameren suggests that, for default geographic market must be truly
competing definitions of submarkets. purposes of the DPT, the relevant rebuttable, including rebuttals based
Sempra states that the existence of geographic market should be the upon evidence that the RTO itself treats
internal transmission constraints does applicable RTO/ISO footprint, just as it an area as a separate market.205 APPA/
not justify breaking up RTOs and ISOs is for purposes of the indicative screens, TAPS state that in practice, however,
into submarkets for purposes of the unless the Commission already has the presumption appears to be
found the existence of a submarket in irrebuttable. They argue that if known
199 Wisconsin Electric at 5–7, FirstEnergy at 8–9, load pockets such as WUMS (or, for
PG&E at 8–9, Xcel at 13–14, and Allegheny Energy 200 Sempra example, the Delmarva Peninsula,
Companies at 4–6. In addition, Ameren states that reply comments at 1–3.
the Commission also should consider expanding
201 EPSA at 11–12, PG&E at 8–9, and NYISO at Southwest Connecticut, or the City of
the default geographic region beyond the footprint 1–2.
202 EPSA at 11–12. 204 New Jersey Board at 3–4.
of a single RTO/ISO where contiguous RTOs/ISOs
have a common market (Amerem at 4–5). 203 PG&E at 8–9. 205 APPA/TAPS at 56–63.
San Francisco, among others) do not policy would be to have no ‘‘default’’ states that the Commission should be
rebut the geographic market market criteria, but to have each flexible in designating geographic areas
presumption, the rebuttable applicant for market-based rates to determine market power. The
presumption effectively becomes determine on an analytical basis what Commission should designate
irrebuttable. APPA/TAPS recommend market area makes the most sense for its geographic areas by considering current
that in advance of each region’s market- circumstances based on the actual and reasonably foreseeable regional
based rate review, RTOs should provide transmission constraints that it faces.209 developments, as the Commission
market participants with transmission NRECA states that using individual currently does in merger cases following
studies that reveal where binding control areas or RTOs as the default DOJ/FTC merger guidelines.212
transmission constraints arise so that market for evaluating a transmission Similarly, the Commission should
those data can be used in addressing the provider’s market power fails to account consider the presence or absence of
proper relevant geographic market. In for the binding transmission constraints market power due to continuous
addition, APPA/TAPS state that in the and load pockets that have developed developments of major market events
§ 203 context, the Commission has within those markets.210 (e.g., area outages, congestion due to
correctly found that transmission 228. Morgan Stanley states that it new market developments, and the
constraints lead to distinct geographic supports the Commission’s practice of development of load) that can have
markets, at least when those constraints relying on control areas and RTO/ISO significant impact as inputs in the
are binding. They submit that no regions when assessing market power as market power screening calculation.
reasonable basis exists to distinguish the default markets, but believes the 230. In contrast, EEI disagrees with
between the competitive analyses used Commission may be missing instances those commenters that would require
to establish relevant geographic markets of market power by failing to also the seller in each filing to affirmatively
in the section 203 and the section 205 review known events that can create address with supporting evidence
contexts.206 narrower or broader markets. For whether the geographic market should
225. In response to APPA/TAPS, example, Morgan Stanley states that the default to the control area or RTO/ISO
EPSA states that in cases where the Commission acknowledges that binding area. EEI states that this requirement
Commission denied a seller’s argument transmission constraints and the would defeat the purpose of having
to change its relevant geographic existence of load pockets can cause default areas to expedite and simplify
market, the Commission carefully considerable market power issues. the market-based rate filing process,
considered the positions of parties Therefore, Morgan Stanley asserts that noting that it is more efficient for any
advocating a different market and the Commission should indeed consider affected party to have the right to
simply found their arguments whether a seller may possess the ability challenge the selection of the default
insufficient to warrant a modification to to exercise market power in a portion of market, as exists under the proposed
the market definition.207 EPSA states an otherwise competitive market. To regulations.213
that it cannot be said that a presumption enable the Commission to do so, sellers
should address known constraints in Commission Determination
is irrebuttable simply because the
Commission has, to date, deferred to their description of the relevant 231. The Commission will adopt in
RTO/ISO mitigation mechanisms to this geographic market in their market this Final Rule its current approach
point. power filings, particularly in markets for with regard to the default relevant
226. With regard to non-RTO areas, which they are the control area geographic market, with some
APPA/TAPS states that while the operator.211 modifications. In particular, the
control area provides a reasonable 229. The California Commission states Commission will continue to use a
starting point, the Commission’s that while it agrees that designating a seller’s balancing authority area 214 or
obligation to base its market-based rate relevant geographic area will reduce the RTO/ISO market, as applicable, as
decision on ‘‘empirical proof’’ requires uncertainty to all market participants, the default relevant geographic
reliance on specific facts that designation of a static geographic market.215 However, where the
demonstrate whether the relevant market in a dynamic market may defeat Commission has made a specific finding
geographic market should be the control the purpose of market certainty and may that there is a submarket within an
area, or a smaller or larger area. APPA/ have unintended adverse consequences RTO/ISO, that submarket becomes the
TAPS further state that, for non-RTO over time. For example, with the default relevant geographic market for
areas, the seller should affirmatively implementation of locational marginal sellers located within the submarket for
address whether the geographic market pricing (LMP) in the CAISO control purposes of the market-based rate
should default to the control area or area, there will be many submarket analysis.
whether a smaller or larger area is areas known as local areas. This will 232. With regard to traditional (non-
appropriate, and support that result trigger ‘‘false negatives’’ (i.e., absence of RTO/ISO) markets, our default relevant
with evidence. They add that market power even when there is geographic market under both indicative
intervenors should also be allowed to market power) in a control area analysis. screens will be first, the balancing
introduce evidence regarding the A seller may pass both screens and
question.208 receive market-based rate authority 212 California Commission at 5–6.
227. With regard to both RTO/ISO and when tested against the broader 213 213 EEI reply comments at 26–27.
214 As we discuss fully below, the Commission
non-RTO areas, several other geographic control area, such as the
will adopt the use of ‘‘balancing authority area’’
commenters urge the Commission to entire CAISO control area market. instead of control area. As a result we use hereon
consider changing its existing policy on However, the same seller may not pass the term balancing authority area. In addition, even
the default geographic market. State the screens when tested against a though commenters use the term ‘‘control area’’ we
particular sub-area or local area. will use the term ‘‘balancing authority area’’ in our
AGs and Advocates state that the best
response.
Accordingly, the California Commission 215 In addition, the Commission will continue to
206 APPA/TAPS at 61–62. require sellers located in and a member of an RTO/
207 EPSA 209 State
AGs and Advocates at 44–48.
reply comments at 9–11, citing APPA/ ISO to consider, as part of the relevant market, only
TAPS at 56. 210 NRECA at 12. the relevant RTO/ISO market and not first-tier
208 APPA/TAPS at 53–62. 211 Morgan Stanley at 8. markets to the RTO/ISO.
authority area where the seller is additional sensitivity runs as part of markets for purposes of the market-
physically located,216 and second, the their market power studies to show that based rate analysis. Instead, they should
markets directly interconnected to the some other geographic market should be use as the default geographic market for
seller’s balancing authority area (first- considered as the relevant market in a their market-based rate analysis the
tier balancing authority area particular case. This evidence would be submarkets that the Commission already
markets).217 We also clarify that if a an addition to the required study based has found constitute separate markets in
transmission-owning Federal power on the relevant geographic market as those RTOs/ISOs.
marketing agency (e.g., the Tennessee referred to in this Final Rule. 237. We agree with APPA/TAPS that
Valley Authority, Bonneville Power 234. We do not adopt the suggestion if the Commission makes a specific
Administration) is the home or first-tier by APPA/TAPS that the seller should finding that the relevant geographic
market to the seller, then that seller affirmatively address whether the market is one other than the balancing
must treat that Federal power marketing geographic market should default to the authority area or RTO/ISO geographic
agency’s balancing authority area as a balancing authority area. We believe region, the Commission’s finding should
relevant geographic market and file that EPSA’s argument that such a define the default market going forward.
market power analysis on it just as it requirement would defeat the purpose For example, if the Commission finds
would any other relevant market.218 of having default areas and add that a submarket exists within an RTO,
Under the indicative screens, we will uncertainty into the market is more that submarket becomes the default
consider only those supplies that are persuasive. By defining default geographic market for all sellers that
located in the market being considered geographic markets, we provide the own or control generation capacity
(relevant market) and those in first-tier industry as much certainty as possible within that submarket.
markets to the relevant market. For non- while also providing affected parties the 238. To the extent that the
RTO sellers, we adopt a rebuttable right to challenge the default geographic Commission finds that a submarket
presumption that the seller’s balancing market definition and provide evidence exists within an RTO/ISO, intervenors
authority area and each of its in that regard. or sellers can provide evidence to the
neighboring first-tier balancing 235. With regard to RTO/ISO markets, contrary (i.e., the submarket, like our
authority areas are each relevant we agree with many commenters that other default geographic markets, is
geographic markets. RTOs/ISOs with a sufficient market rebuttable). In addition, if a seller or
233. Although a number of structure and a single energy market intervenor argues that the seller operates
commenters oppose the use of the with Commission-approved market in an RTO/ISO submarket and presents
balancing authority area as the default monitoring and mitigation provide sufficient evidence to support that
geographic market in traditional strong market protections. As a general conclusion, we will consider those
markets, they have submitted no matter, sellers located in and members arguments even if the Commission has
compelling evidence that our historical of the RTO/ISO may consider the not previously found that a submarket
approach is inadequate or insufficient geographic region under the control of exists.
for the typical situation. Indeed, using the RTO/ISO as the default relevant 239. As a general matter, because we
balancing authority areas allows the geographic market for purposes of recognize the arguments raised by
Commission and public to rely on completing their horizontal analyses, commenters that defining default
publicly available data provided for unless the Commission already has geographic markets (whether balancing
balancing authority areas that are found the existence of a submarket. authority area, RTO/ISO footprint or
relevant to the market-based rate 236. Where the Commission has made RTO/ISO submarket) may not be
analysis discussed herein. These data a specific finding that there is a appropriate in all circumstances, on a
are accurate and generally available. We submarket within an RTO/ISO, we case-by-case basis, we will allow sellers
will, however, continue to allow sellers believe that the market-based rate and intervenors to present additional
and intervenors to present evidence on analysis (both indicative screens and sensitivity analyses 223 as part of their
a case-by-case basis to show that some DPT) should consider that submarket as market power analysis to show that
other geographic market should be the default relevant geographic market. some other geographic market should be
considered as the relevant market in a This is consistent with how the considered as the relevant market in a
particular case.219 We clarify that the Commission has treated such particular case. For example, sellers or
seller must provide the Commission submarkets in the merger context. For intervenors could present evidence that
with a study based on the default example, in some merger orders, the the relevant market is broader than a
geographic market, and we will allow Commission has found that PJM–East, particular balancing authority area.
sellers and intervenors to present and Northern PSEG are markets within Sellers and intervenors may also
PJM;220 Southwestern Connecticut provide evidence that because of
216 For applications by sellers with no physical (SWCT) and Connecticut Import internal transmission limitations (e.g.,
generation assets (such as power marketers) that are interface (CT) are separate markets load pockets) the relevant market (or
affiliated with generation asset owning utilities, we within ISO–NE;221 and New York City
will continue to evaluate the affiliate generation markets) is smaller than the balancing
owner’s market power when evaluating whether to
and Long Island are separate markets authority area, RTO/ISO footprint or
grant market-based rate authority to the power within NYISO.222 Accordingly, we RTO/ISO submarket. We believe this is
marketer. conclude that sellers located in these a balanced approach because it
217 Where a generator is interconnecting to a non-
RTO/ISO submarkets should not use the establishes a presumption that the
affiliate owned or controlled transmission system, entire PJM, ISO–NE and NYISO
there is only one relevant market (i.e., the balancing Commission will in most cases rely on
authority area in which the generator is located.). footprints as their relevant geographic default geographic markets, while at the
218 See, e.g., Portland General Electric Co., 111
220 Exelon Corp., 112 FERC ¶ 61,011, reh’g
same time, the Commission will give
FERC ¶ 61,151 at P 7 (2005); Idaho Power Co., 110
sellers and intervenors the opportunity
FERC ¶ 61,219 at n.6, P 10 (2005); Florida Power denied, 113 FERC ¶ 61,299 (2005) (Exelon). We
Corp., 113 FERC ¶ 61,131 at P 17 (2005). note that Exelon later terminated the merger. to argue that the facts of a particular
219 We note that the Commission itself may 221 Wisvest-Connecticut, LLC, 96 FERC ¶ 61,101
explore whether an alternative geographic market is (2001). The parties later withdrew their application 223 These analyses should be in addition to, not
warranted based on the specific facts and under FPA section 203. in lieu of, the analysis based on the default
circumstances of a given case. 222 National Grid plc, 117 FERC ¶ 61,080 (2006). geographic market.
case support the use of some other continue to, provide the opportunity for Connecticut, LLC, the Commission also
geographic area as the relevant market. sellers to rebut the presumption. found two submarkets, SWCT and CT in
240. We also provide, as discussed Moreover, as discussed above, where ISO–NE.226 In National Grid plc, the
further below, guidance regarding the the Commission has made a specific Commission again found two
type of analysis required to rebut the finding that there is a submarket within submarkets, New York City and Long
default geographic markets including an RTO, that submarket (not the RTO Island, in NYISO.227 These RTO/ISO
default markets for balancing authority footprint) becomes the default relevant submarkets will be the default
areas, RTO/ISO markets, and RTO/ISO geographic market for sellers located geographic markets for purposes of the
submarkets. within the submarket for purposes of market-based rate analysis.
241. In this regard, sellers can the market-based rate analysis.
244. In this proceeding, we have b. NERC’s Balancing Authority Area and
incorporate the mitigation they are
considered expanding the default Default Geographic Area
subject to in RTO/ISO markets or RTO/
ISO submarkets with Commission- geographic region of a single RTO/ISO Commission Proposal
approved market monitoring and where contiguous RTOs/ISOs may have 247. In the NOPR, the Commission
mitigation as part of their market power a common market as suggested by noted that the North American Electric
analysis. For example, if a market power Ameren and find that there is Reliability Corporation (NERC) no
analysis shows that a seller has local insufficient support to make a generic longer uses the designation of control
market power, the seller may point to finding that any contiguous RTOs/ISOs area since it approved the Reliability
RTO/ISO mitigation rules as evidence form a single geographic market. Functional Model (Functional Model).
that this market power has been 245. With regard to the California The Commission sought comment as to
adequately mitigated. We believe the Board’s proposal that the Commission whether or not the adoption of the
added protections provided in permit RTOs to identify submarkets NERC Functional Model should change
structured markets with market within their balancing authority area, as the criteria for specifying the default
monitoring and mitigation generally needed to help determine possible local relevant geographic market, and if so, in
result in a market where prices are market power, we agree that this is an what way it should be specified and
transparent and attempts to exercise of appropriate approach. However, we how readily available the relevant data
market power will be sufficiently note that this is neither a new nor a is.
mitigated. novel approach. The Commission has
historically considered the views of Comments
242. With respect to market
concentration resulting within RTO/ISO RTOs/ISOs in this regard and will 248. Several commenters state that
submarkets, we will continue to continue to do so. We note, however, since NERC no longer uses control area
consider existing RTO mitigation. The that to the extent RTOs/ISOs believe designations, and its Functional Model
Commission will consider an existing there is a market power issue within refers to ‘‘balancing authority areas,’’ the
Commission-approved market their RTO/ISO, they should notify the Commission should modify slightly its
monitoring and mitigation regime Commission promptly and not wait for approach to default geographic markets
already in place within the RTO/ISO an application by an entity seeking by simply replacing the term ‘‘control
that provides for mitigation of the market-based rate authority or a current area’’ with ‘‘balancing authority area.’’
submarket. For example, New York City seller submitting an updated market They state that such a change will align
will be treated as a separate default power analysis. the Commission’s rules with NERC’s
246. Finally, to avoid any possible Functional Model, thus helping to avoid
market for market-based rate study
uncertainty or confusion about the RTO/ confusion.228
purposes. However, because it has
ISO submarket, we identify RTO/ISO 249. NYISO states that the control
existing In-City mitigation, we will
submarkets that the Commission to date area is a valid starting point for the
assess whether any concerns over has found to constitute a separate
market power are already mitigated. We analysis of market-based rates. NYISO
market. The Commission found states that under the most recent version
agree with Ameren that if the relevant submarkets in the PJM market, PJM East
RTO/ISO does not have in place a of the Reliability Functional Model
and Northern PSEG.225 In Wisvest- posted on the NERC Web site (version
mitigation program for an identified
submarket, the Commission may then 3, April 21, 2006), the ‘‘Balancing’’ and
‘‘[W]ithout specific evidence to the contrary, we are ‘‘Market Operations’’ functions appear
consider whether and, if so, to what satisfied that ISO–NE has Commission-approved
extent appropriate submarket-specific tariff provisions in place to address instances where
to correlate to the traditional notion of
mitigation is needed. transmission constraints would otherwise allow
generators to exercise local market power and that 226 The Commission stated that ‘‘clearly, during
243. In response to APPA/TAPS’ these rules and procedures will apply in the periods when transmission becomes so constrained
statement that in practice the NEMA/Boston zone within ISO–NE.’’); Wisconsin such that no additional imports from outside the
presumption of the RTO footprint as the Electric Power Co., 110 FERC ¶ 61,340 at P 19–20, region are possible and generators located inside
default geographic market appears to be reh’g denied, 111 FERC ¶ 61,361 at P 13–15 (2005) the region are the only suppliers that can sell inside
(rejecting challenge to use of Midwest ISO market the region, the region should be defined as a
irrebuttable, this is simply not the case. as the relevant geographic market on basis that local separate relevant geographic market. Such is the
The Commission carefully considers the market power mitigation measures exist: ‘‘The case with SWCT and CT in this proceeding.’’ SWCT
positions and evidence submitted by tighter thresholds in NCAs such as WUMS in the was defined as the area inside the Southern
Midwest ISO, and the resulting tighter mitigation of Connecticut Import interface, and CT was defined
parties advocating a different geographic bids, are local market power mitigation measures’’ as the area inside the Connecticut Import interface,
market. Although we may have found and should adequately address specific concerns which is essentially contiguous with the state of
that arguments made in a particular case regarding the possibility that Wisconsin Electric can Connecticut itself. Wisvest-Connecticut, LLC, 96
were unconvincing, or that market exercise market power in the WUMS region). FERC ¶ 61,101 at 61,401–02.
Accord AEP Power Marketing, Inc., 109 FERC ¶ 227 In National Grid plc, 117 FERC ¶ 61,080 at P
power was adequately mitigated by 61,276 (2004), reh’g denied, 112 FERC ¶ 61,320 at 26, the Commission used Sellers’ HHI numbers for
existing mitigation,224 we did, and will
P 23–25 (2005), aff’d, Industrial Energy Users-Ohio two of the NYISO submarkets (New York City and
v. FERC, No. 05–1435 (D.C. Cir. Feb. 16, 2007) (use Long Island) to assess horizontal market power, and
224 See, e.g., Mystic I, LLC, 111 FERC ¶ 61,378 at of PJM footprint as relevant geographic market; found screen failures in both submarkets under the
P 14–19 (2005) (rejecting challenge to use of ISO– noting existence of Commission–approved market economic capacity analysis. Id. at P 31.
NE market as the relevant geographic market on the monitoring and mitigation). 228 E.ON U.S. at 19, PNM/Tucson at 21, and
basis that local market power mitigation is in place: 225See Exelon, 112 FERC ¶ 61,011 at P 122. Indianapolis P&L at 4–5.
a control area operator for purposes of Standards.232 It is the interconnection dispatch function for the proposed
assessing competitive markets. Thus, and coordination between balancing geographic market would be an
the adoption of the Functional Model authority areas that provides a indicator of a single market, but that
would appear to create issues more of foundation for the Commission to other evidence of a single market could
terminology than substance. NYISO analyze transmission limitations and include a demonstration that: There is a
states that, whatever the terminology, other transfers of energy and provides a single transmission rate; there is a
the process of defining geographic reasonable measure of the relevant common OASIS platform for scheduling
markets should focus on the area in geographic market under typical transmission service across separate
which grid operations generally circumstances. control areas; or there is a correlation of
facilitate the ability of generators to 252. The Commission adopts in this price movements between the areas
compete in the scheduling and dispatch Final Rule ‘‘balancing authority area,’’ being considered as an expanded
of resources, and the ability of loads to instead of ‘‘control area.’’ We believe geographic market or other information
purchase from such resources.229 that such a change will align the regarding wholesale transactions in the
Commission’s rules with NERC’s proposed single market. The
Commission Determination Functional Model, thus helping to avoid Commission stated that evidence of
250. With regard to the use of the confusion. active trading throughout the proposed
Functional Model by NERC, we agree c. Additional Guidelines for Alternative geographic market would also be
with commenters that the Commission Geographic Market and Flexibility considered. It stated that in determining
should modify slightly its approach to whether two or more control areas are
Commission Proposal a single market it would weigh, on a
default geographic markets by replacing
the term ‘‘control area’’ with ‘‘balancing 253. In the NOPR, the Commission case-by-case basis, all the factors
authority area.’’ proposed to continue to provide presented. The Commission noted that
flexibility by allowing sellers and once it has been established that
251. A balancing authority area means intervenors to present evidence that the historically there were no physical
the collection of generation, market is smaller or larger than the impediments to trade, there are several
transmission, and loads within the default market. The Commission factors the Commission would consider,
metered boundaries of a balancing explained that when assessing an and no one factor would be dispositive.
authority, and the balancing authority expanded geographic market pursuant The Commission sought comment on
maintains load/resource balance within to the horizontal analysis, it looks for this proposed guidance and, in
this area.230 Similar to control area, a assurance that no frequently recurring particular, whether there are other
balancing authority area is physically physical impediments to trade exist factors it should consider when
defined with metered boundaries that within the expanded market that would assessing a proposed expanded market
we refer to as the balancing authority prevent competing supply in the and whether there are any factors that
area. Every generator, transmission expanded area from reaching wholesale should be given more weight or are
facility, and end-use customer must be customers. The Commission stated that essential in determining the scope of the
in a balancing authority area.231 The any proposal to use an expanded market market. The Commission also asked
responsibilities of a balancing authority should include a demonstration whether it should apply the same
include the following: (1) Match, at all regarding whether there are frequently criteria when determining whether the
times, the power output of the binding transmission constraints during geographic market is smaller than the
generators within the balancing historical seasonal peaks examined in default geographic market.
authority area and capacity and energy the screens and at other competitively
purchased from or sold to entities Comments
significant times that prevent competing
outside the balancing authority area, supply from reaching the customers 255. A number of commenters agree
with the load within the balancing within the expanded market. The that it is appropriate to provide sellers
authority area in compliance with the Commission proposed to require that flexibility in presenting evidence that
Reliability Standards; (2) maintain such a demonstration be made based on the appropriate geographic market is
scheduled interchange and control the historical data, and said it would broader than the default geographic
impact of interchange ramping rates require that a sensitivity analysis be market.233 Several state that greater
with other balancing authority areas, in performed analyzing under what Commission guidance is needed so that
compliance with Reliability Standards; circumstances transmission constraints sellers wishing to argue for a broader
(3) have available sufficient generating would bind. market definition have clear objective
capacity, and Demand Side 254. The Commission explained that criteria and can provide evidence that
Management to maintain Contingency it also considers whether there is other the Commission will find probative.
Reserves in compliance with Reliability evidence that would support the 256. Puget submits that the examples
Standards; and (4) have available existence of an expanded market, such listed in the NOPR provide some
sufficient generating capacity, Demand as evidence that customers can access guidance but are still too general to be
Side Management, and frequency the resources outside of the default of use to a seller submitting a new
response to maintain Regulating geographic market on similar terms and market power study. It states that the
Reserves and Operating Reserves in conditions as those inside the default Commission should: (1) Provide
compliance with Reliability geographic market. It stated that such additional guidance on the levels of
evidence could be empirical or it could price convergence and trading activity
229 NYISO at 2–4. point to factors that indicate a single across a proposed alternative market
230 See ‘‘Glossary of Terms Used in Reliability market. It noted that the Commission that will support a seller’s filing; (2) be
Standards,’’ at http://www.ferc.gov/industries/ more specific regarding the level of
has previously stated that the operation
electric/indus-act/reliability/standards.asp.
231 See Basic Operating Functions and of a single central unit commitment and transmission constraints that will
Responsibilities: A White Paper by the Control Area preclude a finding of an expanded
Criteria Task Force.http://www.maac-rc.org/reports/ 232 See Approved Reliability Standards. http://
documents/ www.ferc.gov/industries/electric/indus-act/ 233 Indianapolis P&L at 5–6, Puget at 9–11,
cactf_reliability_model_whitepaper_v2.pdf. reliability/standards.asp. Ameren at 4–5, Duke at 23–24, and Avista at 5–7.
market; and (3) not rely heavily, if at all, used to support the propriety of a transactions (including swaps/
on transmission operation factors—such broader or smaller market definition. exchanges, etc.) wherein power is
as common OASIS or common unit 260. One commenter states that the delivered within, imported to, or
commitment and dispatch—that are not appropriate definition of the relevant exported from, control areas, RTOs and
necessarily indicative of a common geographic market can be (and very sub-regions of RTOs; and (4)
market.234 often will be) conditional—that is, when consideration of operational paradigms
257. Southern states that the there are no binding transmission for obtaining transmission services and
Commission’s proposed focus on constraints on imports into the relevant the extent to which the system allows
evidence pertaining to frequently control area, the relevant market for transparent access to transmission
binding transmission constraints for appropriately encompasses a broader services.239
purposes of considering a larger area than the default geographic market; 263. Several commenters urge the
geographic market seems appropriate. and when transmission constraints into Commission to provide flexibility by
However, Southern argues that the the control area are binding, the control suggesting a trading hub for an
NOPR’s apparent requirement of area is the appropriate geographic alternative geographic market. E.ON
additional evidence (beyond the market. Accordingly, sellers should be U.S. and PNM/Tucson state that the
absence of transmission constraints) to allowed (or encouraged) to present Commission should take regional
support a larger geographic market is analytical results for several market commercial patterns into account when
unnecessary. Moreover, Southern definitions, dependent on the existence evaluating proposals to use a larger or
submits that evidence of a single unit or nonexistence of binding transmission smaller market, and they support
commitment and dispatch function, a constraints, to sharpen the focus on allowing a seller to present a market
single transmission rate, and a common when market power might be a real power analysis specific to a trading
OASIS platform is not likely to exist in concern.237 hub.240
261. APPA/TAPS generally agree that 264. Indianapolis P&L asks that the
the absence of an RTO or ISO.
the factors set forth by the Commission Commission clarify that sellers can
Accordingly, making such evidence a
for assessing whether an alternative propose different geographic definitions
requirement for a larger geographic
geographic market is appropriate are in their screen analyses. Indianapolis
market would render illusory the
reasonable, but urge that the factors be P&L states that the NOPR is unclear as
opportunity for expansion for non-RTO/
non-exclusive and non-prescriptive. In to whether different geographic markets
ISO sellers.235
addition to the factors the Commission can be proposed for the indicative
258. Avista agrees that the absence of identified in the NOPR, APPA/TAPS screen analyses or only for additional,
these factors does not necessarily mean suggest that a seller be allowed to point ‘‘second stage’’ analyses, such as the
that a market contains impediments to to any joint transmission planning and DPT.241
trading or that wholesale customers are coordinated construction processes as 265. Powerex seeks clarification on
unable to secure supply from alternative evidence that the relevant market how the definition of ‘‘home control
sources. Avista supports the should be larger than its own control area’’ (the control area where the seller
Commission’s proposal to state what area.238 APPA/TAPS state that a seller is located) applies to an entity that has
type of evidence demonstrates active that is correctly advancing efforts to small-volume contracts in multiple
trading throughout the proposed expand markets deserves to have that control areas remote from its physical
geographic market. Avista submits that recognized and a seller that is not location. Powerex asks whether
a regional geographic market could and undertaking such efforts should live contracts with third parties, to the
should be established based upon: (1) with the consequences of the resulting extent they confer some level of
The presence of an actively traded smaller market. ‘‘control,’’ create a multitude of home
liquid trading hub within the relevant 262. PPL states that if the Commission control areas. Powerex seeks additional
defined market area; (2) transparent is to consider the potential existence of guidance, including whether the answer
pricing information from that hub being geographic markets smaller or larger to the question depends on the quantity
widely available; and (3) the presence of than a control area, it should carefully of generation available under each
extensive direct or single-wheel consider the specific circumstances contract, the level of control, whether
transmission access, both for sellers into surrounding the control area of concern, the seller is affiliated with the
the competitive hub market and for and use an objective review process. transmission provider in that control
buyers’ access to the hub market for That is, the Commission should area, or the remoteness of the contracted
purposes of serving load.236 consider these factors through the generation from the sellers’ physical
259. Powerex supports the following means: (1) Evaluation of the location.242
Commission’s initial specification of historical frequency of, and times when, 266. Duke requests clarification of
evidence that may be used to support a physical transmission constraints limit whether first-tier markets, which are
demonstration of a broader or smaller the ability to transmit power within and part of a larger RTO/ISO market (with
geographic market. However, Powerex is between control areas, RTOs, and other an energy market that has central
concerned that the Commission’s defined regions within which electricity commitment and dispatch and
enumeration of relevant categories of system supply and demand are balanced Commission-approved market
evidence is at present a partial list, and in real-time; (2) consideration of monitoring and mitigation) can be
is not sufficiently comprehensive to correlations of electricity prices, and represented as the entire RTO/ISO
address the unique circumstances that electricity price day-to-day changes, market. For example, in the case of the
are likely to be present in various within and between control areas, Duke Energy Carolinas’ control area,
regions. Powerex states that the RTOs, and other defined regions within which is directly interconnected to the
Commission should clarify that which electricity supply and demand AEP transmission system, Duke queries
additional types of evidence may also be are balanced in real time; (3) reference
to historical evidence of actual 239 PPL at 2–6.
234 Puget at 9–11. 240 E.ON U.S. at 14–15, PNM/Tucson at 8–10.
235 Southern at 24–25. 237 Dr. Pace at 15–16. 241 Indianapolis P&L at 5–6.
236 Avista at 5–7. 238 APPA/TAPS at 54. 242 Powerex at 13–17.
whether all of PJM would be the 269. The Commission also considers transmission constraints that define a
relevant first-tier market for purposes of whether there is other evidence that market, no such generic finding will
determining the simultaneous import would support the existence of an encompass all possibilities and,
limitations into the Duke Energy alternative geographic market. In therefore, in all instances define the
Carolinas control area.243 deciding whether customers may be market. Accordingly, we will not
considered as part of an expanded attempt to do so here.
Commission Determination geographic market, the Commission will 273. We also reject Southern’s
267. As an initial matter, we consider evidence that they can access contention that the Commission has
acknowledge the desire for the the resources outside of the default somehow rendered ‘‘illusory’’ the
Commission to provide greater guidance geographic market on similar terms and opportunity for entities outside RTOs
to sellers wishing to argue for a broader conditions as those inside the default and ISOs to demonstrate a larger
or smaller market definition. We geographic market. geographic market.246 The examples
continue to believe that default 270. Any such evidence submitted to provided by the Commission of ways an
geographic markets are adequate and show that the seller’s customers have entity could demonstrate a larger
sufficient for the typical situation. access to resources outside of their geographic market were just that:
However, defaults may not be balancing authority area at terms and examples.247 The Commission does not
appropriate in all circumstances. conditions similar to those at which require an entity proposing an
Therefore, we will attempt to provide they can access resources inside the alternative geographic market to provide
additional guidance and clarification to balancing authority area could be evidence other than historical
help inform market participants empirical or it could point to factors transmission access. Sellers and
regarding the factors we believe are that indicate a single market. For intervenors in both RTO/ISO and non-
significant to consider when defining example, the Commission has RTO/ISO markets may present any
the market.244 previously stated that the operation of a probative evidence based on historical
single central unit commitment and data of transmission availability,
268. First, we reiterate that reaching
dispatch function for the proposed wholesale sales, resource accessibility,
beyond the default geographic market in
geographic market would be an and market prices.
which an entity is located can mean 274. In response to Indianapolis
addressing additional physical and indicator of a single market. However,
there are other ways to demonstrate that Power & Light’s comments, we clarify
other challenges than when trading that when a seller submits its screen
within that market. When assessing an two or more balancing authority areas
are indeed a single market. For example, analysis, it can also propose an
alternative geographic market, the alternative analysis based on the use of
Commission looks for assurance that no other evidence of a single market could
include a demonstration that: there is a a geographic market larger than the
frequently recurring physical default geographic market. However,
impediments to trade exist within the single transmission rate; there is a
common OASIS platform for scheduling such proposal should be made in
alternative geographic market that addition to, not in lieu of, the screen
would prevent competing supply in the transmission service across separate
balancing authority areas; or there is a analysis based on the default geographic
alternative geographic market from market.
reaching wholesale customers. Any correlation of price movements between
the areas being considered as an 275. With regard to using trading hubs
proposal to use an alternative as alternative market areas, the
geographic market (i.e., a market other expanded geographic market or other
information regarding wholesale Commission understands that numerous
than the default geographic market) electricity trading hubs have emerged
must include a demonstration regarding transactions in the proposed single
market. Evidence of active trading over the past few years. A trading hub
whether there are frequently binding is a representative location at which
transmission constraints during throughout the proposed geographic
market would also be considered. multiple sellers buy and sell power and
historical seasonal peaks examined in ownership changes hands, typically
271. In determining whether two or
the screens and at other competitively with trading of financial and physical
more balancing authority areas are a
significant times that prevent competing products. For physical trades, the hub
single market, the Commission would
supply from reaching customers within may represent a specific delivery point
weigh, on a case-by-case basis, all
the proposed alternative geographic or set of points. Currently only select
relevant factors presented. As discussed
market. We will require that a trading hubs account for the majority of
above, there are several factors the
demonstration be made based on physical power trading although there
Commission would consider once it has
historical data and that a sensitivity remains the possibility that market
been established that historically there
analysis be performed analyzing under demand could initiate trading hubs for
were no physical impediments to trade,
what circumstances transmission each balancing authority area. In
and no one factor or factors would be
constraints would bind. If the seller fails evaluating market power, however,
dispositive. Rather, all factors will be
to show that there are no frequently trading hub data alone does not provide
considered and as a whole will indicate
binding constraints at these critical a foundation for the Commission to
whether there exists a single market.245
times, then the Commission may not analyze transmission limitations and
272. With regard to Puget’s request
consider other evidence of an expanded other transfers of energy. Moreover,
that the Commission provide additional
market since we regard this as a with regard to trading hubs, the
guidance with regard to the levels of
necessary condition that must be combination of physical and diverse
price convergence, trading activity, and
satisfied to justify an expanded market. financial products, the low barriers for
245 We agree with Powerex that the Commission’s
243 Duke at 28. 246 Southern at 25.
enumeration of relevant factors it would consider
244 Although the following discussion generally is not an exhaustive list. As stated above, no 247 Thus, we agree with Avista that expansion of
refers to an expanded market (i.e., arguing that two comprehensive list of factors captures all factors the geographic market is not limited to only those
or more default geographic markets constitute a that could indicate a single market. Accordingly, instances where there is either: a single
single market) the same guidance is applicable for the Commission will consider additional types of transmission rate; a common OASIS; or operation
arguing that the market is smaller than the default evidence that may be presented on a case-by-case of a single central unit commitment and dispatch
geographic market (e.g., a load pocket). basis. function.
entry of new participants, and the across seasons, and separate geographic Midwest Energy urges the Commission
unlimited potential for resale of limited markets could be defined for each to consider changing its existing policy
physical output may not provide a period. However, as discussed earlier, in to create a presumption that the relevant
reasonable measure of the relevant an effort to provide as much regulatory geographic market for a Commission-
geographic market under typical certainty as possible, the Final Rule approved RTO is the region covered by
situations, as a balancing authority area adopts as the default geographic market a single transmission tariff.251
does. Therefore, while trading data may the balancing authority area or the RTO Alternatively, Midwest Energy states
be considered in the illustration of footprint, as applicable, but allows that the Commission could require, in
relevant price correlation or of liquid sellers or intervenors to propose addition to a regional tariff, the
trading activity to demonstrate that two alternative markets based on historical implementation of a Commission-
or more balancing authority areas are transmission and sales data. approved market monitor and a
indeed a single market, the Commission 278. We clarify in response to centrally dispatched energy imbalance
will not allow use of a trading hub to Powerex that sellers should do market market. It states that these changes
define a relevant geographic market. power studies for each balancing would allow sellers to treat the
276. With regard to one commenter’s authority area where they own or Southwest Power Pool (SPP) region as
suggestion that the Commission should control assets (i.e., should study all the relevant geographic market.
allow (or encourage) sellers to present balancing authority areas where 281. Westar states that the
analytical results for several market generation assets they own or control Commission should find that a
definitions because the appropriate are located) regardless of the quantity or transmission region with a single OATT,
definition of the relevant geographic location of generation they control non-pancaked transmission rates, a
market can be conditioned on the (subject to the terms adopted herein common OASIS platform for scheduling
existence or nonexistence of binding regarding Category 1 sellers). Also, to transmission, and approved market
transmission constraints, the the extent a market power study is monitoring (e.g., SPP) presumptively
Commission agrees in principle. The required, sellers should study each qualifies as a single region for purposes
Commission provides an opportunity balancing authority area where they of the market power screens. Westar
for sellers who fail one or more of the own or control assets regardless of states that although the NOPR identifies
initial screens to present a more whether the seller is affiliated with the single unit commitment and/or
thorough analysis using the DPT. As the transmission provider in that balancing centralized dispatch of generation to be
April 14 Order states ‘‘the [DPT] defines authority area. The Commission also an important characteristic of a regional
the relevant market by identifying clarifies for Duke that if the first-tier market, the Commission has not always
potential suppliers based on market markets for a seller (whether or not the done so. For example, the Commission
prices, input costs, and transmission seller is a member of the RTO) are part did not identify this as a defining
availability, and calculates each of a larger RTO/ISO market, all of the characteristic when it accepted other
supplier’s economic capacity and RTO/ISO market would be a relevant RTOs/ISOs as a single region for market-
available economic capacity for each first-tier market for purposes of based rate purposes, such as New
season/load condition.’’ 248 In addition, determining the simultaneous import England. The Commission also did not
in the Merger Policy Statement the limitations. rely upon centralized dispatch in
Commission stated that the flows on a authorizing market-based power sales
d. Specific Issues Related to Power
transmission system can be very across the California, New York or PJM
Pools and SPP
markets. Westar states that the
different under different supply and Commission Proposal Commission should find that SPP meets
demand conditions (e.g. peak vs. off-
279. In the NOPR, the Commission the criteria for a single market once its
peak). Consequently, the amount and
proposed to continue its practice of energy imbalance market (EIM) becomes
price of transmission available for
designating an RTO/ISO in which a operational.252
suppliers to reach wholesale buyers at 282. In its reply comments, Southwest
different locations throughout the seller is located as the default relevant
geographic market if the RTO/ISO has Coalition disagrees with those
network can vary substantially over commenters requesting that SPP qualify
time. If this is the case, the DPT analysis sufficient market structure and a single
energy market with Commission as a single geographic region for sellers
should treat these narrower periods in its region once its EIM is operational.
separately and separate geographic approved market monitoring and
mitigation. Southwest Coalition states that Westar
markets should be defined for each has not presented any evidence for the
period.249 Comments Commission to change course with SPP
277. The Commission believes that in this rulemaking. It asserts that SPP
280. A number of commenters urge
the DPT can address the dynamic nature the Commission to consider power currently has underway a variety of
of markets. Under the DPT, the amount pools as geographic market areas. market implementation proceedings, of
and price of transmission available for Midwest Energy claims that, ‘‘under which Westar is a party, through which
suppliers to reach wholesale buyers at current Commission policy, sellers of the Commission can make a reasoned
different locations throughout the power in RTOs/ISOs with a full-fledged decision regarding SPP’s status. As
network during different season/load single central commitment and dispatch such, Southwest Coalition states that
conditions (e.g., peak vs. off-peak) can system are allowed to treat the full RTO this generic rulemaking proceeding is
be analyzed. For example, an area may footprint as the relevant geographic not the appropriate vehicle for
become constrained only during the market, thereby facilitating qualification considering Westar’s request. In
highest load levels, in which case the for market-based rates. Sellers in a addition, Southwest Coalition states that
relevant geographic market could differ Commission-approved RTO without a Westar’s request represents an improper
248 AEP Power Marketing, Inc., 107 FERC ¶

single central commitment and dispatch request for rehearing of the
61,018 at P 106.
system are relegated to a relevant market Commission’s March 20, 2006 Order in
249 Merger Policy Statement, FERC Stats. & Regs. defined by their own control area.’’ 250
251 Midwest at 1–3, 4–8.
Regulations Preambles July 1996–December 2000 ¶
31,044 at 30,132. 250 Midwest at 1–3. 252 Westar at 3–6.
SPP’s market implementation market power.255 The Commission did exemption. It suggests that the
proceeding. Southwest Coalition not address this point in the NOPR. Commission’s regulations should take
requests that, if the Commission were to account of the fact that the Commission
Comments
consider Westar’s request in this has approved comprehensive MMU
proceeding, the Commission should 286. In their comments in this oversight of markets and that MMUs
reject Westar’s request for a Commission proceeding, Reliant, NRG and take their duties seriously and routinely
finding that SPP is a single geographic FirstEnergy urge the Commission to exercise their authority. Accordingly,
region for purposes of the Commission’s reinstate the exemption.256 Reliant PSEG proposes that evidence of active
market power screens.253 states that reinstating the exemption MMU oversight supply the basis for
would be appropriate because real-time obviating the need to conduct a market
283. Puget argues that applying the market monitoring by an independent power study for a particular zone or
control area default to utilities in the market monitor consistent with sub-zone of an RTO or ISO.258
Pacific Northwest is arbitrary, and does Commission-approved rules and 289. APPA/TAPS, in contrast, state
not result in an accurate measurement Commission-approved targeted that reinstating the RTO/ISO exemption
of a seller’s potential market power in mitigation address identification of would represent an abdication of the
the region’s energy markets. According market power concerns as well as Commission’s responsibilities.259
to Puget, the relevant geographic market mitigation of market power in those
for the purpose of measuring horizontal markets and, therefore, eliminate the Commission Determination
market power in the Pacific Northwest value of any separate market power 290. The Commission declines the
is the United States portion of the analysis submitted by an individual request that it reinstate the pre-April 14
Northwest Power Pool, which is seller. Reliant states that Commission- Order exemption for sellers located in
dominated by a transmission system approved market monitoring and markets with Commission-approved
operated by Bonneville Power mitigation provide the Commission with market monitoring and mitigation from
Administration. Puget submits that a better and more sophisticated picture providing generation market power
many of the criteria outlined in the of market power issues in RTO/ISO analyses. The Commission will continue
NOPR—particularly those addressing markets as compared to a seller’s market to require generation market power
parallel price movements, single power analysis, which looks only at analyses from all sellers, including
transmission rates, and active trading— market power at a fixed moment in those in RTO/ISO markets. All sellers
are met in this geographic region. time. are required to receive authorization
Utilities in the Pacific Northwest would 287. Reliant states that if the from the Commission prior to
like to have the opportunity to make a Commission decides not to reinstate the undertaking market-based rate sales,
showing to the Commission that the exemption, it is critical that the and as discussed herein, all new
Commission continue to use RTO/ISO applicants for market-based rate
relevant geographic market for
markets as the default geographic authority are required to, among other
measuring market power in their region
market for sellers with generation things, provide a horizontal market
is an area other than their home and
located in those markets. Reliant states power analysis. The first step for a seller
first-tier control areas.254 seeking market-based rate authority is to
that the key to the determination of
Commission Determination relevant geographic markets is the file an application to show that it and
extent to which sellers can compete in its affiliates do not have, or have
284. We decline to address whether the defined market. RTO/ISO markets adequately mitigated, market power.
additional regions of the country qualify with centralized markets provide a Sellers can refer to RTO/ISO monitoring
as relevant geographic markets. Through platform for all sellers located in the and mitigating as a factor. We believe
this Final Rule, we set forth several pertinent RTO/ISO market to compete. that a single market with Commission-
examples of criteria that sellers can use Thus, Reliant states that it is entirely approved market monitoring and
in proposing an alternative geographic appropriate to consider such markets as mitigation and transparent prices
market. Individual sellers can challenge the default market unless and until an provides added protection against a
our default geographic market and intervenor can show that this is no seller’s ability to exercise market power
provide evidence to support their longer appropriate (e.g., due to but cannot replace the generation
proposal. Intervenors will have the transmission constraints).257 market power analysis.
opportunity to comment prior to the 288. In its reply comments, PSEG 291. To address Reliant’s concern, we
Commission rendering a decision. states that while it believes that the note that, as discussed above, we will
RTO/ISO exemption would be use RTO/ISO markets (including
e. RTO/ISO Exemption warranted at least for regions with Commission findings with regard to
Commission Proposal pervasive market monitoring unit RTO/ISO submarkets) as the default
(MMU) oversight such as PJM, it geographic market for the indicative
285. In the April 14 Order, the recognizes that some affected parties screens for sellers with generation in
Commission concluded that it would no may not be comfortable with a blanket those markets.
longer exempt sellers located in markets 8. Use of Historical Data
with Commission-approved market 255 107
FERC ¶ 61,018 at P 186. The Commission
monitoring and mitigation from had previously stated that all sales, including Commission Proposal
bilateral sales, into an ISO or RTO with
providing generation market power Commission-approved market monitoring and
292. The Commission proposed in the
analyses, on the basis that requiring mitigation would be exempt from the Supply NOPR to retain the ‘‘snapshot in time’’
sellers located in such markets to Margin Assessment test and, instead, would be approach for the indicative screens, so
submit screen analyses provides an governed by the specific thresholds and mitigation that sellers are required to use the most
provisions approved for the particular market. AEP

additional check on the potential for Power Marketing, Inc., 97 FERC ¶ 61,219 at P 176
recently available unadjusted 12
(2001). months’ historical data. The
253 Southwest Industrial Customer Coalition reply 256 Reliant at 6–7; NRG at 7; and FirstEnergy at
comments at 2–9. 33. 258 PSEG reply comments at 5–6.

254 Puget at 9–11. 257 Reliant at 6–7. 259 APPA/TAPS reply comments at 2–3.
Commission stated that historical data available.264 PG&E suggests that the market power concerns and can
are more objective, readily available, Commission evaluate on a case-by-case otherwise be considered for market-
and less subject to manipulation than basis whether the seller or intervenor based rate authority. Accordingly, the
future projections. The Commission can prove that the change is both indicative screens are conservative in
proposed to continue to permit sellers to foreseeable and reasonable. It says that nature and not generally subject to
make adjustments to data that are the Commission should not impose a debates over projected data, which may
essential to perform the indicative time restriction on such changes unnecessarily prolong proceedings and
screens provided that the seller fully provided that the seller provides the create regulatory uncertainty. However,
justifies the need for the adjustments, necessary support for changes that it in light of adopting a regional approach
justifies the methodology used, provides claims are known and measurable.265 with regard to regularly scheduled
all workpapers in support, and 295. A number of commenters suggest updated market power analyses, we will
documents the source data. that sellers should be permitted to require the use of the actual historical
293. However, the Commission account for known and measurable data for the previous calendar year.
proposed to allow, for the DPT analysis, changes in both the indicative screens Requiring all sellers in a region to
sellers and intervenors to account for and the DPT.266 Southern states that the provide analyses using the same data set
changes in the market that are known Commission ‘‘should not * * * restrict further enhances the Commission’s
and measurable at the time of filing.260 the ability of parties to provide the ability to evaluate market power and
The Commission noted that this Commission with the best possible identify any discrepancies between
proposal mirrors the Commission’s information and analysis.’’ 267 Duke market studies.
approach in connection with its merger states that in all instances the objective 299. After careful consideration of the
analysis. Sellers and intervenors should be to obtain the most accurate comments received, the Commission
proposing known and measurable and timely assessment of the seller’s will not adopt the NOPR proposal that
changes to be considered in the DPT ability to exercise market power under the DPT analysis allow sellers and
analysis would bear the burden of proof current market conditions.268 intervenors to account for changes in
for their adjustments to historical data. 296. NRECA states that the screens the market that are known and
The Commission sought comment on should incorporate imminent changes measurable at the time of filing. Instead,
whether the Commission should and that an example of known and the Commission will adopt its current
provide a limitation on the time period measurable changes that should be practice that sellers are required to use,
past the historical test period for which included in initial applications and in the preparation of a DPT for a market-
sellers can account for changes, what triennial filings is the capacity freed up based rate analysis, unadjusted
that time period should be, and how by expiring long-term contracts. It historical data and, consistent with the
flexible or inflexible that limitation submits that these contracts will expire above discussion, the Commission will
should be. In addition, the Commission on a known schedule and, if the market require the use of the actual historical
sought comment on exactly what types is competitive, the seller should not be data for the previous calendar year. The
of changes should be allowed and under allowed to assume that the capacity will Commission has stated that historical
what circumstances. remain committed to the buyer.269 data are more objective, readily
297. PPL argues that long-term available, and less subject to
Comments contracts should retain the current manipulation than future projections.
294. Various commenters generally definition as those expiring in one year 300. We acknowledge that the
support the Commission’s proposal to or more, and recommends not Commission’s approach in its merger
use historical data for the indicative considering contracts that take effect analysis requires applicants and
screens and allow known and after one year but before the triennial intervenors to account for changes in
measurable changes for the DPT.261 update is due. It argues that buyers the market that are known and
Some suggestions made as to what could withhold signing contracts and measurable at the time of filing.
should be considered known and force a market power finding. PPL also However, we find that the purpose of
measurable changes include: Allowing notes that a notice of change in status using the DPT in market-based rate
only changes that occur between must be filed at the expiration of proceedings is different from that in
updated market power analysis contracts that increase the seller’s merger analysis. Intrinsically, a merger
filings 262 and allowing only publicly capacity by 100 MW or more and that analysis is forward-looking to identify
available data or company the Commission can initiate a section what effect, if any, there will be on
information.263 Powerex expresses 206 investigation at that point if need competition if the proposed merger is
concern that known and measurable be.270 consummated. Even though the
changes may not be publicly Commission has the ability to reopen a
Commission Determination merger proceeding under its section
260 See 18 CFR 35.13(a). 298. We will continue to require the 203(b) authority, it is difficult and costly
261 See, e.g., EEI at 23, PPL at 17–19; Powerex at
use of historical data for both the to undo a merger, so the Commission is
18–19. indicative screens and the DPT in cognizant of the need to analyze what
262 See, e.g., Ameren at 6. Ameren proposes that
if a seller chooses to rely on an historical period

market-based rate cases. The indicative might happen as a result of a proposed
with no changes, the Commission should honor that screens are designed as a tool to identify merger and put any necessary mitigation
choice and not allow intervenors to introduce those sellers that raise no generation in place prior to consummation of the
suggested known and measurable changes. merger.
Conversely, if a seller proposes to adjust the 264 Powerex
at 18–19. 301. In contrast, the market-based rate
historical period for certain known and measurable
changes, Ameren states that the Commission should
265 PG&E
at 9–10. analysis is a ‘‘snapshot in time’’
266 PG&E at 2; Southern at 25–26; Duke at 26;
permit intervenors to introduce competing known approach. When the Commission
NRECA at 21–23.
and measurable changes. Id. at 6–7.

267 Southern at 26.
evaluates an application for market-
263 Drs. Broehm and Fox-Penner at 12–13 (any
268 Duke at 26. based rate authority, the Commission’s
adjustments to historical base year must be known
and measurable at the time of filing; new capacity 269 NRECA at 21–23. See also APPA/TAPS at 13– focus is on whether the seller passes
additions should only be accounted for if they are 15. both of the indicative screens based on
on-line or under construction). 270 PPL reply comments at 3–4. unadjusted historical data. Likewise,
when a seller fails one of the screens analyze market-based rate filings on a after July 9, 1996.275 In the NOPR, the
and the Commission evaluates whether consistent basis, thus increasing market Commission noted that when it
that seller passes the DPT, the participant confidence in those established the exemption in Order No.
Commission’s focus is on whether the assessments.271 Other commenters 888 it indicated that it would consider
seller passes the DPT based on concur with the Commission’s proposal whether a seller citing § 35.27(a)
unadjusted historical data. The for a uniform reporting format. They nevertheless possesses horizontal
Commission’s grant of market-based rate state that a uniform reporting format market power if specific evidence is
authority is conditioned, among other will increase consistency and thus aid presented by an intervenor.276
things, on the seller’s obligation to the Commission in its decision making 308. The Commission stated in the
inform the Commission of any change in process.272 NOPR that although it remains
status from the circumstances the 304. One commenter suggests committed to encouraging new entry of
Commission relied upon in granting it formatting and presentation changes to generation, it is concerned that the
market-based rate authority. As such, the NOPR’s Appendix C reporting form. continued use of the § 35.27(a)
the Commission’s market-based rate These changes include creating sections exemption may become too broad and,
program is designed to require sellers to for items such as the calculation of over time, would encompass all market
report, and enable the Commission to seller and market uncommitted capacity participants as all pre-July 9, 1996
examine, changes in facts and and rearranging some in a more logical generation is retired. Accordingly, the
circumstances on an ongoing basis. fashion.273 Commission proposed in the NOPR to
Such a reporting requirement provides eliminate the exemption in § 35.27(a)
the Commission with ongoing Commission Determination and to require that all new sellers
monitoring in addition to its right to seeking market-based rate authority on
305. We will adopt the reporting
require any market-based rate seller to or after the effective date of the Final
format as proposed in the NOPR,
provide an updated market power Rule and all sellers filing updated
maintaining the same order of items as
analysis at any time. Accordingly, the market power analyses on or after the
in the form provided in Appendix C of
market-based rate change in status effective date of the Final Rule must
the NOPR, but note that this form now
reporting requirement allows the provide a horizontal market power
appears as Appendix A of this Final
Commission to evaluate changes when analysis of all of their generation,
Rule. We believe standardizing the
they actually happen rather than relying whether or not it was built after July 9,
submission format has benefits to all
on projections, making it unnecessary 1996. Because the Commission allows a
market participants. As noted, it appears
and redundant for the Commission to seller to make simplifying assumptions
that commenters as well are generally
allow sellers to account for known and where appropriate and to submit a
supportive of this proposal to require all
measurable changes in the DPT for streamlined analysis, the Commission
sellers to submit the results of their
market-based rate purposes. For these explained that any additional burden
indicative screen analyses in a uniform
reasons and the reasons explained in the imposed on sellers by this reform would
format.
April 14 and July 8 Orders and existing be minimal. In addition, the
Commission precedent, the Commission 306. Also, we will adopt many of the Commission anticipated that those
reaffirms that the indicative screens and formatting changes suggested in the entities that otherwise would have
DPT analyses should be based on comments. The row letter will be the relied on the exemption would, in most
unadjusted historical data. first column and a better delineation of cases, qualify as Category 1 sellers and
sections will increase the therefore no longer be required to file
9. Reporting Format comprehensibility of the form. The updated market power analyses as a
Commission Proposal revised form can be found in Appendix routine matter. The Commission sought
A.274 comment on this proposal.
302. In the NOPR, the Commission
proposed to require all sellers to submit 10. Exemption for New Generation Comments
the results of their indicative screen (Formerly Section 35.27(a) of the
analysis in a uniform format to the Commission’s Regulations) 309. Many commenters support the
maximum extent practicable and Commission’s proposed elimination of
a. Elimination of Exemption in Section the § 35.27(a) exemption, stating that
appended a proposed format. This 35.27(a)
format, provided in Appendix C of the there should be a level playing field for
NOPR, was intended to promote Commission Proposal market-based rate sellers so that all
consistency and aid the Commission in market participants would be required
307. The Commission’s regulations to perform the generation market power
the decision-making process. The
provide that any public utility seeking screens.277 A number of commenters
Commission sought comment on this
authorization to engage in market-based support the Commission’s position that
proposal.
rate sales is not required to demonstrate there is a valid concern that over time
Comments a lack of market power in generation the exemption would encompass all
303. Although only a few comments with respect to sales from capacity for generation as older generating units are
were received on this topic, those which construction commenced on or
comments support the proposal to adopt 275 18 CFR 35.27(a). The regulation reads:
a uniform reporting format for the ‘‘Notwithstanding any other requirements, any
272 Drs. Broehm and Fox-Penner at 12. public utility seeking authorization to engage in
indicative screens. APPA/TAPS suggest 273 Dr. Pace at 8–9. sales for resale of electric energy at market-based
that the proposed uniform format 274 The ‘‘Workpapers’’ column is meant to rates shall not be required to demonstrate any lack
should help all market participants, provide an easy way to find sources and ensure that of market power in generation with respect to sales
especially when assessing the filings of all submissions are properly sourced. Hence, the from capacity for which construction has
items in that column (e.g., ‘‘Workpaper 5’’) were commenced on or after July 9, 1996.
a number of public utilities as part of 276 NOPR at P 67.
merely meant to be illustrative and do not require
the proposed regional review process. that information be submitted on specific 277 Progress Energy at 2; PG&E at 10; FirstEnergy
APPA/TAPS state that the uniformity workpapers or that workpapers be submitted in a at 9; TDU Systems at 2; New Jersey Board at 2;
should also help the Commission particular order. NASUCA at 7; Drs. Broehm/Fox-Penner at 13.
retired and new generation is built.278 generation that could be exempt from competitive supply outside of organized
Several commenters state that the the Commission’s analysis of market markets.294 Similarly, NRG contends
Commission correctly observes that the power. In addition, a commenter that the elimination of the § 35.27(a)
indefinite continuation of the explains that the potential to exercise exemption will delay and deter
exemption would ultimately result in market power has no relation to whether investment in load pockets. NRG also
the automatic grant of market-based rate generating plants were built before or argues that eliminating the exemption
authority to all sellers as pre-1996 after 1996.286 ELCON suggests that runs counter to the Commission’s policy
generation is retired.279 They further generators that were built after July 9, of encouraging investment in electric
state that eliminating the exemption 1996 are capable of exercising market power infrastructure to enhance
will not impose significant new power.287 In addition, FirstEnergy reliability and market liquidity.295
burdens, deter new entry into a market, points out that merchant power plant 314. In addition, EPSA argues that the
or create any unreasonable disincentive developers have begun to aggregate purpose of the exemption was to
or impediment for the construction of fleets of newer generating plants to encourage new generation investment
future generating capacity.280 Contrary which this exemption is applicable, and by competitive suppliers, especially in
to the assertions of several commenters, may now be able to exercise generation areas of the country that are mostly
FirstEnergy states that the elimination market power.288 PG&E adds, ‘‘in dominated by utility-owned
would encourage merchant power situations where all generation owned generation.296 Specifically, EPSA
developers to expand generation in or controlled by an applicant and its explains that it is in these regions of the
markets where they do not already have affiliates in the relevant market is new country where affiliated generation is
a dominant position which, in turn, generation, should they control largely treated as native load and, thus,
would dilute market power concerns in sufficient generation, the applicants and is excluded from the market power
these markets. its affiliates may freely exercise market analysis even though it represents most
310. NRECA and APPA/TAPS power.’’ 289 In addition, Morgan Stanley of the capacity in the region.297 EPSA
maintain that, despite EPSA’s, Mirant’s, supports elimination of the exemption, explains that, even if a small increment
and PPL’s assertions to the contrary,281 stating that maintaining the exemption of competitive supply is introduced into
the Commission did not create the would have unintended consequences the market, the analysis might detect
exemption as an incentive to encourage going forward.290 market power when measured against
new generation investment.282 APPA/ 312. Among those who oppose relatively small existing generation.
TAPS elaborates further, agreeing with elimination of the exemption, Therefore, without the exemption, a
the Commission that many new entrants Constellation asserts that it would send new competitive supplier would fail the
would qualify as Category 1 sellers and, an unfavorable signal to market test and would have to utilize cost-
therefore, would not have to submit participants that the rules may be based rates.298
updated market power analyses and that changed with a retroactive effect, which
other entrants could make simplifying in turn would deter investment.291 315. Allegheny argues that the
assumptions to demonstrate that they Constellation also contends that the Commission overlooks the reason why it
qualify for market-based rate Commission offers no support and/or initially adopted the exemption.
authority.283 These commenters contend analysis to demonstrate its inference Allegheny states that, in Order No. 888,
that the benefits of eliminating the that older generating units will be the Commission determined that long-
exemption far outweigh any added retired in significant quantities to make term generation markets are
burdens to ensure that all market a substantial difference to the screening competitive.299 Allegheny further argues
participants are treated equally and to analysis of any seller. PPL submits, that ‘‘the Commission cannot ‘gloss
ensure that rates for jurisdictional among other ill-effects, that the over’ its prior reasoning without
sellers are just and reasonable.284 elimination will deter investment in discussion, and without showing that
311. In support of the elimination of areas where there is a limited supply there has been a fundamental change in
the § 35.27(a) exemption, NASUCA and the new entrant may be deemed facts and circumstances that have [sic]
acknowledges that under current pivotal. In addition, PPL contends that caused long-term markets to be no
procedures, if all the generation owned some sellers relied on the presumption
294 EPSA reply comments at 6.
or controlled by an applicant for market- that they would not need to demonstrate 295 NRG at 2.
based rate authority and its affiliates in a lack of market power in financing, 296 EPSA at 13.
the relevant control area is new constructing, and operating their new 297 In its reply comments NASUCA disagrees,
generation, such seller is not required to power plants.292 submitting that there are other regions where a
provide a horizontal market power 313. EPSA opposes the elimination of seller with a fleet of newer exempted generating
analysis because of the exemption under the exemption under § 35.27(a). EPSA plants could exercise market power or bid the
output strategically to drive prices up. NASUCA
§ 35.27(a).285 NASUCA asserts that states that the electric industry needs reply comments at 4–5.
under the current rule, there is no limit incentives for new generation and does 298 EPSA at 13.
on the amount of post-July 9, 1996 not need disincentives if capital is to be 299 Allegheny at 8–9 (citing Promoting Wholesale
invested on a timely basis to meet future Competition Through Open Access Non-
278 See PG&E at 10; APPA/TAPS at 27; NRECA at
demand and enhance competition.293 discriminatory Transmission Services by Public
11; Carolina Agencies at 1. Utilities and Recovery of Stranded Costs by Public
279 APPA/TAPS at 27; NRECA at 11; Carolina
EPSA asserts that the exemption Utilities and Transmitting Utilities, Order No. 888,
Agencies at 1.
encourages the development of FERC Stats. & Regs., Regulations Preambles, January
280 See FirstEnergy at 10; APPA/TAPS at 27; 1991–June 1996 ¶ 31,036 at 31,657 (1996), order on
NRECA at 11; Carolina Agencies at 1.
286 Drs.Broehm/Fox-Penner at 13. reh’g, Order No. 888–A, FERC Stats. & Regs.
281 EPSA at 12–13; Mirant at 11; PPL at 19–20. 287 ELCON at 6. Regulations Preambles July 1996–December 2000
288 See FirstEnergy at 9–10. ¶ 31,048 (1997), order on reh’g, Order No. 888–B,
282 NRECA reply comments at 11; APPA/TAPS

289 PG&E at 10. 81 FERC ¶ 61,248 (1997), order on reh’g, Order No.
reply comments at 16–17. 888–C, 82 FERC ¶ 61,046 (1998), aff’d in part and
283 See APPA/TAPS at 27. 290 Morgan Stanley at 13–14.
rev’d in part sub nom. Transmission Access Policy
284 APPA/TAPS at 27; NRECA at 11; Carolina 291 Constellation at 30.
Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000),
Agencies at 1. 292 PPL at 19–20.
aff’d sub nom. New York v. FERC, 535 U.S. 1
285 NASUCA at 7. 293 EPSA at 12. (2002)).
longer competitive.’’ 300 PPL asserts that updated market power analyses, each generation is retired. In addition, we
the Commission in Order No. 888 costing $20,000 to prepare and file.305 In note that even assuming for the sake of
recognized the power that the its reply comments, APPA/TAPS state argument that there are not a large
opportunity of free entry has to that Mirant’s increased cost is paltry number of retirements, the current
eliminate market power concerns and compared to the over $3.4 billion in exemption would allow sellers to grow
stated that open access advancements generation revenues reported by Mirant unabated as load increases and could
removed structural impediments for in 2005, which APPA/TAPS suggest is result in such sellers gaining a dominant
new entrants competing with existing in no small part due to Mirant’s market- position in the market without being
market participants.301 based rate sales.306 subject to any horizontal market power
316. Mirant and EPSA expand on 318. Some commenters contend that analysis. Thus, continuing the
arguments that eliminating the the Commission’s concern that over exemption would result in unintended
exemption will deter investment. They time all older generation will be retired consequences where all sellers would be
argue that, when reserve levels are tight and the Commission will be unable to given an automatic presumption that
in a control area where the host utility analyze sellers for market power is not
they lack market power in generation.
has lost or forgone its market-based rate a valid concern in the immediate or
Accordingly, the Commission finds that
authority, a competitive supplier would mid-term; they state that the most recent
eliminating the exemption in § 35.27(a)
have to weigh the risks as to whether retirement announcements concern
the Commission would authorize it to generation assets that were built in the and requiring every new seller to submit
make market-based rate sales if it were 1940s and 1950s.307 PPM and Allegheny a generation market power analysis will
to build a new asset in that control argue that the Commission offers no allow the Commission to ensure that the
area.302 They contend that there is no evidence or observations to quantify the seller does not have market power in
incentive for a competitive supplier to magnitude of future retirements.308 generation.311
build new generation if its sales will be Some commenters assert that, in order 321. We do not believe that this
mitigated at some level of cost-based for this speculative concern to become change will have an adverse effect on
rates.303 In particular, Mirant explains realistic, the retirement of generating the majority of sellers that have
that if a municipal utility issued a units that were constructed in the 1980s previously relied on the § 35.27(a)
request for proposals (RFP) for 600 MW would have to become commonplace, exemption. The sellers that have taken
of power commencing in 2010 and and it will take decades for this advantage of the exemption will largely
terminating in 2020, with the current situation to materialize. As such, they qualify as Category 1 sellers, and thus
exemption competitive suppliers could suggest that the Commission revisit this will be unaffected to the extent that they
bid on the RFP knowing that the issue in 5 to 10 years rather than act will not be required to file a regularly
supplier would be authorized to sell the prematurely.309 scheduled updated market power
output of its new generating station at 319. PPM suggests that, if the analysis. For those sellers seeking
market-based rates. However, Mirant Commission wishes to limit the overall market-based rate authority for the first
asserts that if the exemption were amount of generation that is exempt for time (e.g., building new generation
eliminated, a supplier would have to get purposes of conducting a horizontal facilities), and those that do not qualify
Commission approval for market-based market power analysis, an alternative as Category 1 sellers, there are several
rate sales prior to bidding on the approach would be to keep the
mechanisms or alternatives that can
RFP. 304 exemption and phase in exempted units
317. Mirant disagrees with the help to minimize the burden of
over time. Thus, units that were built
Commission’s contention that submitting a horizontal market power
after 1996 but before 1999 would lose
eliminating the exemption would not analysis. For example, a seller, where
the exemption in 2010, while facilities
affect many sellers and that the cost of appropriate, can make simplifying
built in 2001 would lose it in 2015, and
compliance would be minimal. Mirant so on.310 assumptions, such as performing the
states that five of its subsidiaries would indicative screens assuming no import
have to file updated market power Commission Determination capacity or treating the host balancing
analyses if the exemption were 320. The Commission adopts the authority area utility as the only other
eliminated because they own more than proposal set forth in the NOPR and competitor.312 We expect that, for most
500 MW in the relevant market or eliminates the exemption provided in sellers, the cost of compliance and
control area and would not qualify as § 35.27(a). All sellers seeking market- document preparation occasioned by
Category 1 sellers. Mirant argues that its based rate authority, or filing updated the elimination of § 35.27(a) will not be
cost of compliance would increase market power analyses, on or after the burdensome. To the extent that there are
because it would have to prepare four effective date of this Final Rule must greater costs for some sellers, we find
provide a horizontal market power that the benefit of ensuring that markets
300 Allegheny at 9 (citation omitted). analysis for all of the generation they do not become less competitive over
301 PPL at 20. own or control. As a number of time outweighs any additional costs.
302 Mirant at 11–12; EPSA at 13–14.
303 EPSA at 13; Mirant at 12.
commenters recognize, over time the Equally important, the elimination of
304 Mirant at 11–12. Mirant elaborates: ‘‘In
exemption would become too broad and § 35.27(a) will place all sellers on the
calculating the pivotal supplier and market share would encompass all market same footing. On this basis, we disagree
screens, an applicant is allowed to deduct from its participants as pre-July 9, 1996 with commenters that eliminating the
installed capacity the amount of capacity that is exemption would send an unfavorable
committed under a long-term sale, but the seller is 305 Mirant at 11.
presented with a Catch-22. The seller cannot enter 306 APPA/TAPS reply comments at 17. 311 We note that the Commission may change its
into a long-term sales contract at market-based rates 307 Mirant
without prior Commission authorization, but the at 10; EPSA at n.2, citing for example: policy if it provides, as it does here, a reasoned
seller cannot pass the applicable indicative screens http://pjm.com/planning/project-queues/gen- analysis indicating that prior policies are being
without deducting the amount of the capacity sold retirements/20060601-pjm-gen-retir-list-public- deliberately changed and the basis for that change.
under long-term contract. Retaining the exemption future.pdf. E.g., B&J Oil and Gas v. FERC, 353 F.3d 71 (D.C.
308 PPM at 6; Allegheny at 8.
eliminates this problem and is consistent with Cir. 2004).
309 EPSA at 15; Mirant at 10.
Commission precedent regarding competitive 312 See April 14 Order, 107 FERC ¶ 61,018 at P
forward markets.’’ Id. at 12. 310 PPM at 6. 69, 117.
signal to market participants and deter inevitable adverse circumstance to treatment of sellers with generating
investment. materialize. plants built after July 9, 1996 that
322. We also disagree with 326. Finally, we will not implement initially received market-based rate
commenters that find our rationale for PPM’s suggestion that we retain the authority without any generation market
adopting the exemption in 1996 exemption and apply a phasing in power assessment. NASUCA notes that
necessarily constrains our decision approach whereby generating units its understanding is that, ‘‘the
making at this time. In light of our would lose the exemption over time Commission would effectively
experience over the past decade and our based on the date on which the units ‘‘grandfather’’ the market-based rate
desire to have a more rigorous market- were built. Such an approach would status for owners of these newer power
based rate program, combined with the create several ‘‘classes’’ of generation plants,316 at least until the time of the
concern that over time generation will facilities which would result in next applicable triennial review, when a
be retired, we believe a more confusion for both the Commission and market power analysis would be
conservative approach for granting market participants. This confusion required for continuation of market-
market-based rate authority is would become more acute in situations based rate authority.’’ 317 Specifically,
appropriate and will provide us a better where market participants may own a NASUCA explains that a Category 2
means to ensure that customers are number of generating facilities located seller who recently obtained market-
protected. in the same balancing authority area or based rate authority, could have up to
323. We find unpersuasive Mirant’s relevant geographic market, each of three years of future market-based rate
concern that, if the § 35.27 exemption which may be considered a different sales with no review of its horizontal
were eliminated, a seller would have to ‘‘class’’ of generator in terms of filing market power, while any that fall into
get Commission approval for market- horizontal market power analyses. Category 1 would be exempted entirely
based rate sales prior to bidding on an Moreover, given the regional review and from the triennial review process and
RFP. If Mirant is concerned that certain schedule for updated market power thus ‘‘grandfathered’’ indefinitely and
RFPs require, among other things, that analyses discussed below in this rule, able to sell at market-based rates
all bidders have in place all regulatory we believe that a phased-in approach without passing any market power test.
requirements including any applicable would become overly problematic and If this ‘‘grandfathering’’ is not intended,
market-based rate authority, we find unmanageable for market participants as then, according to NASUCA, the
that RFPs typically afford bidders ample a whole. Therefore, we will not accept Commission should clarify that new
PPM’s suggestion. market power assessments must be
opportunity to put together their bids
and put in place any necessary b. Grandfathering made now for those sellers whose
regulatory approvals. In this regard, we market power has never been
Comments reviewed.318 Otherwise, NASUCA
note that if a potential seller wishes to
participate in an RFP but does not have 327. EPSA and Mirant suggest contends that their rates could be
market-based rate authority, the seller grandfathering units for which vulnerable to challenge because they are
can file for such authorization and construction commenced between July established solely on the basis of market
request expedited treatment and the 9, 1996 and May 19, 2006, the date of price.319
Commission will use its best efforts to issuance of the NOPR, when generation
owners were put on notice that the Commission Determination
process the request as quickly as
possible. Commission was considering 329. We will not adopt commenters’
324. With regard to the specific eliminating the exemption in proposals with regard to the
argument raised by Mirant, if a § 35.27(a).313 Constellation proposes grandfathering of any generating units
prospective seller wins an RFP, then the that the exemption not be eliminated that were built relying on the exemption
capacity would be counted as entirely but be limited to generation in § 35.27(a). As discussed above, we
committed capacity, and therefore with construction that commenced on find establishing ‘‘classes’’ of generation
would not adversely affect the results of or after July 9, 1996, but before the facilities would result in confusion for
the seller’s generation market power effective date of the Final Rule in this both the Commission and market
proceeding.314 Constellation and EPSA participants. In this regard, no
screen (which analyzes uncommitted
also contend that this would be
capacity). If the entity loses the RFP,
consistent with the Commission’s prior 316 NASUCA at 10 n.12, ‘‘[T]he Commission
then it would not build the plant. In would require that all new applicants seeking
decision to grandfather from PJM’s
either case, the need for market-based market-based rate authority on or after the effective
mitigation any generating units that
rate authorization does not appear to date of the final rule issued in this proceeding,
were built in reliance on the post-1996 whether or not all of their or their affiliates’
discourage new investment by
exemption.315 generation was built after July 9, 1996, must
competitive suppliers as Mirant 328. Although NASUCA agrees with provide a horizontal market power analysis of their
suggests. the Commission’s proposal to eliminate generation.’’ Citing NOPR at P 71 (emphasis added).
325. Some commenters assert that the the new generator exemption, NASUCA
317 Id. at n.13, ‘‘[W]ith regard to triennial reviews,
retirement of generating units that were the Commission’s proposal to eliminate the section
raises a concern about the prospective 35.27(a) exemption would require that, in its
constructed in the 1980s would have to triennial review, a seller must perform a horizontal
become commonplace before the 313 EPSA at 15; Mirant at 13. market power analysis of all of its generation
Commission’s concern is realized that 314 See Constellation at 31; PPL reply comments regardless of when it was built, thus eliminating
over time all older generation will be at 20. any special treatment of generation built after July
315 Constellation at 31, citing PJM 9, 1996.’’ Citing NOPR at P 72.
retired. Others contend that it will take 318 NASUCA at 10–11.
Interconnection, LLC, 110 FERC ¶ 61,053 at P 60–
decades for this situation to materialize. 62 (grandfathering the exemption from mitigation 319 Id. at 11, citing FPC v. Texaco, Inc., 417 U.S.
However, commenters have provided no for generating units for which construction 380 (1974) (stating that the prevailing price in the
evidence that the elimination of commenced on or after the date the exemption marketplace cannot be the final measure of just and
§ 35.27(a) will create a regulatory barrier became effective and before the date when PJM reasonable rates) (Texaco). See also NASUCA reply
filed its proposal to eliminate the exemption for all comments at 7–8 (asserting that for any
to new construction or otherwise generation units) (PJM), order on reh’g, 112 FERC grandfathered sellers the market is the final
depress the building of new generation ¶ 61,031 at P 38 (2005) (PJM II), order on reh’g, 114 determinant of price, an impermissible result under
facilities, and we need not wait for an FERC ¶ 61,302 (2006); EPSA at 16–17. Texaco.)
commenter has demonstrated that harm exemption, but in the case of units that by the seller and its affiliates grouped by
would result from having to submit a were built with the expectation that balancing authority area. Thus, a seller
horizontal market power analysis, and they would not be subject to mitigation, that previously qualified for the § 35.27
no commenter has claimed that it would the Commission allowed the exemption exemption and that believes it qualifies
lose its financing or that its financing to be grandfathered.322 as a Category 1 seller would be required
would be adversely affected as a result 332. Our reasons for grandfathering to provide support for its claim to
of the elimination of the exemption in units in PJM are dissimilar enough that Category 1 status. This filing will give
§ 35.27(a). Moreover, as the Commission our holding in the PJM orders should the Commission and interested parties
stated in Order No. 888, intervenors not affect our decision here. The factors an opportunity to review and, if
could present evidence that a seller that led to the establishment and later appropriate, challenge a seller’s claim
seeking market-based rates for sales the termination of the exemption from that it qualifies as a Category 1 seller. To
from new generation possesses market mitigation in PJM are unrelated to the the extent that an intervenor has
power, and sellers were aware that they reasons for instituting and, now, concerns about a seller’s potential to
may have to submit a horizontal market eliminating the express exemption in exercise market power, the Commission
power analysis even if their generation § 35.27(a). In PJM and PJM II, the will entertain them at that time.324 In
fell within the exemption.320 Therefore, Commission considered whether local addition, a seller that previously
we will require that all sellers seeking market power mitigation might deter qualified for the § 35.27 exemption and
market-based rate authority for the first new entry and whether new units were that believes it qualifies as a Category 2
time on or after the effective date of the built with the expectation that they seller will be required to file an updated
Final Rule in this proceeding must would not be subject to mitigation. The market power analysis based on the
provide a horizontal market power Commission grandfathered units that regional schedule set forth in Appendix
analysis that includes all generation that could reasonably have relied on the D.
the seller owns or controls. exemption after it went into effect in 334. While it is true that a portion of
330. All existing sellers that fall in their zone.323 In contrast, in this these sellers will continue to sell at
Category 2 must provide a horizontal proceeding the Commission desires a market-based rates for a time until their
market power analysis that includes all more rigorous market-based rate updated market power analyses (in the
generation that each seller owns or program and is concerned that over time case of Category 2 sellers) or their filings
controls when it files its regularly generation will be retired leaving less addressing qualification as Category 1
scheduled updated market power and less generation subject to our sellers are due, no commenter has
analysis. To the extent a Category 1 horizontal analysis or sellers relying on submitted compelling evidence that
seller acquires enough generation to be the § 35.27 exemption will otherwise Category 1 sellers have unmitigated
reclassified as a Category 2 seller, that grow to a degree that they have market market power. We will rely on our
seller will be required to submit a power in the relevant market in which change in status requirements that
change in status report and provide a they are located. The Commission’s require, among other things, all sellers
horizontal market power analysis. primary statutory obligation under FPA that obtain or acquire a net increase of
331. Further, with regard to PJM, in 100 MW in owned or controlled
sections 205 and 206 is to ensure that
establishing whether units constructed generation to make a filing with the
rates are just and reasonable, and we
after July 9, 1996 should be exempt from
believe the elimination of the exemption Commission and to provide the effect, if
PJM’s existing market power mitigation
will better provide us with the ability to any, such an increase in generation has
rules, we initially approved the post-
screen all market participants’ ability to on the indicative screens. Additionally,
1996 exemption based on the concern
exercise horizontal market power all sellers must file EQRs of transactions
that the price cap regulation or the
regardless of whether their generation no later than 30 days after the end of
mitigation rules in PJM might deter
units were constructed before or after each reporting quarter. Furthermore, the
market entry and would create certain
July 9, 1996. Therefore, we will not Commission retains the ability to
equity issues. However, we
allow any grandfathering as part of this require an updated market power
reconsidered our position and found
proceeding. analysis from any seller at any time.
that the exemption was unduly
discriminatory by creating two classes 333. NASUCA’s concerns regarding With these procedures in place, we
of reliability must run generators: one entities that originally enjoyed the believe NASUCA’s concerns are
that is price or offer capped and another § 35.27 exemption are addressed by our addressed.
that is not. Equally important, other decision, discussed below in the c. Creation of a Safe Harbor
RTOs/ISOs applied local market Implementation Process section of this
Final Rule, to require a seller that Comments
mitigation rules to all generation within
their respective areas regardless of when believes it qualifies as Category 1 to 335. NRG urges the Commission to
the generator was built, and we make a filing with the Commission at create a ‘‘safe harbor’’ such that ‘‘if the
determined that comparable authority the time that its updated market power generation owner controls less than 20
for PJM would allow it to address local analysis for the seller’s region would percent of the capacity in an organized
market power issues.321 We concluded otherwise be due (based on the regional market, the Commission should
that units built on or after July 9, 1996 schedule set forth in Appendix D). That irrebuttably presume that the new entry
had the same ability to exercise market filing should explain why the seller will not contribute to market power and
power as counterparts that were built meets the Category 1 criteria and should thus no demonstration is required to
prior to July 9, 1996. Accordingly, the include a list of all generation assets obtain market-based rate authority for
Commission terminated the blanket (including nameplate or seasonal the new capacity.’’ 325 NRG states that
capacity amounts) owned or controlled
320 See Order No. 888–A, FERC Stats.& Regs. 324 Moreover, if specific concerns regarding
322 PJM
II, 112 FERC ¶ 61,031 at P 38. market power exist, interested persons may file a
Regulations Preambles July 1996–December 2000
¶ 31,048 at 30,188 (‘‘[T]he policy eliminates the 323 Nevertheless, the Commission stated that the complaint pursuant to FPA section 206.
[generation dominance] showing only as a matter of units would still be subject to mitigation if PJM or 325 NRG at 5 & n.8, suggesting that the use of a
routine in each filing.’’) its market monitor concluded that they exercised 20 percent market share in the safe harbor proposal
321 PJM, 110 FERC ¶ 61,053 at P 59. significant market power. Id. at P 60. replicates one of the two screens that the
only where an owner controls more than facilities) in the relevant market.’’ 328 using seasonal capacity instead of
20 percent of capacity in a relevant Ameren submits that the Commission nameplate capacity, as is currently
market should the presumption be should allow the seller to file a letter required. The Commission indicated
rebuttable and subject to challenge by which identifies: (1) The transmission that the seller must be consistent in its
intervening parties. It is NRG’s system it is interconnected to; (2) the choice and thus must choose either
contention that the creation of such a amount of uncommitted capacity it seasonal or nameplate capacity and use
‘‘safe harbor’’ retains most of the controls; and (3) the Commission- it consistently throughout the analysis.
benefits of the Commission’s current approved market power study that it The Commission stated that it believed
policy under § 35.27(a), while relied on to determine that its the use of seasonal capacity ratings
preserving its flexibility to investigate uncommitted capacity is less than more accurately reflects the seasonal
where a seller adding generating twenty percent of the net uncommitted real power capability and is not
capacity already has a large market capacity in the relevant geographic inconsistent with industry standards
share. NRG believes that this codifies market. Ameren contends that this and, therefore, it may be more
the general approach the Commission abbreviated process would reduce a convenient for sellers to acquire and
took in Order No. 888 326 and responds seller’s cost of compliance and compile the associated data. The
to the Commission’s evolving concerns administrative burdens.329 Commission added that it did not think
in this area, while at the same time the use of such ratings will materially
facilitating new entry in the organized impact results. The Commission sought
337. The Commission will not create comment on this proposal, including
markets where sufficient safeguards
a safe harbor.330 For the reasons set comment as to whether this information
exist.327 NRG contends that new
forth in the April 14 Order and is publicly available to all market
generation, timely developed and
reiterated in the July 8 Order, there will participants.
brought online, is imperative; thus, a
be no safe harbor exemption from the
‘‘safe harbor’’ for new generation is Comments
generation market power screen based
necessary. 340. Many commenters on this topic
upon a seller’s size.331 While there is no
336. Ameren agrees that there is a safe harbor exemption from the screens express strong support for the proposal
need for the Commission to address the based on the seller’s size, any seller, to substitute seasonal capacity for
§ 35.27 exemption before it regardless of size, has the option of nameplate capacity.334 The reason most
encompasses all generating capacity; making simplifying assumptions in its commonly cited is that seasonal
however, Ameren submits that the analysis where appropriate that do not capacity is a more accurate
Commission should allow an exemption affect the underlying methodology representation of actual output. Several
for new generation under certain utilized by these screens. commenters state that firms should be
circumstances. Ameren argues that ‘‘the 338. Further, while we eliminate the allowed to use net seasonal capacity,335
Commission should amend its § 35.27 exemption in this Final Rule, we which allows for station service
regulations to provide that new note that sellers that have enjoyed that requirements and energy consumed by
generation that represents less than 20 exemption historically have been environmental equipment.
percent of the uncommitted capacity at required to address the other parts of the MidAmerican points out that station
peak in the relevant geographic market market-based rate analysis, vertical usage, including environmental
be exempt from the requirement of a market power, affiliate abuse, and other equipment, can approach 10 percent of
horizontal market power analysis, so barriers to entry.332 Therefore, the overall output in steam plants.336 EEI
long as the owner of, or entity that Commission believes that, on balance, states that coal plants, which make up
controls, such capacity and its affiliates any additional cost of compliance or 51 percent of generation in the United
own no other generation or transmission administrative burden due to this States, are required to comply with both
facilities (other than interconnection change will not be substantial compared Federal and State regulations that
to a seller’s investment and revenues.333 mandate emission reductions. The
Commission proposes in the NOPR to use as a plants are equipped with scrubbers and
general screen for market power in all markets 11. Nameplate Capacity other emissions reduction technology
reviewed for market-based rate authority. NRG Commission Proposal that require a portion of the power
argues that a 20 percent market share screen is well-
established and appropriate for use in reviewing the 339. In the NOPR, the Commission produced by the plant in order to
market power implications associated with the proposed to allow sellers the option of operate, thereby reducing the output
addition of new generation. The use of a lightened, available to serve customers. For
single screen approach to review the market power 328 Ameren at 7–8.
companies with a large percentage of
implications of new generation is appropriate, their generation coming from coal, the
329 Id.
argues NRG, in that new generation expands the
supply available in a market. According to NRG, for 330 We note that although Category 1 sellers are reduced output from such equipment
organized markets administered by RTOs that have not required to provide a regularly scheduled could be significant.337 PG&E favors
in place Commission-approved market monitoring updated market analysis, such an approach does using seasonal capacity if it could be
and mitigation authority, subjecting new generation not establish a safe harbor because all sellers will
be required to perform the indicative screens as part
filed confidentially, because it
only to a 20 percent market share screen is
appropriate in light of the existing controls over the of their initial applications, make change in status maintains that it is commercially
exercise of market power. filings and file EQRs. sensitive information.338
326 Id. at n.9, citing Order No. 888, FERC Stats. 331 See April 14 Order, 107 FERC ¶ 61,018 at P 341. PG&E requests clarification that
& Regs., Regulations Preambles, January 1991—June 69, 117; July 8 Order, 108 FERC 61,026 at P 107 (the if sellers are allowed to submit seasonal
1996 ¶ 31,036 at 31,657. Commission explained that small sellers are able to
use simplifying assumptions).
capacity, they are allowed to de-rate
327 Id. at n.10. Under NRG’s proposal, the
332 As described in this Final Rule, we
Commission would also need to apply the safe 334 Duke at 22; First Energy at 10; Southern at 26;
harbor analysis to the notice of change of status for consolidate the transmission market power and
SoCal Edison at 8.
the suppliers’ existing generation, when the notice other barriers to entry analyses into one vertical
335 EEI at 18; PNM/Tucson at 10; Allegheny at 7–
of change is triggered by the addition of new market power analysis. In addition, we discontinue
generation capacity. Failure to do so would mean considering affiliate abuse as a separate part of the 8; Pinnacle West at 5–6; PPL at 17.
336 MidAmerican at 8.
the lightened review appropriate for new generation analysis and instead codify affiliate restrictions in
would not, in effect, produce the intended lessening our regulations. 337 EEI at 18.
of regulatory burden. 333 NOPR at P 71. 338 PG&E at 10–11.
hydroelectric capacity resources based nameplate or seasonal capacity in their transmission is required to conduct
on historical output for the past five submissions, we will allow such simultaneous transmission import
years, as specified in the April 14 resources to provide an analysis based capability studies for its home control
Order.339 Powerex supports seasonal on historical capacity factors reflecting area and each of its directly-
ratings as more accurate, because the use of a five-year average capacity interconnected first-tier control areas
hydroelectric systems are often able to factor including a sensitivity test using consistent with the requirements set
generate in excess of nameplate ratings the lowest capacity factor in the forth in the April 14 Order, as clarified
and these ‘‘peak capability’’ ratings are previous five years, and in recognition in Pinnacle West Capital Corp.347 These
typically reflected in seasonal of Powerex’s concern that hydroelectric studies are used in the pivotal supplier
determinations, and seasonal ratings systems can generate in excess of screen, market share screen, and DPT to
better reflect operating conditions that nameplate ratings and these ‘‘peak approximate the transmission import
can impact the capacity ratings of capability’’ ratings, the highest capacity capability. When centering the
renewable resources.340 factor in the previous five years. Our generation market power analysis on the
342. APPA/TAPS support the approach in this regard will more transmission providing utility’s first-tier
adoption of seasonal capacity ratings if accurately capture hydroelectric or control area (i.e., markets), the
they are consistently used, and request wind availability.345 transmission-providing seller should
that the Commission clarify that the 345. We will not adopt APPA/TAPS’ use the methodologies consistent with
seasonal capacity ratings be used for all suggestion that we require use of either its implementation of its Commission-
plants in a geographic region ‘‘so that nameplate capacity or seasonal capacity approved OATT, thereby making a
the consistency benefits of the regional throughout a region. While we reasonable approximation of
reviews are not diminished.’’ 341 appreciate APPA/TAPS’ concern for simultaneous import capability that
data consistency for analysis purposes, would have been available to suppliers
we note that although we adopt a in surrounding first-tier markets during
343. We will adopt the NOPR regional approach for the filing of each seasonal peak. The transfer
proposal that allows sellers to use updated market power analyses, the capability should also include any other
seasonal capacity. We clarify that each horizontal market power analysis itself limits (such as stability, voltage,
seller must be consistent in its choice continues to focus on the seller seeking Capacity Benefit Margin, or
and thus must choose either seasonal or to obtain or retain market-based rate Transmission Reliability Margin) as
nameplate capacity and use it authority. We find that consistency of defined in the tariff and that existed
consistently throughout the analysis. In data is critical within each individual during each seasonal peak. The
addition, a seller using seasonal analysis as results could vary depending ‘‘contingency’’ model should use the
capacity must identify in its submittal on the assumptions taken. However,
from what source the data was same assumptions used historically by
because we are not necessarily the transmission provider in
obtained.342 We also note and adopt the analyzing the entire region within a
Energy Information Administration approximating its control area import
single study, we will not mandate the capability.
(EIA) definition of seasonal capacity as use of either nameplate capacity or
it is reported on Form EIA–860, 347. The Commission also proposed
seasonal capacity on a regional basis, to reaffirm the exclusion of control areas
Schedule 3, Part B, Line 2, which but instead will allow sellers to choose
provides that seasonal capacity is the that are second-tier to the control area
either nameplate or seasonal capacity, being studied. In addition, it proposed
‘‘net summer or winter capacity.’’ 343 and require them to identify the choice
EIA instructions elaborate that ‘‘net that a seller’s pro rata share of
and use it consistently throughout the
capacity should reflect a reduction in simultaneous transmission import
analysis.346
capacity due to electricity use for station capability should be allocated between
service or auxiliaries,’’ 344 which 12. Transmission Imports the seller and its competitors based on
includes scrubbers and other 346. In the NOPR, the Commission uncommitted capacity. The Commission
environmental devices. proposed to continue to measure limits sought comment on this proposal.
344. With regard to energy-limited on the amount of capacity that can be a. Use of Historical Conditions and
resources, such as hydroelectric and imported into a relevant market based OASIS Practices
wind capacity, in lieu of using on the results of a simultaneous
transmission import capability study. A Comments
339 April 14 Order, 108 FERC ¶ 61,018 at P 126. seller that owns, operates or controls 348. Montana Counsel states that
The July 8 Order allowed this method to be used
for wind resources as well. July 8 Order, 108 FERC
transmission capability used in the tests
¶ 61,026 at P 129.
345 In the April 14 Order, we explained that
should not be greater than the capability
340 Powerex at 20.
commenters expressed concerns regarding the measures that are shown on the OASIS
appropriate measure of the capacity of hydroelectric
units given that hydroelectric facilities are energy- or that are used to measure ATC into
342 In the July 8 Order, the Commission stated
limited units. Our experience with Western markets markets unless there is a demonstrated
that ‘‘[w]ith respect to data that is only available shows that market outcomes can be significantly change in available transmission
from commercial sources, we clarify that different during low water years. We agree with the
commercial sources may be used to the extent the comments raised by Western market participants
capability.348 In particular, Montana
data is made available to intervenors and other and conclude that properly accounting for water Counsel states that the Commission’s
interested parties. Applicants utilizing commercial availability will provide a better picture of requirement that sellers follow
information to perform the screens should include competitive conditions in the West. Moreover, historical OASIS practice during each
it in their filing.’’ July 8 Order, 108 FERC ¶ 61,026 while not as critical in other parts of the country
at P 121. as in the West, the same principle regarding water
historical seasonal peak is essential;
343 EIA–860 Instructions are available at http:// availability applies to all electricity markets, and otherwise, companies could submit
www.eia.doe.gov/cneaf/electricity/forms/eia860/ we will permit all sellers to de-rate hydroelectric screens using transmission availability
eia860.pdf. capacity in the analysis. numbers that differ substantially from

344 Tip Sheet for Reporting on Form EIA–860, 346 When submitting a change in status filing
those which sellers and transmission
‘‘Annual Electric Generator Report’’ at item ‘‘III. regarding horizontal market power, sellers should
Schedule 3B, Line 2 and Schedule 3D, Line 2: Net use the same assumptions they used (e.g., use of
347 110 FERC ¶ 61,127 (2005).
Capacity’’ available at http://www.eia.doe.gov/ nameplate or seasonal ratings) in their most recent
cneaf/electricity/forms/eia860/tipsheet.doc. market power analysis. 348 Montana Counsel at 4.
providers use in day-to-day activities in markets, but would have to justify and simulation of historical conditions’’ 358
providing transmission market document the proposed deviations.’’353 and is not ‘‘a theoretical maximum
access.349 In Montana Counsel’s view, 352. Southern states that the SIL import capability or best import case
one cannot rely on capacity being able study requires ‘‘blind’’ scaling (scaling scenario.’’ 359 To determine the amount
to reach a market based upon that does not consider economic of transfer capability under the SIL
hypothetical transmission availability, dispatch) because only generation that study, ‘‘historical operating conditions
as the Commission appropriately and practices of the applicable
is ‘‘on-line’’ is used. Southern states that
recognizes. transmission provider (e.g., modeling
to the extent a transmission provider
349. In response to Montana does not customarily employ blind the system in a reliable and economic
Counsel’s assertion to use OASIS scaling, its use would not be consistent fashion as it would have been operated
postings, PPL Companies maintain that with historical practice. It asserts that a in real time) are reflected.’’ 360 In
the Commission should continue to use addition, the ‘‘analysis should not
problem with blind scaling is that it
simultaneous import limit studies. deviate from’’ and ‘‘must reasonably
does not necessarily reflect reality and
OASIS postings do not adjust for reflect’’ its OASIS operating practices361
therefore has the potential to understate,
transmission rights controlled by and ‘‘the techniques used must have
unaffiliated resources that may be used perhaps significantly, the simultaneous
import limit.354 EEI seeks clarification been historically available to
to compete against the seller in
that the Commission is not requiring customers.’’ 362 We also reaffirm that the
wholesale markets. PPL Companies
blind scaling in a manner that requires power flow cases (which are used as
state: ‘‘The Commission should reject
this proposal and continue to rely on proportionate increases and decreases to inputs to the SIL study) should
[SILs]. The Commission properly has generation resources. EEI requests represent the transmission provider’s
found that using actual OASIS postings clarification that scaling is allowed to tariff provisions and firm/network
understates import capability because include expert judgment reflecting how reservations held by seller/affiliate
OASIS postings do not take into account generation resources would likely be resources during the most recent
the capacity that may be imported as a scaled up or down in a real-time seasonal peaks.363
result of existing reservations.’’350 operating environment. EEI contends 355. The Commission will also
350. EEI and Southern request that expert judgment in some cases may continue to allow sensitivity studies,
clarification of a perceived conflict in determine simultaneous import but the sensitivity studies must be filed
Appendix E, which instructs sellers to capability by scaling load rather than in addition to, and not in lieu of, an SIL
use Commission criteria for calculating generation resources. EEI requests that study. We clarify that sensitivity studies
simultaneous import capability and also the Commission defer to expert are intended to provide the seller with
to strictly follow their OASIS judgment in scaling and not be overly
the ability to modify inputs to the SIL
practices.351 They recommend that the prescriptive as to whether generation or
study such as generation dispatch,
Commission clarify that if historical load is scaled to determine
demand scaling, the addition of new
practices are different from Appendix E, simultaneous import capability.355
transmission and generation facilities
historical practices should be used to 353. PPL Companies contend the
calculate simultaneous transmission simultaneous import capability should 358 In this regard, actual flows during the study
import capability and to allocate this not be limited by load in a control area. periods may be used as a proxy for the
transmission capability. Since generators within the control area simultaneous transmission import limit.
351. Duke asserts that scaling may sell power within or outside the 359 NOPR at P 77.
360 Id.
methods for calculating simultaneous control area, the Commission should 361 By OASIS practices, we mean sellers shall use
transmission import capability should consider the market prices of the same OASIS methods and studies used
not be solely limited to historical surrounding regions. If the prices are historically by sellers (in determining simultaneous
practices used by the seller to post ATC 105 percent or less, compared to control operational limits on all transmission lines and
on OASIS. Duke proposes a area prices, then the Commission monitored facilities) to estimate import limits from
collaborative method involving the aggregated first-tier control areas into the study
should assume the resident control area area. In this sense, sellers are modeling first-tier
seller and transmission customers. Duke resources will remain within the control balancing authority areas as if they are the
states: ‘‘the Commission should allow area and not result in economic transmission operator/security coordinator
applicants flexibility to use the withholding within the seller’s area.356 (monitoring reliability) operating an OASIS for the
appropriate methodology for SIL aggregated first-tier footprint. We recognize that
Commission Determination sellers are not the balancing authority area
determinations including collaborative, operators of first-tier balancing authority areas and
regional efforts—so that screen results in some instances, sellers may not be familiar with
for control area markets can be accurate. 354. The Commission will continue to all aspects of their first-tier balancing authority
For example, the Commission should require sellers to submit the Appendix areas’ transmission system limits. However, sellers
not be overly prescriptive as to the E analysis, i.e., the SIL study, to should be familiar with major constraints, path
calculate aggregated simultaneous limits, and delivery problems in these neighboring
scaling methodology to be used in such transmission systems. If a seller participates in
a collaborative effort, as long as the transfer capability into the balancing regional planning studies and day-to-day
methodology is clearly defined and authority area being studied.357 The coordination with neighboring first-tier balancing
supported by the applicants.’’352 PPL Commission reaffirms that the SIL study authority areas then this will provide a reasonable
is ‘‘intended to provide a reasonable basis for including transmission system constraints
Companies support the collaborative of first-tier balancing authority areas in SIL study
effort proposed by Duke, stating that calculations. In using OASIS practices the SIL study
353 PPL
Companies reply comments at 9–11
sellers should have ‘‘the option of shall capture real-life physical limitations of first-
354 Southernat 35 and 36. tier balancing authority areas that impede power
proposing alternative [SILs] for first-tier
355 EEI at 24. flowing from remote first-tier resources into the
356 PPL Companies at 8. seller’s study.
349 Id. at 14. 357 Benefits of using a uniform transmission 362 Id. at P 77, 78.
350 PPL Companies reply comments at 9–11. 363 Network reservations include any
import model include: Transparency, consistency,
351 EEI at 27–29; Southern at 32.
clarity, and reasonable assurance that system grandfathered transmission rights applicable to the
352 Duke at 27–28. conditions have been adequately captured. seller or its affiliated companies.
(and the retirement of facilities), major use would not be consistent with not be limited by load in a balancing
outages, and demand response.364 historical practice. authority area since generators within
356. The Commission agrees with We agree and, as noted herein, the the balancing authority area may sell
Montana Counsel and clarifies for PPL horizontal analysis and the SIL study power within or outside the balancing
Companies that a SIL study must reflect are designed to study historical and authority area. Accordingly, PPL
transmission capability no greater than realistic conditions during peak seasons. believes that the Commission should
the capability measures that were Accordingly, in this circumstance, consider the market prices of
historically shown on the OASIS or that sellers should follow their OASIS surrounding regions. The Commission
were historically used to measure practices and must provide adequate disagrees. We base the SIL on historical
transmission capability into markets support in the form of documentation of conditions that actually existed during
unless there is a demonstrated change in these processes. the study periods. In this regard, PPL
transmission capability, and account for 360. With regard to EEI’s argument has provided no compelling reason for
the actual practice of posting ATC to that the Commission should consider the Commission to abandon historical
OASIS in order to capture a realistic allowing expert judgment in predicting evidence in favor of a theoretical
approximation of first-tier generation real-time scaling techniques that will estimation of what could have occurred.
access to the seller’s market. Further, likely be used in real-time market We find that PPL’s approach would
and in response to EEI and Southern’s environments, the Commission requires make the studies more subjective and
comments, the Commission clarifies the use of a study that captures thus less accurate and more prone to
that when actual OASIS practices historical transmission operating dispute and controversy.
conflict with the instructions of practices. The SIL study is not a b. Use of Total Transfer Capability
Appendix E, sellers should follow prediction of import possibilities; (TTC)
OASIS practices and must provide rather, it is a simulation of historical
conditions. We assume that such Comments
adequate support in the form of
documentation of these processes. historical conditions are the result of 363. Southern asserts that the
357. We disagree with Duke’s ‘‘expert judgment’’ used when Commission’s assumption that all TTC
argument that a seller’s (generation or determining generation dispatch and/or values posted on OASIS platforms are
load) scaling methods should not be scaling techniques to make transmission non-simultaneous is not correct.
limited to historical OASIS practices capacity available during actual system Southern states that although many TTC
when conducting an SIL. Using conditions. Accordingly, this expert values may be calculated on a point-to-
historical practices provides an judgment is captured when conducting point non-simultaneous basis, some
appropriate method to obtain a an SIL study that is based on historical TTC values are simultaneous, thus
transparent and measurable analysis of operating practices. accounting for ‘‘loop flow’’ created by
361. In response to PPL’s comments other paths. Southern contends that
a seller’s actual balancing authority area
that the SIL should not be limited by those transmission providers that post
transmission conditions and practices.
load in a balancing authority area, the simultaneous TTC values on OASIS
Improper or theoretical scaling methods
Commission reiterates that the SIL study should have the flexibility to add these
which do not represent a seller’s actual
is a benchmark of historical conditions, TTC values to calculate simultaneous
transmission practices may have the
including peak load. It is a study to transmission import capability for the
effect of allowing more competing
determine how much competitive control area. Southern believes that
generation into the balancing authority
supply from remote resources can serve conflicts can occur between the generic
area than could actually be
load in the study area. Increasing the methods presented in the Appendix E
accommodated. This in turn has the
load in the study area beyond historical interim market screen order and actual
effect of reducing a seller’s generation
peak levels makes the study less OASIS practices used by transmission
market share and perhaps causing the
realistic and can bias the study.366 The providers to post TTC.
seller to inappropriately pass the market
Commission does, however, consider
share screen (a false negative).365 In Commission Determination
sensitivity studies on a case-by-case
addition, relying on historical OASIS 364. Southern’s suggestion that the
basis, when submitted in addition to the
practices gives a seller the data needed Commission allow the use of
SIL study and supported by record
to support its conclusions. simultaneous TTC values is consistent
evidence. For example, in Puget Sound
358. With regard to Duke and PPL’s Energy, Inc.’s (Puget) updated market with the SIL study provided that these
request that the Commission allow power analysis filing, Puget TTCs are the values that are used in
sellers to submit a flexible SIL study demonstrated that the simultaneous operating the transmission system and
based on regional collaboration, the transmission import limit was greater posting availability on OASIS. The
Commission finds that such an than the peak load in its balancing simultaneous TTCs 368 must represent
approach does not satisfy our concerns authority area, and the Commission more than interface constraints at the
and may result in an unrealistic allowed Puget to use a simultaneous balancing authority area border and
representation of the market. transmission import limit based on its must reflect all transmission limitations
359. Southern states that to the extent peak load.367 within the study area and limitations
a transmission provider does not 362. PPL also contends the within first-tier areas. The source (first-
customarily employ blind scaling, its simultaneous import capability should tier remote resources) can only deliver
power to load in the seller’s balancing
364 We note that several sellers from the Western 366 We note that there may be a circumstance authority area if adequate transmission
Interconnection have relied on Western Electricity where additional supplies could be imported above is available out of its first-tier area,
Coordinating Council (WECC) path ratings for their the market’s study year peak load. If such a
adequate transmission is available at the
SIL studies. The Commission has accepted these circumstance occurs, we will allow the seller to
ratings when sellers have demonstrated that they submit a sensitivity analysis in this regard and we seller’s balancing authority area
are simultaneously feasible and take into account will consider such an analysis on a case-by-case
any interdependencies between paths. basis. 368 The simultaneous TTCs include seller’s
365 See, e.g., Pinnacle West Capital Corp., 117 367 Puget Sound Energy, Inc., 111 FERC ¶ 61,020 balancing authority area and aggregated first-tier
FERC ¶ 61,316 (2006). at P 13 (2005). areas.
interface, and transmission is internally historically controlled by non-affiliates 369. With regard to APPA/TAPSs’
available. Thus, the TTC must be would have been used to compete to concern, we clarify that the seller’s firm,
appropriately adjusted for all applicable inject energy into the transmission network, and grandfathered
(as discussed below) firm transmission provider’s control area market if market transmission reservations longer than 28
commitments held by affiliated power or scarcity was driving market days, including reservations for
companies that represent transfer prices above other regional prices.’’ designated resources to serve retail load,
capability not available to first-tier However, if the holder of the reservation shall be fully accounted for in the
supply. Sellers submitting simultaneous is using the transfer capability to serve simultaneous import limit study. We
TTC values must provide evidence that its own load, it will not be available to further clarify that reservations held by
these values account for simultaneity, third parties to respond to a price third parties to import power into the
account for all internal transmission increase on the part of the transmission seller’s home area should be accounted
limitations, account for all external provider/sellers. APPA/TAPS state that for by allocating transmission import
transmission limitations existing in presumably the capacity resources capability to those parties, and then
first-tier areas, account for all associated with the import will be allocating the remaining SIL pro rata.
transmission reliability margins, and are reflected in the capacity total of the
d. Allocation of Transmission Imports
used in operating the transmission party that controls the resource’s output.
Based on Pro Rata Shares of Seller’s
system and posting availability on Excluding the transfer capability
Uncommitted Generation Capacity
OASIS. associated with the resource will not
result in a double-deduction. Rather, Comments
c. Accounting for Transmission
failing to exclude the transfer capability 370. Duke and EEI support the
Reservations
will result in a double-counting of Commission proposal to allocate
Comments competing supply. Thus, APPA/TAPS imports on a pro rata basis into a study
365. Duke and EEI propose that short- assert that the Commission should area based on uncommitted capacity in
term firm reservations should not be revise the treatment of transfer surrounding areas.376
subtracted from simultaneous import capability held by third parties on a firm 371. However, Powerex expresses
limits because longer firm reservation basis.373 concern that pro rata allocation of
requests can displace control of these Commission Determination uncommitted capacity is not a realistic
transmission holdings.369 EEI explains, representation of the physical capability
‘‘it is inappropriate to net out 368. The Commission agrees with of the system, since pro rata allocation
transmission capacity that is not Duke, EEI and Southern that short-term assumes that the system can import up
reserved to commit long-term generation firm reservations can be unpredictable, to the simultaneous import limit over
resources to load. Short-term firm driven by real time system conditions, any combination of transmission paths.
transmission reservations, some as short and do not necessarily indicate that the Powerex argues that, in reality, some
as one week in duration, provide associated transmission capacity is not paths become constrained before others,
flexibility to the market and will not available for competing supplies (or to so the allocation of import capability
necessarily persist for the duration, or import seller’s supplies during the study should take account of the physical
even large portions, of the MBR periods). Accordingly, we conclude limitations of the transmission system.
authorization period. Therefore, they that, in calculating simultaneous Powerex asks that the Commission
should not be used to reduce the transmission import limits, short-term allow sellers to use allocation methods
estimate of simultaneous import firm reservations of 28 days or less in that are consistent with physical system
capability.’’370 effect during the study periods need not limitations, where sellers provide
366. Southern agrees, referring to the be accounted for.374 While we find that documentation showing that the
nature of short-term reservations as firm transmission reservations less than allocation methods used in the screens
‘‘transient and unpredictable.’’ 371 or equal to 28 days in duration are are realistic or conservative.377
Southern states: ‘‘In most cases, short- usually unpredictable, we believe that 372. Morgan Stanley asks the
term purchases by the applicant firm transmission reservations of a Commission to clarify its proposal of
essentially allow the market to provide longer duration are not related to the allocating transmission imports pro rata
generation within the applicant’s unpredictable nature of real time events between the seller and its competitors
control area instead of the applicant and are based upon planned and based on uncommitted capacity. Morgan
utilizing its ‘owned’ generation predictable events. Therefore, the Stanley wonders if the Commission
capacity. Alternatively, the associated Commission will require sellers to made a typographical error and
import capability is released to the account for firm and network intended to propose an allocation based
market. In either case, these short-term transmission reservations having a on committed capacity. Morgan Stanley
reservations should not be used to duration of longer than 28 days.375 believes only the transmission provider
inflate artificially the applicant’s market (seller) would have uncommitted
share in conjunction with a screen or 374 We
capacity.378
understand that short-term firm
DPT evaluation.’’ 372 reservations are often used for unpredictable events Commission Determination
367. APPA/TAPS state that the and real-time system conditions. We note that most
Commission should revisit the unpredictable conditions that sellers hold short- 373. The Commission agrees with
treatment of firm transmission term firm reservations for, including generator Duke and EEI that the current practice
forced outages and weather events, are less than one of allocating simultaneous import
reservations held by third parties. In the month in duration. Accordingly, we will allow
July 8 Rehearing Order (at P 49), the applicants to not account for short-term firm
Commission stated that the SIL study reservations of one month or less, and since the transmission reservations (firm or network
shortest month is 28 days long, we are setting this transmission commitments) which have been
assumed that ‘‘all reservations
limit at 28 days. Any firm reservation longer than stacked, or successively arranged, into an
28 days in duration must continue to be accounted aggregated point-to-point transmission reservation
369 Duke at 26–29. longer than 28 days.
for in the SIL study.
370 EEI at 25–26. 375 The simultaneous import limit study must 376 Duke at 26–29, EEI at 25–26.
371 Southern at 36–37. 377 Powerex at 24–25.
account for short-term firm transmission rights
372 Id. at 37. including point-to-point on-peak/off-peak 378 Morgan Stanley at 15.
capability pro rata to sellers based on use of the term uncommitted capacity, calculations based on publicly available
uncommitted capacity should be apparently believing we are referring to information.383
continued.379 However, some uncommitted transmission capacity. Commission Determination
clarification may be helpful. That is not the case as we are referring
374. Powerex raises concern over the to uncommitted generation capacity. 378. The Commission will continue to
pro rata allocation of uncommitted The reason the use of uncommitted require the SIL study for the indicative
generation capacity and asserts that this generation capacity is appropriate is screens and DPTs in order to assure that
is not a realistic representation of the because our screens analyze seller’s restrictions regarding importing first-tier
physical capability of the system since relative uncommitted generation supply are captured for seasonal peak
pro rata allocation assumes that the capacity rather than installed generation conditions. Benefits of using a uniform
system can import up to the transmission import model include:
capacity or, as suggested by Morgan
simultaneous import limit over any Transparency, consistency, clarity, and
Stanley, committed generation capacity.
combination of transmission paths. In reasonable assurance that system
In particular, the SIL study determines
this regard, we note that pro rata conditions have been adequately
the amount of simultaneous captured. As also stated above, the
allocation of transmission capacity
transmission capacity available to be Commission provides sellers flexibility
based on first-tier uncommitted
imported by competing supplies from to provide sensitivity analyses by
generation capacity is an approximation
and is consistent with the manner in remote resources in first-tier markets. modifying inputs to the SIL study.
which we conduct the SIL study. In The supplies that are available to be 379. In regard to PG&E’s belief that
particular, when determining the imported and thus compete are RTOs/ISOs are best equipped to conduct
simultaneous import limit, first-tier necessarily ‘‘uncommitted.’’ Further, it SIL calculations, the Commission will
balancing authority areas are combined is our experience that uncommitted continue to require transmission-
into a single area. The import capability generation capacity can be held by any providing sellers to perform the SIL
of the study area is the simultaneous number of market participants based on studies as necessary. To the extent that
transfer limit from the aggregated first- market conditions at a given time. In an RTO/ISO conducts transmission
tier market area into the study area.380 other words, we do not agree with an studies and makes that information
We then allocate imports based on assumption that the transmission available, a seller may rely on the
transmission capacity (limited by the provider is likely to be the only market information obtained from its RTO/ISO
physical capabilities of the transmission participant with uncommitted power to conduct its SIL study. Further, the
system as determined by the SIL study) supplies. Commission clarifies that to the extent
pro rata based on sellers’ first-tier the transmission-owning seller can
e. Miscellaneous Comments demonstrate it passes the screens for
uncommitted generation capacity.381
We recognize that such an Comments each relevant geographic market
approximation may not fit all cases. without considering imports, it need not
Accordingly, with regard to allocating 376. PG&E states that RTOs/ISOs submit a SIL study.384
transmission imports, sellers can submit having knowledge and control over the 380. Powerex requests that it be able
additional sensitivity studies based on entire control area are best suited to to submit proxies in place of a SIL
factors suggested by Powerex, and perform SIL studies. PG&E requests that study. The Commission notes that
intervenors may rebut the allocations of the Commission allow an exemption transmission-providing sellers are
import capability made by seller. The where, in the absence of an accepted SIL required to be the first to file SIL
Commission will consider such study by an RTO/ISO, the seller may studies, which makes the required data
arguments on a case-by-case basis. substitute historical import levels in available to non-transmission owning
375. Morgan Stanley asks if the place of the SIL study. In addition, sellers for use in performing their
Commission made a typographical error PG&E requests that the Commission generation market power analyses.385
and intended to propose an allocation confirm that sellers that pass screens for However, as the Commission stated in
based on committed capacity rather each relevant geographic market the April 14 Order,
than uncommitted capacity. The without considering imports need not an applicant may provide a streamlined
Commission clarifies that pro rata provide a simultaneous import application to show that it passes our
allocation is used to assign shares of analysis.382 screens. Thus, with respect to simultaneous
import capability, if an applicant can show
simultaneous transmission import 377. Powerex has concerns about how that it passes our screens for each relevant
capability to uncommitted generation feasible it is for marketers to obtain non- geographic market without considering
capacity in the aggregated first-tier public data from their transmission imports, no such simultaneous import
balancing authority areas to determine provider that is needed to conduct a analysis needs to be provided. Further, we
how much uncommitted generation screen (e.g., a SIL study) on their own. recognize that certain applicants will not
capacity can enter the study area. Powerex notes that Bonneville Power have the ability to perform a simultaneous
Morgan Stanley appears to confuse our import capability study. Accordingly, if an
Administration (BPA) and Northwest applicant demonstrates that it is unable to
Power Pool (NWPP) do not, as a perform a simultaneous import study for the
379 Allocation of the simultaneous transmission
practice, conduct and post simultaneous control area in which it is located, the
import capability, into the seller’s market, to
affiliated and unaffiliated uncommitted first-tier transmission import capability studies. applicant may propose to use a proxy amount
generation is done in the indicative screen, after Therefore, Powerex asserts that the for transmission limits. We will consider
conducting the SIL study, in order to estimate Commission should maintain the such proposals on a case-by-case basis.386
uncommitted capacity market shares from first-tier current flexibility of allowing marketers 381. In this regard, we note that we
balancing authority areas.
380 April 14 Order, 107 FERC ¶61,018 at to submit credible proxy study have accepted proxy amounts for
Appendix E.
383 Powerex at 5–25.
381 The SIL study also accounts for transmission 382 PG&E at 11–12. PG&E also requests that the
384 April 14 Order, 107 FERC ¶ 61,018 at P 85.
reservations when determining the amount of Commission clarify how to perform the
imports available to reach the study area as simultaneous import limitation to avoid the need 385 July 8 Order, 108 FERC ¶ 61,026 at 46.
discussed herein and in the April 14 and July 8 for repetitive studies. However, PG&E did not
Orders. specify what clarification was sought in this regard. 386 April 14 Order, 107 FERC ¶ 61,018 at P 85.
transmission limits and will continue to problems now hidden from view in the rate filings where an intervenor
consider such requests on a case-by-case seller’s historical practices, resulting in demonstrates that it needs additional
basis.387 increased transparency. time to obtain and analyze CEII. In
f. Required SIL Study for DPT Analysis Order No. 662, the Commission
encouraged the parties in cases in which
Comments 384. For the reasons stated herein CEII is filed to promptly negotiate a
382. EEI and Southern propose that regarding the need to as accurately as protective order governing access to the
the Commission not mandate SIL possible account for transmission CEII, or privately negotiate for the
studies as the only method for limitations when considering power submitter to provide the data to
calculating import limits for DPT supplies that can be imported into the interested parties pursuant to an
analysis. EEI states that while such a relevant market under study, the appropriate non-disclosure agreement.
study may be an appropriate tool for Commission adopts the requirement for The Commission sought comments in
indicative screens, the DPT is a more use of the SIL study as a basis for the NOPR on whether CEII designations
comprehensive study and the transmission access for both the remain a concern since issuance of
Commission should allow for more indicative screens and the DPT analysis. Order No. 662.
precise, non-standardized approaches 385. The lack of flexibility in creating
a simultaneous transmission import 388. The Commission also sought
for calculating simultaneous import comments regarding whether the
capability for use in the DPT.388 limit has been identified by several
commenters. However, the Commission comment period (generally 21 days from
Southern states that the apparent the date of filing) provided for parties to
purpose of Appendix E is to provide a believes it has provided sellers
sufficient flexibility to adequately file responses to the indicative screens
somewhat standardized approach to
represent their process for making and DPT analyses is sufficient. The
assessing simultaneous import
transmission available to unaffiliated Commission asked what would be an
capability that goes hand-in-hand with
supply. The Commission shares appropriate comment period if it were
the simplified tools used to develop a
preliminary assessment of generation NRECA’s concerns that opening the to establish a longer period for
market power. It argues that where a process to alternative study methods submitting comments on indicative
seller presents a more thorough without a specified standard may result screen and DPT analyses.
generation analysis pursuant to a DPT, in deviations from reasonable Comments
it should be permitted to offer a more depictions of transmission limits
thorough analysis of transmission historically applied to first-tier 389. A number of commenters note
import capability.389 suppliers and will likely bias such that intervenors should be given
383. NRECA responds that the studies to the benefit of the seller. adequate time to respond to CEII
Commission should not allow sellers to 386. With regard to the DPT analysis, designations. APPA/TAPS suggest that
substitute alternative measures of there are several primary reasons for the the Commission provide a process to
simultaneous import capability in the continued use of simultaneous allow interested market participants to
DPT. NRECA states that while a seller transmission import limit studies: obtain CEII authorization in advance of
should be allowed to conduct a SIL Uniformity of modeling affiliated and a region’s triennial updates. They
study that is more refined than the one unaffiliated supply, consideration of submit that such authorization would
required of all sellers, ‘‘the applicant’s simultaneity, consideration of seller and apply to all sellers in the region where
alternative analysis should be submitted affiliate transmission commitments and market-based rate authority is up for
in addition to, and not in lieu of, the reservations, consideration of all review and would necessitate that the
required analysis’’ in the DPT.390 It internal transmission limitations, requester file only one request.392
argues that otherwise, each seller will consideration of all external Montana Counsel states that intervenors
do the analysis a bit differently so that transmission limitations existing in should also be given adequate time to
the analysis will favor passing the tests. first-tier areas, consideration of the respond to confidentiality claims with
According to NRECA, the worst-case seller’s (or the seller’s transmission regard to non-CEII data.393
scenario is that there will be no provider’s) practices for posting ATC,
standardized approach, which would and consideration of peak seasonal 390. A number of commenters
exacerbate the existing problems created conditions. By requiring the SIL study support extending the comment period
by inadequate access to the data in the DPT analysis, the Commission for market-based rate filings. Ameren
underlying the sellers’ market power assures that all factors important in supports a 30-day comment period on
analysis and the lack of standard determining transmission access to the the basis that 30 days has proven to be
reporting and increase the burdens on seller’s market are taken into account. a sufficient comment period for section
intervenors and the Commission staff in 203 filings.394 Morgan Stanley
13. Procedural Issues recommends a 45-to 60-day comment
evaluating applications for market-based
rates and market power updates. Commission Proposal period if the Commission adopts a
NRECA states that one advantage of 387. In the NOPR, the Commission regional approach for updated market
requiring all sellers to use a standard noted that Order No. 662 391 addressed power analyses.395 NRECA states that
analysis, in addition to whatever other under a regional filing process, a 21-day
concerns that CEII claims in market-
analysis they may choose to offer, is that comment period is inadequate when
based rate filings are overbroad. In
it can more effectively bring to light the several updated market power analysis
Order No. 662, the Commission stated
filings are reviewed at once, and instead
that it is willing to consider on a case-
387 See, e.g., Tampa Electric Co., 110 FERC ¶ advocates a 90-day comment period
61,026 at P 32 (2005) (using the largest ATC into
by-case basis requests for extensions of
from the notice of the filing or from the
time to prepare protests to market-based
the control area at the time the study is conducted

is a conservative assumption for import capability
392 APPA/TAPS at 35–36.
and an acceptable proxy for the SIL study). 391 Critical Energy Infrastructure Information,
388 EEI at 24–25. 393 Montana Counsel at 23–24.
Order No. 662, 70 FR 37031 (June 28, 2005), FERC
389 Southern at 4, 37–38. 394 Ameren at 8.
Stats. & Regs. Regulations Preambles 2001–2005 ¶
390 NRECA reply comments at 24–25. 31,189 (June 21, 2005). 395 Morgan Stanley at 14.
date of a completed filing if additional protective order is signed and submitted analysis.400 According to EPSA,
data is requested by the Commission.396 to the seller. analyzing vertical market dominance in
394. With respect to APPA/TAPS’s one single prong could be a positive
Commission Determination suggestion to make CEII authorization step, provided that the elements of the
391. In this Final Rule, we adopt region-wide to coincide with region- prong are explicitly specified and
procedures under which intervenors in wide analysis, we do not believe such effectively enforced.401 No commenter
section 205 proceedings may obtain a step is necessary or advisable at this opposed the Commission’s proposal in
expedited access to CEII or other time. Our goal with CEII has always this regard.
information for which privileged been to limit access to those with a
legitimate need for the information. We Commission Determination
treatment is sought. A request for access
to information for which CEII status or do not expect that all market 399. In light of the reasons discussed
privilege treatment has been claimed participants in a region will want to in the NOPR and the comments
generally takes a few weeks for the comment on all updated market power received, the Commission will adopt the
Commission to process under the analyses within that region. Moreover, NOPR proposal to consolidate the
standard process found in 18 CFR we anticipate that our regulatory change transmission market power analysis and
388.112 and 388.113.397 Such a delay in requiring submission of a proposed other barriers to entry analysis into one
receiving such information may make it protective order will go a long way to vertical market power analysis.
difficult for an intervenor to submit resolving past difficulties in obtaining
non-public information in a timely 1. Transmission Market Power
timely comments.
392. An expedited process does exist manner. Commission Proposal
for section 203 filings. Section 33.9 of 395. With regard to the comment
the Commission’s regulations 398 states period for parties to file responses to
noted that it recognized that Order No.
that a seller seeking to protect any part updated indicative screens, we believe,
888 did not eliminate all potential to
of its application from public disclosure as we discuss below in the section on
engage in undue discrimination and
must also submit a proposed protective Implementation, that extending the
preference in the provision of
order. Parties may sign the proposed comment period for regional updated
transmission service,402 and that it had
protective order and obtain CEII or market power analyses will allow
issued a Notice of Inquiry and a NOPR
privileged materials in a more timely intervenors a better opportunity to
regarding whether reforms are necessary
manner, without having to spend time review and comment on those filings,
to the Order No. 888 pro forma
negotiating the terms of a protective especially considering the large number
OATT.403 The Commission concluded
order or waiting for the Commission to of filings that will be submitted at one
that any concerns regarding the
process the request through its standard time. Hence, we will establish a 60-day
adequacy of the OATT should be
request process. comment period for updated market
addressed in that proceeding and not in
power analyses that are filed in
393. In order to ensure that the MBR Rulemaking proceeding.
accordance with the schedule in
intervenors have access in a timely Therefore, in the NOPR the Commission
Appendix D.
manner to relevant information for 396. With regard to the comment proposed to continue to find that, where
which privileged treatment is claimed, period for initial applications and for a seller or any of its affiliates owns,
we will adopt language similar to § 33.9 DPT analyses ordered as part of a operates or controls transmission
in this Final Rule, to be codified at 18 section 206 proceeding, the Commission facilities, a Commission-approved
CFR 35.37(f). We intend that the will retain the current 21-day comment OATT, as modified as a result of the
proposed protective order will be self period. However, we remain willing to OATT Reform Rulemaking, will
implementing and not require action by consider on a case-by-case basis adequately mitigate transmission market
the Commission; once a party signs the requests for extensions of time beyond power.
proposed protective order and returns it 21 days to submit comments on these 401. In the NOPR, the Commission
to the party submitting protected filings. further stated that the finding that an
material, the submitter is expected to
provide the material promptly to the B. Vertical Market Power 400 See Duke at 30; Southern at 38–40; EPSA at
requester. We note that the 18–19.

397. In the NOPR, the Commission 401 EPSA at 18–19.
Commission’s Model Protective Order is proposed to replace the existing four- 402 In Order No. 2000, the Commission found that
available on the Commission’s Internet prong analysis (generation market ‘‘opportunities for undue discrimination continue
site and may be used as a guide in power, transmission market power, to exist that may not be remedied adequately by
preparing proposed protective orders.399 other barriers to entry, affiliate abuse/ [the] functional unbundling [remedy of Order No.
To expedite processing, the regulation 888]* * *’’ Regional Transmission Organizations,
reciprocal dealing) with an analysis that Order No. 2000, FERC Stats. & Regs., Regulations
will require that the seller provide the focuses on horizontal market power and Preambles July 1996-December 2000 ¶ 31,089 at
CEII or privileged material to the vertical market power. Accordingly, it 31,105 (1999), order on reh’g, Order No. 2000-A,
requester within five days after the proposed that issues relating to whether FERC Stats. & Regs., Regulations Preambles July
1996-December 2000 ¶ 31,092 (2000), aff’d sub
the seller and its affiliates have nom. Public Utility District No. 1 of Snohomish
396 NRECA at 29. transmission market power or whether County, Washington v. FERC, 272 F.3d 607 (D.C.
397 This is due, in part, to the fact that the they can erect other barriers to entry be Cir. 2001).
Commission’s regulations require notice and an 403 See Preventing Undue Discrimination and
opportunity for the submitter to comment on the
addressed together as part of the vertical
Preference in Transmission Service, 70 FR 55796
request. The Commission recently consolidated the market power part of the analysis. (Sept. 23, 2005), FERC Stats. & Regs., ¶ 35,553
notice and opportunity to comment provision in 18 (2005); Preventing Undue Discrimination and
CFR 388.112(d) with the notification prior to release Comments
Preference in Transmission Service, Notice of
found in 18 CFR 388.112(e). See Critical Energy 398. As a general matter, commenters Proposed Rulemaking, 71 FR 32636 (Jun. 6, 2006),
Infrastructure Information, Order No. 683, FERC FERC Stats. & Regs. ¶ 32,603 (2006); Preventing
Stats. & Regs. ¶ 31,228 (2006).
expressed support for the proposed
Undue Discrimination and Preference in
398 18 CFR 33.9. consolidation of the transmission Transmission Service, Order No. 890, 72 FR 12266
399 See http://www.ferc.gov/legal/admin-lit/ market power and other barriers to entry (Mar. 15, 2007), FERC Stats. & Regs. ¶ 31,241
model-protective-order.pdf. prong into one vertical market power (2007), reh’g pending.
OATT adequately mitigates OATT Reform Rulemaking, will mitigate Commission Determination
transmission market power rests on the transmission market power.409 TDU 408. The Commission will adopt the
assumption that individual sellers Systems argue that the proposals NOPR proposal that, to the extent that
comply with their OATTs. If they do governing transmission planning and a public utility with market-based rates,
not, violations of the OATT may be expansion in the OATT Reform or any of its affiliates, owns, operates, or
cause to revoke market-based rate Rulemaking are inadequate to mitigate controls transmission facilities, the
authority or to subject the seller to other
the vertical market power of Commission will require that a
remedies the Commission may deem transmission-owning public utilities.410 Commission-approved OATT be on file
appropriate, such as disgorgement of
406. The New York Commission before granting such seller market-based
profits or civil penalties.404 However,
states that the presence of an OATT may rate authorization. We recognize that the
before the Commission will consider
mitigate a seller’s transmission market Commission has granted a number of
revoking an entity’s market-based rate
power, but only with respect to entities waiver of the requirement to file
authority for a violation of the OATT,
generator access to the transmission an OATT where the filing entity
there must be a nexus between the
system. It submits that vertically satisfies the Commission’s standards for
OATT violation and the entity’s market-
integrated utilities may be able to the grant of such waivers.415 The
based rate authority.
402. In addition, the Commission exercise transmission market power in a Commission will continue to grant
proposed that, if it determines, as a manner that would not necessarily waiver of the OATT requirement on a
result of a significant OATT violation, violate their OATTs, such as through case-by-case basis, and will continue to
that the market-based rate authority of a outage scheduling (e.g., delaying repair allow sellers to rely on the grant of such
transmission provider will be revoked and maintenance of transmission lines waiver to satisfy the vertical market
within a particular market, each affiliatein a load pocket in which an affiliated power part of the analysis. If a seller
of the transmission provider that generator is located), transmission that previously received waiver of the
possesses market-based rate authority investment (e.g., delaying or minimizing OATT requirement seeks to continue to
will have it revoked in that same market its investment in the bulk electric rely on that waiver to satisfy the vertical
on the effective date of revocation of thetransmission system in a load pocket in market power part of the analysis, it
transmission provider’s market-based which an affiliated generator is located), must make an affirmative statement in
rate authority.405 or voltage support (e.g., inadequate its updated market power analysis that
support of voltage requirements and it previously received such a waiver,
a. OATT Requirement being slow to correct voltage support that such waiver remains appropriate,
Comments shortcomings).411 EPSA agrees with the and the basis for that claim. In
New York Commission that the addressing our vertical market power
403. Several commenters state that concerns, a seller, including its
merely having an OATT on file does not Commission cannot assume that any affiliates, that does not own, operate or
sufficiently mitigate vertical market transmission provider with a
Commission-approved OATT on file has control transmission facilities must
power and that a utility’s interpretation make an affirmative statement that
and implementation of its OATT can adequately mitigated transmission
market power and that ‘‘the Commission neither it, nor any of its affiliates, owns,
effectively eviscerate market power operates or controls any transmission
protections. 406 Some commenters do not should require these utilities to facilities.
believe that tariff changes alone will demonstrate that they do not have the
incentive or ability to engage in such 409. In the NOPR, we stated that
effectively mitigate vertical market
behavior, before they are granted MBR concerns regarding the adequacy of the
power in the future and therefore
status.’’ 412 OATT should be addressed in the OATT
request a post-implementation
Reform Rulemaking. The Commission
proceeding one year after the issuance 407. On the other hand, several
received over 6,000 pages of comments
of a final rule in the OATT Reform commenters support the Commission’s
relating to potential reforms to the pro
Rulemaking to explore the effectiveness proposal to maintain the long-standing
forma OATT in that proceeding, and on
of the updated OATT in assessing presumption that a Commission-
February 16, 2007 issued a Final Rule
vertical market power.407 approved OATT will adequately
404. EPSA states that the outcome of adopting numerous improvements to
mitigate transmission market power.413
the OATT Reform Rulemaking will the pro forma OATT that will further
EEI states that the comprehensive
determine the strength and efficacy of limit opportunities for transmission
approach that the Commission has taken
the vertical market power screen and providers to unduly discriminate
to reform the OATT in the OATT
stresses the interrelationship of that against transmission customers. As a
Reform Rulemaking is the best approach
proceeding to this proposed rule; EPSA result, we do not address in this Final
to assess the adequacy of the OATT to
continues to advocate that the reform of mitigate transmission market power. EEI Rule specific reforms to the OATT. In
Order No. 888 and the ability of the addition, the Commission declined in
states that the Commission should
OATT to mitigate against market power Order No. 890 to establish a one-year
continue to find that a Commission-
effectively be evaluated on an ongoing review period for the reformed pro
approved OATT, as modified as a result
basis.408 forma OATT. The Commission stated it
of the OATT Reform Rulemaking,
405. APPA/TAPS similarly state that, will continue to actively monitor
adequately mitigates transmission
for purposes of the vertical market compliance with its orders and, as
market power.414
power analysis, it is too early to tell necessary, institute further proceedings
whether the OATT, as modified in the 409 APPA/TAPS at 6.
415 Black Creek Hydro, Inc., 77 FERC ¶ 61,232 at
410 TDU
Systems at 24.
404 NOPR 61,941 (1996) (granting waiver of Order No. 888 for
at P 91 (citing The Washington Water
411 New
York Commission at 2–4. public utilities that can show that they own,
Power Co., 83 FERC ¶ 61,282 (1998)). 412 EPSA reply comments at 5–6 (citing New York
405 NOPR at P 91.
operate, or control only limited and discrete
Commission at 2–4). transmission facilities (facilities that do not form an
406 See, e.g., Suez/Chevron at 6; Reliant at 8. 413 Duke at 29–32; EEI at 44–45; Southern at 38–
integrated transmission grid), until such time as the
407 Suez/Chevron at 6; EPSA at 20. 40; MidAmerican reply comments at 2. public utility receives a request for transmission
408 EPSA reply comments at 2, 5. 414 EEI reply comments at 31–35. service).
to meet its statutory obligation to entails. They propose that if the limitation or revocation if it participates
remedy undue discrimination.416 transmission provider or one of its in an RTO that is the subject of an
410. In response to the concerns of the affiliates has market-based rate OATT violation. According to Duke,
New York Commission and EPSA that authority, there should be a rebuttable once the transmission owner transfers
vertically integrated utilities may presumption that a violation of the control over its facilities to an RTO,
exercise vertical market power without OATT has the requisite nexus to adherence to the OATT is in the control
violating their OATTs through actions support revocation of the market-based of the RTO, not the transmission
such as outage scheduling, investment rate authority of the transmission owner.426
decisions and inadequate voltage provider and its affiliates.421 TDU
support, we note that the OATT does Commission Determination
Systems state that it should be up to a
address such matters as the planning seller to rebut that presumption. 417. We will adopt the NOPR
and expansion of facilities, the duty to 414. APPA/TAPS assert that the proposal to revoke an entity’s market-
provide firm and non-firm service and nexus standard adds an unnecessary based rate authority in response to an
good utility practice. These provisions and counter-productive test.422 APPA/ OATT violation only upon a finding of
impose definite obligations on TAPS submit that if an OATT violation a nexus between the specific facts
transmission providers. As additional denies, delays, or diminishes the relating to the OATT violation and the
examples, outage scheduling aimed at availability of transmission service or entity’s market-based rate authority, and
affecting market prices may constitute raises its costs, that alone should suffice reiterate our statement in the NOPR that
market manipulation, and inadequate for consideration of revocation of an OATT violation may subject the
voltage support may violate a reliability market-based rate authority. They argue seller to other remedies the Commission
standard under FPA section 215. These that whether the violation had a nexus may deem appropriate, such as
provisions adequately address the to the seller’s market-based rate sales disgorgement of profits or civil
concerns of the New York Commission may be irrelevant. APPA/TAPS state penalties.427 As stated in the NOPR, the
and EPSA. that a nexus requirement could divert finding that an OATT adequately
the Commission and injured parties mitigates transmission market power
b. OATT Violations and MBR rests on the assumption that individual
Revocation through needless disputes about
whether the alleged violator used the entities comply with the OATT and
Comments OATT violation to enable a specific sale there may be OATT violations in
411. A number of commenters agree under its market-based rate tariff circumstances that, after applying the
with the Commission that market-based authority, ignoring the larger picture factors in the Enforcement Policy
rate authority should not be revoked painted by the transmission provider’s Statement,428 merit revocation or
unless and until the Commission finds anticompetitive conduct and exercise of limitation of market-based rate
a direct nexus between the OATT transmission market power. Thus, authority. We find, however, that it is
violation and the entity’s market-based instead of the ‘‘nexus’’ standard, APPA/ inappropriate to revoke a seller’s
rate authority.417 EEI states that the TAPS states that the Commission market-based rate authority for an
Commission should not presume that an should require that the OATT violation OATT violation unless there is a nexus
OATT violation is sufficient cause to be ‘‘material,’’ i.e., one that denies between the specific facts relating to the
revoke a transmission provider’s customers the just, reasonable and non- OATT violation and the seller’s market-
market-based rate authority because discriminatory and comparable based rate authority. This will ensure
there is no basis for such a transmission service that is essential to that our actions are not arbitrary or
presumption.418 Instead, EEI argues that mitigation of transmission market capricious and that they are based on an
the Commission should carefully review power.423 adequate factual record. We will not, as
all facts and circumstances before 415. Reliant suggests that the TDU Systems suggest, adopt a rebuttable
determining that an OATT violation was Commission should strengthen its presumption that any OATT violation
a willful exercise in undue vertical market power analysis by has the requisite nexus to support
discrimination intended to benefit a looking at the extent to which a revocation of market-based rate
seller’s sales at market-based rates.419 transmission provider has denied authority. There is a wide range of types
412. EPSA asserts that any violation transmission access to competing of OATT violations, including ones that
of an entity’s OATT in order to favor its suppliers and should seek justification may be inadvertent and ones that are
own sales or its affiliates would create for such denials.424 For those neither intended to affect, nor in fact
a nexus to the entity’s market-based rate transmission providers seeking market- affect, the market-based rate sales of the
authority. If the Commission does not based rate authority, Reliant asserts that transmission provider or its affiliates.
clarify this point, EPSA requests any suppliers unable to reach a We therefore believe adoption of a
explanation regarding what exactly customer as a result of an inappropriate general rebuttable presumption of a
would constitute a nexus between an denial should not be included as nexus for any and all OATT violations
OATT violation and an entity’s market- competing generation in the is not justified.
418. Several commenters sought
based rates.420 transmission provider’s horizontal
413. TDU Systems state that it is clarification regarding what would
market power screens until the
unclear what the nexus requirement constitute a sufficient nexus between
transmission provider remedies the
the specific facts relating to the OATT
problem.425
416 Order No. 890, FERC Stats. & Regs. ¶ 31,241
416. Duke urges the Commission to violation and the seller’s market-based
at P 42. clarify that a seller’s market-based rate rate authority. Determining what
417 EEI reply comments at 31–35; MidAmerican
reply comments at 2. See also Duke at 29 (OATT

authority should not be subject to 426 Duke at 29–32.
violation should be a material violation and related 427 NOPR at P 91 (citing The Washington Water
421 TDU Systems at 21–23.
in some way to the seller exercising market power). Power Company, 83 FERC ¶ 61,282 (1998)).
418 EEI reply comments at 31–35. 422 APPA/TAPS at 81–82.
428 Enforcement of Statutes, Orders, Rules and
419 EEI reply comments at 34; PNM/Tucson at 10– 423 Id. at 82.
Regulations, Policy Statement on Enforcement, 113
12. 424 See Reliant at 8–9.
FERC ¶ 61,068 (2005) (Enforcement Policy
420 EPSA at 23–24. 425 See id. Statement).
constitutes a sufficient factual nexus is c. Revocation of Affiliates’ MBR Commission Determination

best left to a case-by-case consideration. Authority 424. In response to concerns raised by
The wide range of positions among Comments commenters, we do not adopt the
commenters on how to define a proposal from the NOPR to revoke the
sufficient factual nexus itself suggests 422. Some commenters oppose the market-based rate authority of each
that this finding is best made after proposal to revoke the market-based rate affiliate of a transmission provider that
review of a specific factual situation. authority of all affiliates of a loses its market-based rate authority
Some commenters assert that a finding transmission provider within a within a particular market as a result of
of a ‘‘material’’ violation of the OATT particular market, regardless of whether the transmission provider’s OATT
would be sufficient. We disagree. While they were involved in the transmission violation. Rather, we will create a
a seller’s inconsequential OATT provider’s violation of its OATT. These rebuttable presumption that all affiliates
violation would not serve as a basis for commenters argue that the proposal to of a transmission provider should lose
revoke all affiliates’ market-based rate their market-based rate authority in each
revoking that entity’s market-based rate
authority ignores the principles of the market in which their affiliated
authority, our view is that revocation is
Commission’s code of conduct and transmission provider loses its market-
warranted only when an OATT standards of conduct, including
violation has occurred and the violation based rate authority as a result of an
provisions restricting the sharing of OATT violation. We will allow an
had a nexus to the market-based rate market information and requiring affiliate of a transmission provider to
authority of the violator or its affiliates. separation of functions.429 They argue retain its market-based rate authority in
419. The Commission emphasizes that that, in light of the separation of a a market area if the affiliate overcomes
we have discretion to fashion remedies company’s marketing function and the rebuttable presumption with respect
for OATT violations that relate to the transmission function under the to that market area.
violator’s market-based rate authority in standards of conduct, a company’s 425. This issue generally will arise
instances in which we do not find market-based rates should not be when a transmission provider merits
sufficient justification for revocation of revoked because of an OATT violation revocation of its market-based rate
that authority. For example, in by an affiliated transmission owner authority as a result of an OATT
appropriate circumstances, we may unless there has also been a violation of violation. We have long held that the
modify or add additional conditions to the standards of conduct, and there is a existence of an OATT is deemed to
the violator’s market-based rate nexus between the standards of conduct mitigate vertical market power by a
authority or impose other requirements violation and the OATT non- transmission provider and its affiliates
compliance.430 They assert that, unless in a particular market. An OATT
to help ensure that the violator does not
there is a violation of the standards of violation by a transmission provider
commit future, similar misconduct. We
conduct, merchants will have no that merits revocation of the
also will consider whether to impose transmission provider’s market-based
involvement in the actions of
sanctions such as assessment of civil transmission providers.431 rate authority in a particular market
penalties for particularly serious OATT will, at a minimum, raise the question
violations in addition to revocation of 423. Xcel submits that, before
imposing a penalty that would whether the transmission provider’s
the violator’s market-based rate affiliates continue to qualify for market-
effectively penalize the merchant
authority. based rates in that market under the
function, the Commission should
420. We agree with Duke that a require a demonstration that a utility’s standards that we have established.435
seller’s market-based rate authority transmission function violated the 435 We observe that specific situations in which
should not be subject to limitation or OATT so as to knowingly benefit the transmission providers have agreed to resolve staff
revocation if it participates in an RTO activities of its merchant function.432 allegations that they engaged in OATT violations
that is the subject of an OATT violation Xcel and Allegheny Energy state that the have involved transactions with affiliates. See
committed by the RTO. We note, Commission should not penalize the Idaho Power Company, et al., 103 FERC ¶ 61,182
(2003) (settlement of, among other issues, a practice
however, that if the seller itself is merchant side of an entity when the whereby a transmission provider permitted its
involved in an OATT violation, the OATT violation by the transmission merchant function to request non-firm transmission
Commission will investigate the seller’s provider causes no harm, was not the to enable the merchant function to make off-system
result of deliberate manipulative sales that by definition were not used to serve
actions where appropriate, and may native load, so that the transmission did not qualify
revoke market-based rate authority even conduct, was not part of a pattern of for the ‘‘native load’’ priority specified in section
though the seller is in an RTO. misconduct, or did not involve senior 28.4 of the transmission provider’s OATT); Cleco
management of the transmission Corporation, et al., 104 FERC ¶61,125 (2003)
421. With regard to Reliant’s provider.433 Similarly, Indianapolis P&L (settlement between Enforcement staff and a
suggestion that the Commission should advocates punishment of a marketing or transmission provider (and others in the corporate
examine the extent to which a family) that provided a unique type of transmission
generation-only affiliate only to the service for its affiliate that was neither made
transmission provider has denied extent such affiliate colludes or available to non-affiliates nor included in its FERC
transmission access to competing conspires with such OATT mis- tariff); Tucson Electric Power Company, 109 FERC
suppliers as part of its vertical market administration or if such an affiliate ¶ 61,272 (2004) (operational audit in which staff
power analysis, we will allow found that, among other matters, a transmission
financially benefits from such an act.434 provider permitted its wholesale merchant function
intervenors on a case-by-case basis to to purchase hourly non-firm and monthly firm
file evidence if they believe they have 429 See Ameren at 8–11; PNM/Tucson at 10–12; point-to-point transmission service using an off-
been denied transmission access in EEI reply comments at 33–35; Avista at 12–13; EEI OASIS scheduling procedure while the
at 54; Indianapolis P&L at 6–7. transmission provider did not post on its OASIS the
violation of the OATT. Depending on availability of capacity on these paths); South
430 See PG&E at 3, 12–14; Xcel at 2 and 16.
specific facts, such denials could 431 PG&E at 13.

Carolina Electric & Gas Company, et al., 111 FERC
constitute an OATT violation and could 432 Xcel at 16–17. See also Avista at 12–13; PNM/
¶ 61,217 (2005) (settlement of Enforcement staff
warrant remedies such as a reduction of allegation that a transmission provider made
Tucson at 10–12. available firm point-to-point transmission service to
competing supplies for purposes of the 433 Allegheny Energy at 9–10; Xcel at 16–17.
its affiliated merchant function that did not submit
horizontal analysis. 434 Indianapolis P&L at 6–7. Continued
As a result, we believe that it is 2. Other Barriers to Entry Congress has found the natural gas
appropriate to establish a rebuttable market competitive.437
Commission Proposal
presumption that if we find that a 431. The Commission also sought
transmission provider should lose its 428. The Commission proposed in the comment on whether ownership or
market-based rate authority in a NOPR that, in order for a seller to control of other inputs to electric power
particular market, all affiliates of the demonstrate that it satisfies the production should be considered as
transmission provider should also lose Commission’s vertical market power potential barriers to entry and, if so,
their market-based rate authority in the concerns, it must demonstrate that what criteria the Commission should
same market. neither it nor its affiliates can erect use to evaluate evidence that is
426. We are mindful, however, that other barriers to entry (i.e., barriers presented.
the circumstances of a particular other than transmission). In this regard, Comments
affiliate may not always justify the the Commission proposed to continue to
432. Several commenters state that the
imposition of a remedy so severe as require a seller to provide a description
Commission’s other barriers to entry
revocation of market-based rate of its affiliation, ownership or control of
criteria are long-standing, well
authority in a particular market when its inputs to electric power production
established and thus no expansion of
affiliated transmission provider loses its (e.g., fuel supplies within the relevant
current policy is necessary.438 They
market-based rate authority in that control area); ownership or control of submit that the requirement that the
market as a result of an OATT violation. gas storage or intrastate transportation analysis include the consideration of
To ensure that a determination to revoke or distribution of inputs to electric ownership or control of sites for
market-based rate authority in a power production; and ownership or development of generation in the
particular market for a transmission control of sites for new generation relevant market, fuel inputs such as coal
provider and all of its affiliates that capacity development. The Commission supplies in the relevant market, and the
possess such authority is adequately also proposed to require sellers to make transportation, storage or distribution of
based upon record evidence, we will an affirmative statement that they have inputs to electric power production
allow an opportunity for each such not erected barriers to entry into the such as intrastate gas storage and
affiliate to make a showing that it relevant market and that they cannot do distribution systems, and rail cars/
should retain its market-based rate so. barges for the transportation of coal, is
authority or that enforcement action 429. In addition, the Commission broad and provides sufficient
against it should be less severe than proposed to provide additional information for the Commission to
revocation. The determination whether regulatory certainty by clarifying which assess the seller’s potential to erect
an affiliate has overcome the rebuttable inputs to electric power production the barriers to entry. They assert that this
presumption depends on an analysis of Commission will consider as other information, coupled with the proposal
specific facts in the record. Relevant barriers to entry in its vertical market to require sellers to make an affirmative
facts would include, for example, power review, and sought comments on statement that they have not erected
whether (1) The affiliate knew of, this proposal. Specifically, the barriers to entry into the relevant market
participated in, or was an accomplice to Commission proposed that the analysis and that they cannot do so, provides the
the OATT violation, (2) the affiliate Commission with appropriate
continue to include the consideration of
assisted the transmission provider in information.439
ownership or control of sites for
exercising market power, or (3) the 433. APPA/TAPS suggest that the
development of generation in the
affiliate benefited from the violation. proposed entry barriers affirmation
relevant market, fuel inputs such as coal
427. Consistent with our approach to facilities in the relevant market, and the should be signed and affirmed by a
revocation of a transmission provider’s transportation, storage or distribution of senior corporate official.440 However,
market-based rates, the Commission inputs to electric power production APPA/TAPS state that the Commission
clarifies that a decision to revoke the such as intrastate gas storage and should not codify the specific entry
market-based rate authority of the distribution systems, and rail cars/ barriers that it will consider given the
transmission provider’s affiliates in the barges for the transportation of coal. ever-changing nature of electricity
affected market will also be based on a markets.441 They submit that while
430. The Commission also clarified
finding that the transmission provider’s illustrations of entry barriers can
violation of its OATT has a nexus to the that sellers need not address interstate
provide guidance to sellers and market
market-based rate authority of those transportation of natural gas supplies participants, the Commission should
affiliates. because such transportation is regulated not limit the kinds of entry barriers it
by this Commission.436 The will consider.
Commission explained that its open 434. Sempra states that, to the extent
transmission schedules with specific receipt points
for the service as required by section 13.8 of the access regulations adequately prevent the new analytic framework (the
transmission provider’s OATT); and MidAmerican sellers from withholding interstate consolidation of the former transmission
Energy Company, 112 FERC ¶ 61,346 (2005) pipeline capacity. In addition, interstate market power and other barriers to entry
(operational audit in which staff found, among pipeline capacity held by firm shippers
other things, that a transmission provider permitted factors into the vertical market power
its wholesale merchant function to (a) Use network that is not utilized or released is analysis) would recognize existing
transmission service to bring short-term energy available from the pipeline on an
purchases onto its system while it simultaneously interruptible basis. As to the 437 NOPR at P 93 (citing Natural Gas Wellhead
made off-system sales, inconsistently with the commodity, the Commission noted that Decontrol Act of 1989, Pub. L. 101–60, 103 Stat. 157
preamble to Part III of the transmission provider’s
(1989); Natural Gas Policy Act of 1978, section
OATT and section 28.6 of its OATT; and (b)
601(a)(1), 15 U.S.C. 3431 (deregulating the wellhead
confirm firm network transmission service requests 436 NOPR at P 93 (citing Pipeline Service
price of natural gas)).
without identifying a designated network resource Obligations and Revisions to Regulations Governing 438 Allegheny Energy at 9–10; Southern at 38–40;
or acquiring an associated network resource, in Self-Implementing Transportation Under Part 284
some instances using this service to deliver short- of the Commission’s Regulations, Order No. 636, 57 EEI at 44–45.
439 See, e.g., New Jersey Board at 3.
term energy purchases used to facilitate off-system FR 13267 (Apr. 16, 1992), FERC Stats. & Regs.
440 APPA/TAPS at 6, 85.
sales, inconsistent with section 29.2 or section 30.6 Regulations Preambles January 1991–June 1996
of the transmission provider’s OATT). ¶ 30,939 (Apr. 8, 1992)). 441 APPA/TAPS at 6, 84–85.
precedent and not work to place they cannot erect such barriers, while erect other barriers to entry as part of
additional burdens on market-based rate allowing other parties to introduce the vertical market power analysis, but
sellers, Sempra would support it.442 evidence challenging such an we will modify the requirements when
435. Several sellers support assertion.448 addressing other barriers to entry. We
continuation of the Commission’s policy 438. PG&E states that, similar to the also provide clarification below
that sellers need not address natural gas rules for interstate transportation of regarding the information that a seller
and its interstate transportation as part natural gas supplies (under which must provide with respect to other
of their vertical market power Commission open access regulations barriers to entry (including which
analysis.443 In contrast, a commenter adequately prevent sellers from inputs to electric power production the
states that the Commission should not withholding interstate gas pipeline Commission will consider as other
make a blanket exemption for sellers or capacity), State regulation of access to barriers to entry) and we modify the
their affiliates who own or control gas storage, natural gas pipelines, or proposed regulatory text in that regard.
natural gas pipeline capacity. natural gas distribution should be a 441. In this rule, the Commission
Notwithstanding the Commission’s basis for finding that an entity with draws a distinction between two
statement that natural gas interstate ownership or control of such assets categories of inputs to electric power
pipelines are regulated by the cannot erect barriers to entry or production: One consisting of natural
Commission and that the regulations otherwise hold or exercise vertical gas supply, interstate natural gas
adequately prevent sellers from market power in the generation transportation (which includes
withholding capacity, this commenter market.449 interstate natural gas storage), oil
argues that the natural gas open access 439. SoCal Edison urges the supply, and oil transportation, and
rules do not adequately mitigate vertical Commission to clarify that, with regard another consisting of intrastate natural
market power in all situations. It to sites for building generation, mere gas transportation, intrastate natural gas
encourages the Commission to require ownership of real estate does not storage or distribution facilities; sites for
sellers with significant firm interstate reasonably support an inference of a generation capacity development; and
pipeline capacity rights to demonstrate barrier to entry, and that sellers are not sources of coal supplies and the
that they do not have vertical market required, in the first instance, to make transportation of coal supplies such as
power.444 any affirmative demonstration of the
436. APPA/TAPS state that the barges and rail cars.
absence of potential that their real estate
Commission should clarify that it will holdings might constitute a theoretical 442. With regard to the first category,
consider control over interstate natural barrier to entry. Rather, the Commission based upon the comments received and
gas transportation if the issue is raised should clarify that it would pursue such further consideration, the Commission
in a market-based rate proceeding.445 inquiry only to the extent colorable will not require a description or
APPA/TAPS state that even if sellers do issues are raised by way of protest or affirmative statement with regard to
not have to address interstate gas intervention.450 Sempra states the ownership or control of, or affiliation
transportation as part of the vertical Commission should modify the with an entity that owns or controls,
market power test, intervenors should regulatory text in three respects. First, natural gas and oil supply, including
not be precluded from raising concerns the Commission should explicitly interstate natural gas transportation and
and introducing evidence regarding a exclude from the definition of ‘‘inputs oil transportation.
seller’s position in the interstate natural to electric power production’’ in 443. In the case of natural gas, prices
gas transportation market as a potential proposed § 35.36(a)(4) interstate for wellhead sales were decontrolled by
entry barrier and APPA/TAPS seek transportation of natural gas supplies Congress.452 Further, the Commission
clarification in this regard.446 (both ownership/control of facilities as has granted other sellers blanket
437. Several commenters state that the well as ownership/control of capacity) authority to make sales at market rates.
markets for the other inputs to and the gas commodity itself. Second, In the case of transportation of natural
generation factor (e.g., fuel supply other the Commission should also exclude gas, pipelines operate pursuant to the
than natural gas, transportation and from the definition of ‘‘inputs to electric open and non-discriminatory
storage) are workably competitive and power production’’ intrastate natural gas requirements of Part 284 of the
provide few opportunities for a seller to facilities or distribution facilities, Commission’s regulations.453 These
raise entry barriers. They therefore particularly where such facilities are regulations mandate that all available
suggest that the Commission create a operated under pervasive State pipeline capacity be posted on the
rebuttable presumption that the markets pipelines’ Web site, and that available
regulations and in accordance with
for other factor inputs such as coal, oil capacity cannot be withheld from a
open access principles. Third, the
and distillate commodity markets, the
Commission should make clear in this
transportation and storage of these fuels,
provision and at § 35.27(e) of its 452 INGAA v. FERC, 285 F.3d 18 (D.C. Cir. 2002);
sites for new plants, etc., are workably Natural Gas Decontrol Act of 1989, H.R. Rep. No.
proposed regulations (pertaining to a
competitive. They urge that, absent a 101–29, 101st Cong., 1st Sess., at 6 (1989).
seller’s vertical market power analysis),
showing to the contrary, ownership or 453 See, e.g., Pipeline Service Obligations and
that the only ‘‘inputs’’ that need to be Revisions to Regulations Governing Self-
control of such assets need not be
addressed are those present in the Implementing Transportation Under Part 284 of the
analyzed.447 In this regard, Duke states Commission’s Regulations, Order No. 636, 57 FR
seller’s relevant geographic market(s).451
that the Commission should allow 13267 (Apr. 16, 1992), FERC Stats. & Regs.
sellers to make the representation that Commission Determination Regulations Preambles January 1991–June 1996 ¶
30,939 (Apr. 8, 1992); Regulation of Short-Term
442 Sempra
440. As discussed above, the Natural Gas Transportation Services and
at 6–7.
443 See
Commission will adopt the NOPR Regulation of Interstate Natural Gas Transportation
Constellation at 25; Duke at 30; PG&E at
proposal to consider a seller’s ability to Services, Order No. 637, FERC Stats. & Regs.
13; Sempra at 6.
444 Drs. Broehm and Fox-Penner at 14–15.

Regulations Preambles July 1996–December 2000 ¶
448 Duke
31,091 (Feb. 9, 2000); order on reh’g, Order No.
445 APPA/TAPS at 82–85. at 30–32. 637–A, FERC Stats. & Regs. Regulations Preambles
446 APPA/TAPS at 6. 449 SeePG&E at 3, 13–14. July 1996–December 2000) ¶ 31,099 (May 19, 2000);
447 See, e.g., Duke at 30–32; Constellation at 23– 450 SoCal Edison at 2, 19.
reh’g denied, Order No. 637–B, 92 FERC ¶ 61,062
27. 451 Sempra at 6. (2000); aff’d in part and denied in part.
shipper willing to pay the maximum production, we will require a seller to sellers to ‘‘provide accurate and factual
approved tariff rate. provide a description of its ownership information and not submit false or
444. Similarly, we note that oil or control of, or affiliation with an entity misleading information, or omit
pipelines are common carriers under the that owns or controls, intrastate natural material information, in any
Interstate Commerce Act, specifically gas transportation, storage or communication with the Commission
under section 1(4), and are required to distribution facilities; sites for * * *’’. 456 The Commission has ample
provide transportation service ‘‘upon generation capacity development; and authority to enforce its regulations, and
reasonable request therefore’’ 454 and sources of coal supplies and the therefore does not believe that it is
that Congress has not chosen to regulate transportation of coal supplies such as necessary in these circumstances to
sales of oil. barges and rail cars. The Commission require the affirmative statement to be
445. In response to APPA/TAPS’ will require sellers to provide this signed by a senior corporate official.
request for clarification, we note that as description and to make an affirmative 451. The changes made to the
an initial matter, to the extent statement, with some modifications to evaluation of other barriers to entry, as
intervenors are concerned about a the affirmative statement from what was described above, should not be more
seller’s market power from ownership or proposed in the NOPR. Instead of burdensome on market-based rate
control of interstate natural gas requiring sellers to make an affirmative sellers than that which is currently in
transportation, this would be actionable statement that they have not erected place. For the most part, the
first in a complaint proceeding under barriers to entry into the relevant Commission is maintaining its current
section 5 of the Natural Gas Act before market, we will require sellers to make policy, with some variation and
turning to market-based rate an affirmative statement that they have additional guidance on what is required.
consequences. not erected barriers to entry into the The policy adopted in this Final Rule
446. With regard to the second relevant market and will not erect should provide sellers with additional
category, in light of the comments barriers to entry into the relevant clarity regarding what needs to be
received, and upon further market. We clarify that the obligation in addressed as a potential other barrier to
consideration, the Commission adopts a this regard applies both to the seller and entry and the way in which to address
rebuttable presumption that sellers its affiliates, but is limited to the it.
cannot erect barriers to entry with geographic market(s) in which the seller 3. Barriers Erected or Controlled by
regard to the ownership or control of, or is located. Other Than The Seller
affiliation with any entity that owns or 448. We therefore modify the
controls, intrastate natural gas proposed regulations to require a seller Comments
transportation, intrastate natural gas to provide a description of its 452. APPA/TAPS state that entry
storage or distribution facilities; sites for ownership or control of, or affiliation conditions and barriers, regardless of
generation capacity development; and with an entity that owns or controls, origin, need to be considered in both the
sources of coal supplies and the intrastate natural gas transportation, horizontal and vertical market power
transportation of coal supplies such as intrastate natural gas storage or tests.457 APPA/TAPS state that the
barges and rail cars.455 To date, the distribution facilities; sites for Commission should not focus solely on
Commission has not found such generation capacity development; entry barriers erected by the seller itself
ownership, control or affiliation to be a sources of coal supplies and the and that the Commission must be
potential barrier to entry warranting transportation of coal supplies such as receptive to claims that entry barriers in
further analysis in the context of barges and rail cars, to ensure that this the seller’s market provide or enhance
market-based rate proceedings. information is included in the record of market power, even if the seller itself
However, unlike the first category of each market-based rate proceeding. In did not erect the barriers.458 Another
inputs, the Commission does not have addition, a seller is required to make an commenter states that the Commission
sufficient evidence to remove these affirmative statement that it has not should maintain a separate evaluation
inputs from the analysis entirely. erected barriers to entry into the on other barriers to entry that are not
Accordingly, we will rebuttably relevant market and will not erect caused by a seller, thus requiring a
presume that ownership or control of, or barriers to entry into the relevant seller to address barrier to entry issues
affiliation with an entity that owns or market. to the relevant market, even if those
controls, intrastate natural gas 449. While some commenters raise barriers are not caused by a seller or its
transportation, intrastate natural gas concerns that codification of these affiliates.
possible barriers may inappropriately
storage or distribution facilities; sites for Commission Determination
limit the analysis of a seller’s potential
generation capacity development; and
to erect other barriers to entry, we 453. The Commission finds that it is
sources of coal supplies and the
clarify that we are codifying what not reasonable to routinely require
transportation of coal supplies such as
showing a seller must make in order to sellers to make a showing regarding
barges and rail cars do not allow a seller
receive authority to make sales of potential barriers to entry that others
to raise entry barriers, but will allow
electric power at market-based rates. By might erect and that are beyond the
intervenors to demonstrate otherwise.
so doing, we are not preventing seller’s control. However, we will allow
We note that this rebuttable
intervenors from raising other barriers to intervenors to present evidence in this
presumption only applies if the seller
entry concerns for consideration on a regard, and by this means we will be
describes and attests to these inputs to
case-by-case basis. This approach will able to assess the existence of barriers to
electric power production, as described
allow unique or newly developed entry beyond the seller’s control but
herein.
barriers to entry to be brought before the which may affect the seller’s ability to
447. With regard to this second
Commission. exercise market power. Should a
category of inputs to electric power
450. We will not adopt APPA/TAPS’ potential barrier in the relevant market
454 49
proposal that the affirmation be signed
App. U.S.C. 1(4).
455 We modify the definition of ‘‘inputs to electric
and affirmed by a senior corporate 456 18CFR 35.41(b) (formerly 18 CFR 35.37(b)).
power production’’ in 18 CFR 35.36(a)(4) to reflect officer. Section 35.37(b) of the 457 APPA/TAPS at 6.
this clarification. Commission’s regulations requires 458 APPA/TAPS at 82–84.
be raised by an intervenor, the raised by commenters. While we problem is exacerbated when such a
Commission will address such claims recognize that the transmission purchasing utility also owns, controls or
on a case-by-case basis. planning reforms in Order No. 890 are dispatches its own proprietary supply
still in the process of being and the relevant transmission system.
4. Planning and Expansion Efforts 462. EPSA states that some would
implemented, failure to plan, maintain
454. In the NOPR, the Commission and expand the transmission system in argue that the Commission cannot order
noted that several commenters had accordance with the applicable, economic dispatch or competitive
suggested that a transmission planning Commission-approved OATT has solicitation because the FPA grants the
and expansion process can ameliorate always been, and will continue to be, an Commission jurisdiction over sales, not
vertical market power, and, accordingly, OATT violation. Order No. 890 provides purchases. However, EPSA submits that
the Commission was seeking comment for revocation of an entity’s, and the Commission would not be
on the issues of transmission planning possibly that of its affiliates, market- mandating purchases, but eliminating
and expansion in the notice of proposed based rate authority in response to an the exercise of market power which
rulemaking in the OATT Reform OATT violation upon a finding of a directly raises the prices for wholesale
Rulemaking. The Commission sought specific factual nexus between the sales. In so doing, the Commission
comment in the NOPR on whether the violation and the entity’s market-based would be using its tools under sections
planning and expansion efforts in the rate authority.464 Should such a 205 and 206 of the FPA to ensure just
OATT Reform Rulemaking would violation occur, the Commission will and reasonable wholesale rates by
address commenters’ concerns here. address it in that context. The allowing competitive alternatives to
Commission does not find that the need enter the market and protecting
Comments consumers from practices that will
exists to convene a technical conference
455. APPA/TAPS state that there will in this regard. The OATT Reform result in excessive rates and charges.
be a continuing need to address Rulemaking dealt extensively with this EPSA argues that the Commission must
transmission market power issues, even issue and the Commission finds that it develop a transparent, methodical
after adoption of a revised pro forma has been adequately addressed in Order process for assessing this segment of the
OATT, because the improvements in No. 890. vertical market power analysis. EPSA
transmission planning and expansion submits that load serving entities that
will not be immediately felt.459 EPSA 5. Monopsony Power are transmission providers must, in
states that it advocates robust, 459. In the NOPR, the Commission addition to providing enhanced
independent and mandatory regional sought comment on whether the transmission services, facilitate
planning as a means to combat vertical exercise of buyer’s market power by the accessible long-term markets through
market power and ensure competitive transmission provider should be all-source competitive procurement
markets.460 considered a potential barrier to entry processes, preferably via state created
456. TDU Systems recommend that and, if so, what criteria the Commission and supervised means, with
the Commission revoke a transmission should use to evaluate evidence that is independent third party oversight. It
provider’s market-based rate authority if presented. asserts that the Commission must
it fails to build transmission to achieve and ensure these goals through
Comments a transparent, well-developed process.
accommodate the needs of its
transmission customers demonstrated 460. Allegheny states that the NOPR EPSA requests that the Commission
through an open, joint planning provided no explanation for why a convene a technical conference in order
process.461 TDU Systems submit that transmission provider’s buyer’s market to fully develop that process and ensure
willful failure to plan, maintain and power should be relevant to the that barriers to entry are properly
expand the transmission system to meet analysis.465 EEI argues that the mitigated.467
transmission customers’ needs is an Commission should not consider Commission Determination
abuse of vertical market power and buyer’s market power as a barrier to
entry because it is not relevant to the 463. EPSA’s proposal not only raises
creates structural barriers to
analysis. According to EEI, the market- jurisdictional issues, but EPSA has
competition.
based rate analysis considers the ability failed to provide specific instances in
457. ELCON states that while it is
of the applicant to exercise market which the exercise of monopsony power
encouraged by proposals in the OATT
power as a seller, not a buyer, which is has taken place and has provided no
Reform Rulemaking, it recommends that
consistent with the Commission’s guidance as to how buyer market power
transmission market power be the
authority under section 205 of the FPA, should be measured (even assuming the
subject of a new rulemaking.462
which regulates the sale of electricity. Commission has jurisdiction to address
Similarly, EPSA asserts that a technical
EEI asserts that states generally have it). The Commission does not believe it
conference to develop the barriers to
jurisdiction over the purchase of is appropriate to attempt to address
entry portion of the screens would help
electricity by franchised utilities.466 these difficult issues without specific
ensure an open, accessible, and robust
461. EPSA argues that if a utility evidence of monopsony power and a
competitive market.463
holds a dominant purchasing position clear delineation of the State-Federal
Commission Determination in the wholesale marketplace that jurisdiction issues that would arise in
allows it to exert excessive and the context of a specific seller and
458. We find that our reforms to the
discretionary buying power (of both specific set of circumstances. For the
pro forma OATT to require coordinated
supply and supply generation facilities), same reason, we will not grant EPSA’s
transmission planning on a local and
the exercise of market power will then request to convene a technical
regional level address the concerns
lie with the buyer, not the seller. This conference to address such issues
459 APPA/TAPS at 80–85. generically. Until EPSA or others

460 EPSA at 27. 464 Order No. 890, FERC Stats. & Regs. ¶ 31,241 provide such information concerning a
461 TDU Systems at 21–23. at P 1743, 1747. particular seller in either a market-based
462 ELCON at 5–6. 465 Allegheny Energy at 10.
463 EPSA at 28. 466 EEI at 43. 467 EPSA at 26–27.
rate proceeding or a complaint, we defer Comments regulation.’’470 The Commission sought

judgment on the many difficult issues comment on whether the same
466. As a general matter, commenters
raised by EPSA. definition should be used for purposes
support the Commission’s proposal to of this rule.
C. Affiliate Abuse codify the affiliate restrictions in the
Commission’s regulations.469 No Comments
1. General Affiliate Terms and comments were received opposing the
Conditions 470. While a number of commenters
proposal to codify affiliate restrictions support the Commission’s proposal to
a. Codifying Affiliate Restrictions in in the Commission’s regulations. codify the affiliate abuse ‘‘prong’’ in the
Commission Regulations Commission Determination Commission’s regulations,471 they
Commission Proposal comment that the proposed affiliate
467. The Commission will adopt the abuse restrictions do not do enough to
464. In the NOPR the Commission proposal in the NOPR to discontinue protect retail customers from affiliate
proposed to discontinue referring to considering affiliate abuse as a separate abuse.472 NASUCA argues that affiliate
affiliate abuse as a separate ‘‘prong’’ of ‘‘prong’’ of the market-based rate abuse restrictions should be applicable
the market-based rate analysis and analysis and instead codify in the to any affiliate with any retail
instead proposed to codify in the Commission’s regulations in § 35.39 an customers, whether or not the retail
regulations at 18 CFR part 35, subpart H, explicit requirement that any seller with affiliate is a ‘‘franchised’’ utility,
an explicit requirement that any seller market-based rate authority must whether or not it has a State-imposed
with market-based rate authority must comply with the affiliate restrictions. ‘‘service obligation,’’ and whether or not
comply with the affiliate power sales This will address affiliate abuse by its customers are characterized as
restrictions and other affiliate requiring that the conditions set forth in ‘‘captive.’’ NASUCA submits that the
restrictions. The Commission proposed the regulations be satisfied on an Commission should not rely on a State’s
to address affiliate abuse by requiring ongoing basis as a condition of adoption of a retail access regime for
that the conditions set forth in the obtaining and retaining market-based any determination that a customer is not
proposed regulations be satisfied on an rate authority. Included in the captive. Further, although NASUCA
ongoing basis as a condition of regulations will be a provision expressly comments that the Commission’s
obtaining and retaining market-based prohibiting power sales between a proposed definition for ‘‘captive
rate authority. The Commission franchised public utility with captive customers’’ is an improvement from the
indicated that a seller seeking to obtain customers and any market-regulated text of the proposed regulation (which
or retain market-based rate authority power sales affiliates without first contains no definition of ‘‘captive
receiving Commission authorization for customers’’), NASUCA suggests it could
will be obligated to provide a detailed
the transaction under section 205 of the also invite distinctions turning on the
description of its corporate structure so
FPA. Also included in the regulations meaning of ‘‘cost-based regulation’’ that
that the Commission can be assured that
will be the requirements that have might cause future uncertainty in some
the Commission’s requirements are
previously been known as the market- circumstances and a corresponding loss
being applied correctly. In particular,
based rate ‘‘code of conduct,’’ as those of customer protection.473
the Commission proposed that sellers 471. New Jersey Board argues that
with franchised service territories be requirements have been revised in this
Final Rule. when customers lack realistic
required to make a showing regarding alternatives to purchasing power from
whether they serve captive customers 468. Additionally, although we do not
adopt the proposal to require that, as a their local utility, regardless of a legal
and to identify all ‘‘non-regulated’’ right to competitive power suppliers,
power sales affiliates, such as affiliated condition of receiving market-based rate
authority, sellers must adopt the MBR such customers are still captive. New
marketers and generators.468 Jersey Board states that most customers
tariff (included as Appendix A to the
465. The Commission further NOPR), we do adopt a set of standard in retail choice states still rely on the
proposed that, as a condition of tariff provisions that we will require provider-of-last-resort for electric
receiving market-based rate authority, each seller to include in its market- service and, thus, are still captive
sellers must adopt the MBR tariff based rate tariff, including a provision customers.474 New Jersey Board
(included as Appendix A to the NOPR) requiring the seller to comply with, comments that, due to the relatively
which includes a provision requiring among other things, the affiliate young retail choice and deregulation
the seller to comply with, among other restrictions in the regulations. We programs in many states, ‘‘it would be
things, the affiliate restrictions in the further adopt the proposal that failure to premature to declare electric retail
regulations. The Commission noted that satisfy the conditions set forth in the choice to be vibrant enough to leave
failure to satisfy the conditions set forth affiliate restrictions will constitute a consumer protection from affiliate
in the affiliate restrictions will abuses completely to the
tariff violation.
constitute a tariff violation. The marketplace.’’ 475 New Jersey Board
Commission sought comment on these b. Definition of ‘‘Captive Customers’’ states that, even where there are a few
proposals Commission Proposal 470 Transactions Subject to FPA section 203,
468 In 469. The Commission stated in the Order No. 669–A, 71 FR 28422 (May 16, 2006),
the NOPR, the Commission proposed to use FERC Stats. & Regs. ¶ 31,214 (2006). See also
the term ‘‘non-regulated power sales affiliate.’’ As NOPR that, among other things, in the Repeal of the Public Utility Holding Company Act
discussed below, this Final Rule uses the term Commission’s Final Rule on of 1935 and Enactment of the Public Utility Holding
‘‘market-regulated power sales affiliate’’ instead. transactions subject to section 203 of the Company Act of 2005, Order No. 667–A, 71 FR
‘‘Market-regulated’’ power sales affiliates, for 28446 (May 16, 2006), FERC Stats. & Regs. ¶ 31, 213
purposes of this rule, refers to sellers that sell at FPA, the Commission defined the term
(2006).
market-based rates rather than cost-based rates. If ‘‘captive customers’’ to mean ‘‘any 471 New Jersey Board at 3.
such sellers are public utilities, technically, they are wholesale or retail electric energy 472 NASUCA at 20–30.
not unregulated since they must receive market- customers served under cost-based 473 NASUCA at 20–30.
based rate authority from the Commission and are
474 New Jersey Board reply comments at 3–4.
subject to ongoing oversight by the Commission.
See discussion infra. 469 See generally APPA/TAPS at 7; 85–86. 475 Id. at 5.
providers that comprise the market, subject to the affiliate restrictions.482 It regulation’’ and therefore are not
such oligopolies often exhibit the same states that such a seller would have no ‘‘captive.’’
lack of competition and high prices as ability to transfer benefits from its 480. As the Commission has
are seen in a monopoly market. Thus, ‘‘captive customers’’ (customers taking explained, retail customers in retail
affiliate abuse would remain a concern reactive power services at cost-based choice states who choose to buy power
where utilities would be granted rates) to subsidize its unregulated from their local utility at cost-based
market-based rate authority.476 market-based rate sales, given the rates as part of that utility’s provider-of-
472. AARP similarly comments that different products at issue and the last-resort obligation are not considered
the proposed definition of ‘‘captive restrictions of the cost-based rates for captive customers because, although
customers’’ fails to capture the potential reactive power. they may choose not to do so, they have
for adverse impacts on retail customers 476. APPA/TAPS submit that the the ability to take service from a
of ‘‘default’’ suppliers and thus, the definition of ‘‘captive customers’’ different supplier whose rates are set by
coverage of the Commission’s affiliate should include wholesale transmission the marketplace. In other words, they
restrictions should be expanded to customers captive to the transmission are not served under cost-based
prevent customers from bearing the provider’s system.483 APPA/TAPS state regulation, since that term indicates a
costs of non-regulated marketing that affiliate abuse not only raises costs regulatory regime in which retail choice
affiliates of the public utility they rely to wholesale customers, it can also harm is not available.486 On the other hand,
on for reliable service.477 competition such as through cross- in a regulatory regime in which retail
473. ELCON suggests that ‘‘captive subsidization that provides the seller customers have no ability to choose a
customers’’ should be defined as any with an unfair competitive advantage. supplier, they are considered captive
end-users that do not have real Therefore, APPA/TAPS state that because they must purchase from the
competitive opportunities.478 It wholesale transmission customers local utility pursuant to cost-based rates
recommends that the Commission adopt captive to the transmission provider’s set by a State or local regulatory
a case-specific approach to identifying system are particularly vulnerable to authority.487 Therefore, with this
captive customers to account for the this kind of competitive harm and clarification, the Commission will adopt
failure of retail competition in many should be included in the definition of the definition of ‘‘captive customers’’
restructured states. ‘‘captive customers’’ in the proposed in the NOPR and clarifies,
474. A number of other commenters regulations.484 that, as the Commission did in Order
argue that the proposed definition of 477. EEI responds to APPA/TAPS’ No. 669–A, we will include the
‘‘captive customers’’ is too broad 479 and comment by stating that it is definition of captive customers in the
would improperly include customers ‘‘completely unnecessary’’ to include regulations. Regarding wholesale
with competitive alternatives. They transmission dependent utilities in the customers, sellers should continue to
state that the Commission should clarify definition of captive customers since explain why, if they have wholesale
that ‘‘captive customers’’ does not Order No. 888 already provides customers, those customers are not
include customers in states with retail sufficient protections for transmission captive.
customers. Additionally, EEI replies that 481. We note that it is not the role of
choice.480 Duke recommends that the
transmission dependent utilities are like this Commission to evaluate the success
Commission define ‘‘captive customer’’
customers with retail choice who have or failure of a State’s retail choice
as ‘‘any electric energy customer that
chosen to stay under cost-based rates program including whether sufficient
cannot choose an alternative energy
while other transmission customers choices are available for customers
supplier.’’ 481 Duke adds that initial
have broader options. EEI responds that inclined to choose a different supplier.
commenters, such as ELCON, provide
the Commission does not currently In this regard, the states are best
no support for their assertion that state equipped to make such a determination
retail access programs do not generate consider such customers captive and
there is no reason to change this and, if necessary, modify or otherwise
effective competition and that most revise their retail access programs as
provider-of-last-resort customers are policy.485
they deem appropriate. Further, to the
actually captive. Commission Determination extent a retail customer in a retail
475. Ameren comments that while choice state elects to be served by its
there are sellers with market-based rate 478. The Commission adopts the
NOPR proposal to define ‘‘captive local utility under provider-of-last-resort
authority that have no captive wholesale obligations, the State or local rate setting
customers for energy, but do have a customers’’ as ‘‘any wholesale or retail
electric energy customers served under authority, in determining just and
cost-based rate schedule for reactive reasonable cost-based retail rates, would
power supply, the fact that a seller has cost-based regulation.’’
479. The Commission clarifies in in most circumstances be able to review
wholesale customers under a single the prudence of affiliate purchased
cost-based rate for reactive power response to several comments that the
definition of ‘‘captive customers’’ does power costs and disallow pass-through
should not render the entity a seller of costs incurred as a result of an
with ‘‘captive customers’’ and therefore, not include those customers who have
retail choice, i.e. the ability to select a affiliate undue preference.
retail supplier based on the rates, terms 482. We also decline to include
476 Id.
and conditions of service offered. Retail transmission customers in the definition
477 AARP at 10–11.
478 ELCON customers who choose to be served of ‘‘captive customers’’ for purposes of
at 2, 7–8.
479 Ameren at 11–14; Allegheny at 12–13; EEI at under cost-based rates but have the market-based rates. We agree with EEI
44; FirstEnergy at 13; Duke at 4, 32; and Duquesne ability, by virtue of State law, to choose that the Commission’s open access
at 4. one retail supplier over another, are not
480 Constellation argues that customers are not to 486 Duquesne Light Holdings, Inc., 117 FERC
considered to be under ‘‘cost-based
be considered ‘‘captive’’ and a seller is therefore not ¶ 61,326 at P 38 (2006).

considered a franchised public utility when a retail 487 Where a utility has captive retail customers,
482 Ameren at 12.
choice program is in place for the public utility’s but industrial customers have retail choice, we
483 APPA/TAPS at 7, 86–87.
retail customers. Constellation at 4. would consider that utility to have captive
481 Duke at 32–36. Duke reply comments at 22– 484 Id. at 86–87.
customers because the retail residential customers
23. 485 EEI reply comments at 35–36. are captive.
policies protect transmission customers states that the NOPR proposal would utility, including a power marketer,
from the exercise of vertical market constitute a departure from traditional exempt wholesale generator, qualifying
power. In this regard, we note that the PURPA implementation and from the facility or other power seller affiliate,
Commission recently issued Order No. Commission’s recently revised with market-based rates authorized
890, which revised the pro forma OATT regulations reaffirming that QF contracts under these rules or Commission
to ensure that it achieves its original created pursuant to a statutory orders.’’ 494
purpose of remedying undue regulatory authority’s implementation of
PURPA are exempt from review under Commission Determination
discrimination. Order No. 890 provided
greater clarity regarding the sections 205 and 206 of the FPA.488 490. The Commission will modify the
requirements of the pro forma OATT PG&E asserts that the Commission definition of ‘‘non-regulated power sales
and greater transparency in the rules should clarify the meaning of ‘‘non- affiliate,’’ and change the term to
applicable to the planning and use of regulated power sales affiliate’’ so that ‘‘market-regulated power sales
the transmission system, in order to it does not encompass all affiliates such affiliate.’’ 495 In response to various
reduce opportunities for the exercise of as parent companies or the natural gas commenters, we clarify that this
undue discrimination, make undue LDC function of the regulated, definition is intended to apply only to
discrimination easier to detect, and franchised utility.489 non-franchised power sales affiliates
facilitate the Commission’s enforcement 488. Xcel states that it is not clear (whose power sales are not regulated on
of the tariff. whether the following result was a cost basis under the FPA, e.g.,
483. In response to Ameren’s intended, but the definition arguably affiliates whose power sales are made at
comments that a seller with wholesale could cover a ‘‘traditional’’ utility with market-based rates) of franchised public
customers under a single cost-based rate a franchised retail service territory that utilities. Additionally, while we
for reactive power should not be had converted all of its wholesale sales recognize that we have used the term
considered a seller with ‘‘captive from cost-based to market-based rates. ‘‘non-regulated’’ in the past, we believe
customers’’ subject to the affiliate According to Xcel, not all utilities will that ‘‘market-regulated’’ is a more
restrictions, we agree that such be selling at cost-based rates at appropriate description for the entities
customers are not captive for purposes wholesale, even though they may still we intend to capture in this definition.
of market-based rates. The concerns be doing so at retail in franchised Accordingly, in this Final Rule, we
underlying the affiliate restrictions do service territories.490 Xcel does not revise the definition of ‘‘market-
not apply to sales of reactive power believe that it would be reasonable to regulated power sales affiliate’’ to mean
because those sales are typically either exclude from the definition of ‘‘non- ‘‘any power seller affiliate other than a
made to transmission providers so that regulated power sales affiliate’’ a utility franchised public utility, including a
the transmission provider can satisfy its that serves retail customers under a power marketer, exempt wholesale
obligation to provide reactive power or franchised service territory. Xcel also generator, qualifying facility or other
made by the transmission provider comments that the Commission should power seller affiliate, whose power sales
under its applicable OATT. allow a waiver provision for utilities’ are regulated in whole or in part at
subsidiaries or affiliates to be treated market-based rates.’’ Because the
c. Definition of ‘‘Non-Regulated Power under the Commission’s affiliate sales revised definition includes only non-
Sales Affiliate’’ rules as affiliated utilities rather than as franchised public utilities, it does not
Commission Proposal ‘‘non-regulated power sales apply to a franchised public utility that
affiliates.’’ 491 Xcel believes that the makes some sales at market-based
484. Proposed § 35.36(a)(6) defined
proposed definition would generally rates.496
‘‘non-regulated power sales affiliate’’ as 491. Xcel posits a somewhat different
serve to demarcate affiliates that should
‘‘any non-traditional power seller scenario under which it believes that a
be treated as regulated from those that
affiliate, including a power marketer, franchised public utility would fall
should be treated as non-regulated
exempt wholesale generator, qualifying within the definition of ‘‘non-regulated
under the Commission’s affiliate rules
facility or other power seller affiliate, power sales affiliate,’’ namely, if such
but states that it is not desirable or
whose power sales are not regulated on utility makes no wholesale sales that are
beneficial to draw a completely bright
a cost basis under the FPA.’’ regulated on a cost basis (making only
line between the two. Xcel states that
Comments some flexibility may be beneficial for wholesale sales at market-based rates)
both utilities and their customers and but serves retail customers under a
485. A number of commenters seek
the Commission should not foreclose franchised service territory. With the
clarification and modification of the
innovative structures by adopting hard revision to the definition of ‘‘market-
Commission’s proposed definition of
and fast rules.492 regulated power sales affiliate’’ that we
‘‘non-regulated power sales affiliate.’’
489. NASUCA also suggests revisions adopt here, such a utility would not fall
486. Southern requests clarification
to this definition, out of concern that within the definition of ‘‘market-
that a franchised public utility does not
several of the terms used (non-regulated, regulated power sales affiliate’’ since it
become a non-regulated power sales
non-traditional, regulated on a cost has a franchised service territory.
affiliate simply because it may make
basis) are vague, inaccurate and 492. In addition, we note that the
some wholesale sales under market-
unnecessary.493 NASUCA suggests that Commission has historically placed
based rate authority.
the term be renamed ‘‘power sales affiliate restrictions only on the
487. SoCal Edison argues that the
Commission offers no explanation for affiliate with market-based rates’’ and
494 Id.at 30.
including Qualifying Facilities (QFs) in defined as ‘‘any power seller affiliate
495 NOPR at Proposed Regulations at 18 CFR
the definition of ‘‘non-regulated power 488 SoCal 35.36(a)(6). We adopt this regulation at 18 CFR
Edison at 4–6.
sales affiliate.’’ It states that the 489 PG&E at 14–21.

35.36(a)(7).
496 However, under the standards of conduct, a
proposed definition of non-regulated 490 Xcel at 15.
wholesale merchant function that engages in such
power sales affiliate would subject QFs 491 Id.
sales must function independently of the utility’s
that may not have market-based rate 492 Id. at 16.
transmission function. 18 CFR 358(d)(3) and 18 CFR
authority to the code of conduct. It 493 NASUCA at 30. 358.4(a)(1).
relationship between a franchised utility; rather, it only includes non- e. Treating Merging Companies as
public utility with captive customers franchised, power sales affiliates Affiliates
and any affiliated market-regulated (sellers) that sell power in whole or in Commission Proposal
power sales affiliate. Nevertheless, we part at market based rates, and not an
believe that there may be circumstances affiliated service company or others 499. In the NOPR, the Commission
in which it also would be appropriate to who are not authorized to make sales of noted that, for purposes of affiliate
impose similar restrictions on the power. abuse, companies proposing to merge
relationship of two affiliated franchised are considered affiliates under their
public utilities where one of the d. Other Definitions market-based rate tariffs while their
affiliates has captive customers and one proposed merger is pending, and sought
In the NOPR, the Commission proposed to comments regarding at what point the
does not have captive customers. In adopt a restriction on affiliate sales of electric
such a case, there is a potential for the Commission should consider two non-
energy, whereby no wholesale sale of electric
transfer of benefits from the captive energy could be made between a public affiliates as merging partners.500
customers of the first franchised utility utility seller with a franchised service Comments
to the benefit of the second franchised territory and a non-regulated power sales
utility and ultimately to the joint affiliate without first receiving Commission 500. PG&E comments that affiliate
stockholders of the two affiliated authorization under FPA section 205. This sales regulations should not apply to
franchised public utilities. Commenters restriction would be a condition of obtaining contracts that pre-date the
in the instant proceeding did not and retaining market-based rate authority, announcement of a merger. PG&E states
address the potential for affiliate abuse
and a failure to satisfy that condition would that the Commission should allow
be a violation of the seller’s market-based rate merging companies sufficient time (e.g.,
in this situation (i.e., between a tariff.497
franchised public utility with captive 30 days) after the announcement of a
customers and an affiliated franchised Comments merger before enforcing the affiliate
public utility without captive sales regulations in order to give the
496. Constellation proposes that the merging companies time to acquire the
customers). Accordingly, we do not language in the proposed affiliate sales
generically impose the affiliate necessary information and documents to
restriction provision be amended to use prevent a company from being held
restrictions on such relationships but the defined term ‘‘franchised public
will evaluate whether to impose the responsible for activities of the merging
utility’’ by replacing the phrase ‘‘public company that it has no knowledge of or
affiliate restrictions in such situations utility Seller with a franchised service
on a case-by-case basis. control over.501
territory’’ with ‘‘Seller that is a
493. However, to avoid confusion Commission Determination
franchised public utility.’’ Constellation
between references to a ‘‘franchised
submits that this change would make 501. The Commission will continue to
public utility with captive customers’’
clear that the affiliate restrictions apply require that, for purposes of affiliate
and a ‘‘franchised public utility without
only if the seller is affiliated with a abuse, companies proposing to merge
captive customers’’ we will revise the
public utility that has captive will be treated as affiliates under their
definition of ‘‘franchised public utility’’
customers, which it states appears to be market-based rate tariffs while their
in § 35.36(a)(5) to remove the reference
the Commission’s intent.498 proposed merger is pending.502 The
to captive customers. Accordingly,
497. FirstEnergy proposes that a Commission will adopt the proposal to
‘‘franchised public utility’’ will be
definition of franchised service territory use the date a merger is announced as
defined as ‘‘a public utility with a
be added to the regulations to clarify the triggering event for considering two
franchised service obligation under
that the affiliate sales restriction would non-affiliates as merging partners. In
State law.’’ Further, we will revise other
only apply to transactions involving this regard, we reject PG&E’s proposal
sections of the affiliate restrictions to
public utilities with captive retail that the Commission allow an
specifically use the term ‘‘franchised
customers, and would not apply in areas additional 30 days after an announced
public utility with captive customers’’
in which there is retail choice.499 merger to begin treating, for the purpose
to clarify when the affiliate restrictions
of affiliate abuse, merging partners as
apply. Commission Determination affiliates. With the extensive
494. Additionally, not all qualifying
498. The Commission’s intent was discussions, negotiations and review
facilities are necessarily included in the
that the affiliate sales restriction in that precede the formal announcement
proposed definition of ‘‘market-
proposed § 35.39(a) (now § 35.39(b)) of plans to merge, there is sufficient
regulated power sales affiliate.’’ Only
would apply where a utility with a time for companies to acquire the
those qualifying facilities whose market-
franchised service territory with captive necessary information and documents
based rate sales fall under the
customers proposes to make wholesale related to the proposed merger,
Commission’s jurisdiction would fall
sales at market-based rates to a market- particularly given that utilities are on
within the definition of ‘‘market-
notice of our policy in this regard.
regulated power sales affiliate.’’ To the regulated power sales affiliate, or vice
502. The Commission clarifies that
extent that some of a qualifying facility’s versa. Accordingly, we will revise
the requirement that merging companies
sales are regulated under the FPA, even § 35.39(a) (now § 35.39(b)) to replace
if other sales are regulated by the states, ‘‘public utility Seller with a franchised 500 NOPR at P 116.
such a qualifying facility would be service territory’’ with ‘‘franchised 501 PG&E at 14–21.
considered a market-regulated power public utility with captive customers.’’ 502 Cinergy, Inc., 74 FERC ¶ 61,281 (1996);
sales affiliate by virtue of its FPA In light of this clarification, we do not Consolidated Edison Energy, Inc., 83 FERC ¶ 61,236
jurisdictional sales. believe it necessary to add a definition at 62,034 (1998); Central and South West Services,
Inc., 82 FERC ¶ 61,101 at 61,103 (1998); Delmarva
495. Additionally, the Commission of franchised service territory to the Power & Light Company, 76 FERC ¶ 61,331 at
clarifies that the definition of ‘‘market- regulations, as proposed by FirstEnergy. 62,582 (1996) (‘‘[T]he self-interest of two merger
regulated power sales affiliate’’ does not partners converge sufficiently, even before they
encompass all affiliates such as parent complete the merger, to compromise the market
497 NOPR at P 108. discipline inherent in arm’s-length bargaining that
companies or the natural gas LDC 498 Constellation at 13–17. serves as the primary protection against reciprocal
function of the regulated franchised 499 See, e.g., FirstEnergy at 12–13. dealing.’’).
be treated as affiliates while the asset manager for three generation- 506. EPSA states that it opposes the
proposed merger is pending only owning affiliates violated § 214 of the Commission’s proposal to treat asset
applies prospectively from the date the FPA.507 As a result, if a company is managers as affiliates. It submits that
merger is announced and does not apply managing generation assets for the asset managers are not legally affiliates
to any contracts entered into that pre- franchised public utility, such entity of the companies with which they have
date the announcement of the merger.503 would be subject to the same a contract. If the basis for the proposal
However, in the case of an umbrella information sharing provision as the to treat asset managers as affiliates is for
agreement that pre-dates the franchised public utility with regard to transparency purposes, EPSA says that
announcement of the merger, any information shared with non-regulated all such contracts and transactions with
transactions under such umbrella affiliates, such as power marketers and asset managers are already reportable
agreement that are entered into on or power producers.508 Similarly, asset under the change in status final rule.515
after the date the merger is announced managers of a non-regulated affiliate’s 507. Alliance Power Marketing argues
would be subject to the affiliate generation assets would be subject to that by imposing affiliate abuse
restrictions. Further, if an announced the same affiliate restrictions as the restrictions on entities acting on behalf
merger does not go forward, the affiliate market-regulated power sales affiliate, of a regulated public utility or its non-
restrictions will cease to apply as of the including the information sharing regulated affiliates, the Commission
date the announcement is made that the provision.509 seeks to alter the fundamental principle
merger will not go forward. of responsibility and liability of the
Comments
f. Treating Energy/Asset Managers as regulated entity by making the third-
Affiliates 504. Morgan Stanley comments that party also directly accountable, thus
unaffiliated asset and energy managers blurring the lines of accountability.
Commission Proposal should not be treated as affiliates of Furthermore, a critical element in
503. In the NOPR, the Commission owners of the managed portfolios and applying affiliate abuse restrictions to
proposed that unaffiliated entities that that it would be overly inclusive for the entities’ action on behalf of generation
engage in energy/asset management of Commission to adopt a presumption of owners lies in having a stake in the
generation on behalf of a franchised control that would treat the energy outcome rather than just considering
public utility with captive customers be manager as a franchised utility for some direct or indirect control. Alliance
bound by the same affiliate restrictions purposes of the affiliate abuse rules.510 Power Marketing asserts that evaluating
as those imposed on the franchised Financial Companies argue that the control over the outcome as the
public utility and the non-regulated Commission should not apply the threshold for asset managers could
power sales affiliates.504 The affiliate abuse restrictions generically to sweep up many entities, such as RTOs/
Commission recognized that there has all unaffiliated energy managers that ISOs, governmental and cooperative
been an increased range of activities provide management services to a entities, that could have jurisdictional
engaged in by asset or energy franchised utility or its affiliates. Rather, and practical ramifications.516
managers.505 The Commission noted the Commission should evaluate 508. A number of other commenters
that although asset managers can applicability of the affiliate abuse oppose the Commission’s proposal to
provide valuable services and benefit restrictions on a case-by-case basis.511 treat unaffiliated energy/asset managers
consumers and the marketplace, such 505. Allegheny claims that the as part of the franchised public utility.
relationships also could result in Commission failed to consider the costs They argue that the current code of
transactions harmful to captive to customers, which are likely to be conduct already provides the
customers.506 Accordingly, the substantial through the loss of protections sought by such a proposal
Commission proposed that an entity efficiencies by treating asset managers and the Commission fails to explain the
managing generation for the franchised as affiliates.512 Allegheny claims that need for such expanded regulation.517
public utility should be subject to the there will be higher costs because: (1) Furthermore, they submit that such
same affiliate restrictions as the The affiliated asset manager will need to proposal does not consider the
franchised public utility (e.g., pass added costs on to the franchised additional costs to consumers through
restrictions on affiliate sales and utility; (2) if the affiliated asset manager lost efficiencies.518
information sharing). The Commission cannot pass on costs, it may no longer 509. PG&E argues that the
referenced a settlement in which provide the service and the utility may Commission proposal to consider
Enforcement staff alleged that an need to set up duplicative asset ‘‘entities acting on behalf of and for the
affiliated power marketer acting as an management capability, resulting in benefit of [the utility/affiliate]’’ as part
higher costs; or (3) the franchised utility of the utility/affiliate itself is
503 This is consistent with the standards of
will need to hire a third-party asset unnecessary and overly broad.519
conduct, which require transmission providers to
post information concerning potential merger manager, presumably more 510. Indianapolis P&L does not
partners as affiliates within seven days after the expensive.513 Constellation makes a oppose the Commission’s proposal to
potential merger is announced. 18 CFR similar argument about the substantial treat asset managers as affiliates for the
358.4(b)(3)(v). costs and reduction of efficiencies by limited purposes of the code of conduct,
504 NOPR at P 117, 130, 131.
discouraging energy/asset management standards of conduct or inter-affiliate
505 Id. at P 124 citing Kevin Heslin, A few
thoughts on the industry: Ideas from session at agreements.514 transaction issues, but it states that the
Globalcon, Energy User News, July 1, 2002, at 12 Commission should not treat
(Noting that prior to deregulation, ‘‘an energy 507 Id. at P 124 (citing Cleco Corp., 104 FERC unaffiliated asset managers as affiliates
manager had relatively straightforward tasks: 61,125 (2003) (Cleco)). when determining how much generating
Understanding applicable tariffs, evaluating the 508 NOPR at P 130.
possible installation of energy conservation 509 Id. at P 131. 515 EPSA at 28–32.
measures (ECMs), and considering whether to 510 Morgan Stanley at 9. 516 Alliance Power Marketing at 17–37.
install on-site generation’’ but that ‘‘now, an energy
511 Financial Companies at 11–12. 517 Allegheny Energy Companies at 10–16; PG&E
manager has to be conversant with a far greater
512 Allegheny at 14–15. at 14–21.
number of issues’’ such as complex legal issues and
financial instruments like derivatives.) 513 Allegheny at 15. 518 Allegheny Energy Companies at 10–16.
506 Id. 514 Constellation at 6. 519 PG&E at 14–21.
capacity should be attributed to a 515. This approach is consistent with states that based on the definition of a
generation asset owner.520 past Commission orders that have ‘‘franchised public utility’’ as ‘‘a public
511. Financial Companies and identified the potential that affiliated utility with a franchised service
Morgan Stanley both state in their reply exempt wholesale generators or obligation under State law and that has
comments that the Commission should qualifying facilities could serve as a captive customers,’’ distribution
not impose affiliate restrictions on conduit for providing below-cost cooperatives that are granted franchised
unaffiliated energy managers, as the services to an affiliated power marketer service territories by State regulatory
Commission provides no basis for such at the expense of captive customers of agencies would be included in this
requirement 521 and no evidence that the public utility operating companies definition. El Paso E&P asserts that a
energy managers can engage in cross- and imposed restrictions to prevent G&T cooperative with authority to sell
subsidization of unregulated this.524 power at market-based rates would be
affiliates.522 516. Although several commenters defined as a non-regulated power seller
Commission Determination assert that the costs of asset and, accordingly, sales made by a G&T
management will increase as a result of cooperative at market-based rates to its
512. From the various comments requiring asset managers to observe the affiliated member distribution
submitted it is apparent that our affiliate restrictions, they did not cooperatives would, under the proposed
proposal has created confusion as to our provide any examples of why the costs regulations, be required to comply with
intent with regard to the treatment of would increase. The Commission notes the requirements of the rule. 526
energy/asset managers under the that under this Final Rule, all asset 520. However, El Paso E&P argues that
proposed affiliate restrictions. managers are not required to observe the the Commission has previously stated
Accordingly, we clarify and simplify affiliate restrictions, only those asset that affiliate abuse is not a concern for
our approach, as discussed below. managers which control or market cooperatives owned by other
513. The Commission is concerned cooperatives because the cooperatives’
generation of the franchised public
that there exists the potential for a ratepayers are its members. El Paso E&P
utility with captive customers or a
franchised public utility with captive alleges that the Commission has never
market-regulated power sales affiliate of
customers to interact with a market- sufficiently explained the basis for its
a franchised public utility with captive
regulated power sales affiliate in ways prior statements. According to El Paso
customers. In those instances, the need
that transfer benefits to the affiliate and E&P, the Commission’s prior statements
to protect captive customers outweighs
its stockholders to the detriment of the are based on the findings in Hinson
any generalized assertions of increased
captive customers. Therefore, the Power 527 that lack of concern with the
cost.
Commission has adopted certain potential for affiliate abuse is premised
517. We note that to the extent that a
affiliate restrictions to protect the on the absence of captive customers that
franchised public utility with captive
captive customers and, in this Final would be subject to the exercise of
customers and one or more of its non-
Rule, is codifying those restrictions in market power. El Paso submits that the
regulated marketing affiliates obtains
our regulations. To that end, we make fact that ratepayers of the distribution
the services of the same energy/asset
clear that such utilities may not use cooperative are also members of such
manager, such an arrangement would
anyone, including energy/asset cooperatives should not alleviate the
create opportunities to harm captive
managers, to circumvent the affiliate Commission’s concern about potential
restrictions (e.g., independent customers depending on how the
energy/asset manager is structured. For affiliate abuse issues. El Paso E&P
functioning and information sharing claims that industrial customers of
prohibitions). Accordingly, we adopt example, without internal separation
between the energy/asset managers’ distribution cooperatives with
and codify in our regulations at franchised service territories are captive
§ 35.39(c)(1) and 35.39(g) an explicit regulated and non-regulated businesses,
there would exist opportunities to harm to service from the generation and
prohibition on using third-party entities transmission and distribution
to circumvent otherwise applicable captive customers.
cooperatives that serve them and are in
affiliate restrictions. g. Cooperatives need of protection from the Commission
514. We note that energy/asset
Comments to ensure that they are charged just and
managers provide a variety of services
518. Suez/Chevron asks the reasonable rates.528
for franchised public utilities and
521. NRECA submits that El Paso
market-regulated power sales affiliates, Commission to clarify that jurisdictional
misreads the proposed regulations by
including, but not limited to, operating utilities organized as cooperatives are
classifying distribution cooperatives as a
generation plants (sometimes under not exempt from the affiliate abuse rules
‘‘public utility Seller’’ under the
tolling agreements), acting as billing and that all jurisdictional public
proposed regulations and NRECA
agents, bundling transmission and utilities with captive customers,
comments that it is not aware of any
power for customers, and scheduling including utilities organized as
distribution cooperatives that would be
transactions. However, regardless of the cooperatives, must comply with the
classified as ‘‘public utility Sellers’’ thus
relationships and duties of an energy/ affiliate abuse rules.525
519. El Paso E&P argues that it would triggering the restriction on affiliate
asset manager to a franchised public
appear that the proposed affiliate sales without first receiving
utility or its non-regulated affiliate, the
restrictions would apply to power sales Commission approval. NRECA states
energy/asset manager may not act as a
at market-based rates made by G&T that nearly all distribution cooperatives
conduit to circumvent the affiliate
cooperatives to their State-regulated are not regulated as public utilities
restrictions.523
member distribution cooperatives. It under the FPA because they either have
520 Indianapolis P&L at 7–10.
Rural Electrification Act (REA)
financing or sell less than 4 million
521 Morgan Stanley reply comments at 14. circumvent any of the affiliate restrictions,
522 Financial Companies reply comments at 6. including the affiliate sales restriction and the
523 The Commission is adopting 18 CFR 35.39(g) information sharing provision. 526 El Paso E&P at 4–9.
524 Southern Company Services, Inc., 72 FERC 527 Hinson Power Company, 72 FERC ¶ 61,190
which prohibits a franchised public utility with
captive customers and a market-regulated power ¶ 61,324 at 62,408 (1995). (1995).
sales affiliate from using anyone as a conduit to 525 Suez/Chevron at 10–12. 528 El Paso E&P at 4–9.
MWh per year and thus do not qualify sales to State-regulated franchised section 201(f), as discussed above, the
as a ‘‘public utility’’ under section 201(f) public utilities that are not Commission will continue to treat such
of the FPA. Furthermore, NRECA cooperatives.533 According to El Paso electric cooperatives as not subject to
comments that very few distribution E&P, the captive customers of the Commission’s affiliate abuse
cooperatives sell any electricity for distribution cooperatives are in need of restrictions, based on a finding that
resale. Thus, they would not need to the same protection from the transactions of an electric cooperative
obtain market-based rate authority Commission notwithstanding that the with its members do not present dangers
under section 205 even if they were not distribution cooperatives are regulated of affiliate abuse through self-dealing.
relieved of that obligation by section by the states.534 Even if an electric cooperative is not
201(f).529 NRECA also comments that 524. El Paso E&P also states that statutorily exempted from our
the Commission has explained the wholesale electric sales approved by the regulation under Part II of the FPA, we
reasoning behind not requiring Commission must be passed through at conclude that a waiver of § 35.39 is
cooperatives to comply with the affiliate the retail level. Thus, El Paso E&P states appropriate. As the Commission has
abuse requirements by stating that ‘‘in that it is not sufficient to suggest that previously explained, ‘‘affiliate abuse
the case of a cooperative, the the Commission need not be concerned takes place when the affiliated public
cooperative’s members are both the because the distribution cooperatives’ utility and the affiliated power marketer
ratepayers and the shareholders, and rates are subject to State regulation.535 transact in ways that result in a transfer
thus there is no potential danger of Finally, El Paso E&P responds that of benefits from the affiliated public
shifting benefits from one to NRECA cannot seek the protection of utility (and its ratepayers) to the
another.’’ 530 this Commission when its members are affiliated power marketer (and its
522. El Paso E&P responds that purchasers of power, and then claim its shareholders).’’ 539 However, as the
NRECA incorrectly interprets the scope members should be exempt from Commission has previously stated in
of the proposed affiliate restriction and scrutiny when they are sellers to captive many market-based rate orders over the
that NRECA ignores the definition of customers such as El Paso E&P. It asserts years,540 where a cooperative is
‘‘franchised public utility’’ as ‘‘a public that captive customers of generation and involved, the cooperative’s members are
utility with a franchised service transmission and their member both the ratepayers and the
obligation under State law and that has distribution cooperatives are in need of shareholders. Any profits earned by the
captive customers.’’ El Paso E&P protection.536 cooperative will enure to the benefit of
submits that this definition clearly the cooperative’s ratepayers. Therefore,
includes distribution cooperatives. El Commission Determination we have found that there is no potential
Paso E&P further replies that the fact 525. FPA section 201(f) specifically danger of shifting benefits from the
that distribution cooperatives are not exempts from the Commission’s ratepayers to the shareholders.541
‘‘public utilities’’ regulated by the regulation under Part II of the FPA, 527. Finally, we agree with NRECA’s
Commission is irrelevant because the except as specifically provided, electric argument that the issue that El Paso E&P
Commission is not proposing to regulate cooperatives that receive REA financing discusses in its comments is not a
sales by such distribution cooperatives. or sell less than 4 million megawatt concern that can be addressed through
Rather, it is proposing to regulate hours of electricity per year.537 Thus, affiliate restrictions in market-based
wholesale sales by the generation and such electric cooperatives are not rates, but is rather more of a concern of
transmission cooperatives to their considered public utilities under the discrimination in the allocation of
member distribution cooperatives. FPA and our market-based rate benefits and burdens among retail
Therefore, El Paso E&P argues, the regulations do not apply to those ratepayers. The Commission does not
Commission should clarify the electric cooperatives. Further, with possess jurisdiction to review a
regulations to ensure that generation respect to distribution-only distribution cooperative’s retail rates;
and transmission cooperatives are cooperatives, they either do not meet that issue falls under State law.
covered under the affiliate the ‘‘public utility’’ definition because Moreover, El Paso E&P’s argument that
restrictions.531 they do not own or operate facilities wholesale electric sales approved by the
523. El Paso E&P also responds that used for wholesale sales or transmission Commission must be passed through at
NRECA’s attempt to divorce a in interstate commerce or, if they do the retail level is misplaced. As the
generation and transmission own or operate such facilities, they are courts have previously held, State
cooperative’s market-based rate sales to exempted from Part II regulation by commissions are not precluded from
its distribution cooperative members virtue of FPA section 201(f). In this reviewing the prudence of a company’s
from the distribution cooperative’s sales regard, we note that NRECA states that purchasing decisions, and may disallow
to captive customers ignores the it is unaware of any distribution pass-through of wholesale purchase
cooperative structure. It states that a cooperatives in the United States that costs unless the purchaser had no legal
generation and transmission cooperative would be ‘‘public utility Sellers’’ under right to refuse to make a particular
is comprised of its member distribution the proposed regulations.538 Such a purchase.542
cooperatives and both the generation cooperative would not be subject to the
539 Heartland Energy Services, Inc., 68 FERC ¶
and transmission and distribution affiliate restrictions in the proposed
61,223 at 62,062 (1994).
cooperatives act in concert in regulations at § 35.39. 540 Hinson Power Company, 72 FERC ¶ 61,190
connection with sales to industrial 526. For electric cooperatives that are (1995). See also, e.g., People’s Electric Corp., 84
customers.532 El Paso E&P also submits public utility sellers and not exempted FERC ¶ 61,215 at 62,042 (1998) (application raised
that NRECA’s argument suggests that from public utility regulation by FPA no issues of affiliate abuse because the seller was
operated by a cooperative whose ratepayers were
the Commission has no jurisdiction over also its owners); Old Dominion Electric
533 Id.
Cooperative, 81 FERC ¶ 61,044 at 61,236 (1997).

529 NRECA 534 Id. at 4.
supplemental reply comments at 5–6. 541 Old Dominion Electric Cooperative, 81 FERC
530 NRECA supplemental reply comments at 9. 535 Id.
¶ 61,044 at 61,236 (1997).
531 El Paso E&P answer to reply comments at 2– 536 Id.
at 5. 542 Arkansas Power & Light Co. v. Missouri Public
3. 537 16U.S.C. 824(e)–(f) (2006). Service Commission, 829 F.2d 1444 at 1451–52 (8th
532 Id. at 3. 538 NRECA reply comments at 5. Cir. 1987). See also Pike County Light & Power v.
528. Therefore, for the reasons stated Although it did not propose to codify a to use the date the § 203 application is
above, the Commission will continue to safe harbor provision in the regulations, filed with the Commission, or another
follow its current precedent and find the Commission noted that when time). The Commission also proposed
that electric cooperatives that are public affiliates participate in a competitive that unaffiliated entities that engage in
utility sellers and not exempted from solicitation process, application of the energy/asset management of generation
public utility regulation by FPA § 201(f) Allegheny criteria would constitute a on behalf of a franchised public utility
are not subject to the Commission’s safe harbor that affiliate abuse or non-regulated utility be bound to
affiliate abuse requirements. conditions are satisfied in a transaction comply with the same affiliate
between a franchised public utility and restrictions as those imposed on the
2. Power Sales Restrictions
its affiliates. The Commission franchised public utility and the non-
Commission Proposal emphasized, however, that using a regulated power sales affiliate.
529. In the NOPR the Commission competitive solicitation is not the only 534. The Commission said it
proposed to continue the policy of way to address concerns that an affiliate continues to believe that tying the price
reviewing power sales transactions transaction does not pose undue of an affiliate transaction to an
between regulated and ‘‘non-regulated’’ preference concerns.545 established, relevant market price or
affiliates under section 205 of the FPA. 533. The Commission said it index such as in an RTO or ISO is
This policy means, among other things, continues to believe that tying the price acceptable benchmark evidence and
that a general grant of market-based rate of an affiliate transaction to an mitigates affiliate abuse concerns so
authority does not apply to affiliate established, relevant market price or long as that benchmark price or index
sales between a regulated and a non- index such as in an RTO or ISO is reflects the market price where the
regulated affiliate, absent express acceptable benchmark evidence and affiliate transaction occurs. The
authorization by the Commission. mitigates affiliate abuse concerns so Commission proposed to allow affiliate
530. The Commission proposed to long as that benchmark price or index transactions based on a non-RTO price
amend the regulations to include a reflects the market price where the index only if the index fulfills the
provision expressly prohibiting power affiliate transaction occurs. The requirements of the November 19 Price
sales between a franchised public Commission proposed to allow affiliate Index Order 547 for eligibility for use in
utility 543 and any of its non-regulated transactions based on a non-RTO price jurisdictional tariffs. The Commission
power sales affiliates without first index only if the index fulfills the sought comment on whether evidence
receiving authorization for the requirements of the November 19 Price other than competitive solicitations,
transaction under section 205 of the Index Order 546 for eligibility for use in RTO price or non-RTO price indices, or
FPA. jurisdictional tariffs. The Commission benchmarks described in the NOPR
531. Additionally, although it did not sought comment on whether evidence should be accepted in an application for
propose to codify the requirement in the other than competitive solicitations, authority to engage in market-based
regulatory text, the Commission RTO price or non-RTO price indices, or affiliate power sales. In addition, the
proposed that sellers seeking benchmarks described in the NOPR Commission proposed to consider two
authorization to engage in affiliate should be accepted in an application for merging partners as affiliates as of the
transactions will continue to be authority to engage in market-based date a merger is announced, and sought
obligated to provide evidence as to affiliate power sales. In addition, the comments on this proposal (or whether
whether there are captive customers that Commission proposed to consider two to use the date the § 203 application is
would trigger the application of the merging partners as affiliates as of the filed with the Commission, or another
affiliate restrictions. The Commission date a merger is announced, and sought time). The Commission also proposed
stated that if the Commission finds, comments on this proposal (or whether that unaffiliated entities that engage in
based on the evidence provided by the energy/asset management of generation
seller, that the seller has no captive describing three types of evidence that can be used on behalf of a franchised public utility
to show that an affiliate power sales transaction is or non-regulated utility be bound to
customers, the affiliate restrictions in above suspicion ensuring that the market is not
the regulations would not apply. distorted and captive ratepayers are protected: (1) comply with the same affiliate
532. The Commission proposed to Evidence of direct head-to-head competition restrictions as those imposed on the
continue its prior approach for between the affiliate and competing unaffiliated franchised public utility and the non-
determining what types of affiliate sales suppliers in a formal solicitation or informal regulated power sales affiliate.
negotiation process; (2) evidence of the prices non-
transactions are permissible and the affiliated buyers were willing to pay for similar Comments
criteria that should be used to make services from the affiliate; or (3) benchmark
those decisions, including evaluation of evidence that shows the prices, terms, and 535. Industrial Customers urge the
the Allegheny and Edgar criteria.544 conditions of sales made by non-affiliated sellers. Commission to recognize that when an
Allegheny Energy Supply Company, LLC, 108 FERC
¶ 61,082 (2004) (Allegheny), stating four guidelines
affiliate transaction has been subject to
Pennsylvania Public Utility Commission, 465 A.2d that help the Commission determine if a a State-approved process, separate
735 at 737–78 (1983); Nantahala Power & Light Co. competitive solicitation process satisfies the Edgar section 205 approvals for such
v. Thornburg, 476 U.S. 953 at 965–67 (1986); criteria: (1) It is transparent; (2) products are well transactions should not be required. If,
Mississippi Power & Light Co. v. Mississippi ex rel. defined; (3) bids are evaluated comparably with no
Moore, 487 U.S. 354 at 369 (1988). advantage to affiliates; and (4) it is designed and however, the Commission does
543 As proposed in the NOPR, the term evaluated by an independent entity. maintain the section 205 approval, ‘‘the
‘‘franchised public utility’’ was defined as ‘‘a public 545 Although our focus and discussion in this rule imprimatur of State commission
utility with a franchised service obligation under is affiliate abuse with respect to affiliates that sell approval should create a rebuttable
state law and that has captive customers.’’ As set at market-based rates, affiliate concerns also arise
forth below, to avoid confusion between references with respect to affiliate sales at cost-based rates.
presumption that the transaction is just
to a franchised public utility with captive See, e.g., Duke Energy Corp. and Cinergy Corp., 113 and reasonable.’’ 548 NASUCA
customers and one without, we revise the proposed FERC ¶ 61,297 at P 113–116 (2005), reh’g denied, comments that the Commission should
regulations to delete the reference to customers in 118 FERC ¶ 61,077 (2007). not assume the reasonableness of all
the definition and to specifically use the term 546 Order Regarding Future Monitoring of
‘‘franchised public utility with captive customers’’ Voluntary Price Formation, Use of Price Indices In
affiliate sales under contracts with
to clarify when the affiliate restrictions apply. Jurisdictional Tariffs, and Closing Certain Tariff
544 Boston Edison Company Re: Edgar Electric 547 Id.
Dockets, 109 FERC ¶ 61,184 (2004) (November 19
Energy Co., 55 FERC ¶ 61,382 (1991) (Edgar), Price Index Order). 548 Industrial Customers at 16–18.
prices linked to spot markets or other consider proposed competitive stated that the added protections in
auction results.549 solicitations on a case-by-case basis. We structured markets with central
536. Other commenters urge the again emphasize that using a commitment and dispatch and market
Commission to clarify that, while competitive solicitation by applying the monitoring and mitigation (such as
requests for proposals consistent with Allegheny and Edgar guidelines is not RTOs/ISOs) generally result in a market
the Allegheny and Edgar standards and the only way an affiliate transaction can where prices are transparent.557
affiliate sales based on market index address our concerns that the 543. In addition, while the
prices constitute a safe harbor for transaction does not pose undue Commission has found in the past that
affiliate abuse, those should not be the preference concerns. We will consider certain non-RTO price indices are
only safe harbors.550 The Commission other approaches on a case-by-case acceptable indicators of market prices,
should state it is willing to consider basis. Also, to the extent a seller is not we continue to recognize that price
other information and evidence, bound by the affiliate restrictions indices at thinly traded points can be
including affiliate sales reviewed and because neither the seller nor the buyer subject to manipulation and are
authorized by a State regulatory agency, has captive customers, we find that the otherwise not good measures of market
as safe harbors as well.551 Edgar principles do not apply and the prices as discussed in the Price Index
537. New Jersey Board disagrees with seller does not need to make a filing Policy Statement 558 and November 19
comments that the Commission should with regard to a proposed competitive Price Index Order. Therefore, the
consider State approval of affiliate sales solicitation.555 Commission will allow affiliate
as a safe harbor and responds that the 541. A number of commenters urge transactions based on a non-RTO price
Commission should assure that affiliate the Commission to find that a State- index only if the index fulfills the
abuse does not take place and not ignore approved solicitation process creates a requirements of the November 19 Price
affiliate sales based on actions and rebuttable presumption that an affiliate Index Order for eligibility for use in
oversight by State commissions.552 transaction satisfies the Commission’s jurisdictional tariffs and reflects the
538. State AGs and Advocates oppose affiliate abuse concerns. The market price where the affiliate
the Commission’s proposal to find Commission will consider a State- transaction occurs (i.e., is a relevant
affiliate sales of wholesale power just approved process as evidence in its index).559
and reasonable if such sales are made consideration as to whether our affiliate
through an auction that reflects certain abuse concerns have been adequately 3. Market-Based Rate Affiliate
guidelines such as those set forth in addressed, but the Commission will not Restrictions (Formerly Code of Conduct)
Edgar and Allegheny. Instead, State AGs treat a State-approved process as for Affiliate Transactions Involving
and Consumer Advocates state that the creating a rebuttable presumption that Power Sales and Brokering, Non-Power
Commission should develop behavioral our affiliate abuse concerns have been Goods and Services and Information
market power tests that apply to all addressed. In this regard, the Sharing
market structures and that each auction Commission has a responsibility under Commission Proposal
should be assessed separately and section 205 of the FPA to ensure that all
evaluated on the merits of the jurisdictional rates charged are just and 544. The Commission stated in the
proposal.553 reasonable and not unduly NOPR that it continues to believe that
539. Industrial Customers oppose the discriminatory or preferential. While a a code of conduct is necessary to protect
Commission’s proposal to rely on an State-approved solicitation process may captive customers from the potential for
RTO/ISO benchmark price or index to provide evidence that the wholesale affiliate abuse. In light of the repeal of
mitigate affiliate abuse concerns and rates proposed as a result of that process the Public Utility Holding Company Act
argues that tying an affiliate transaction are just and reasonable and do not of 1935 560 and the fact that holding
to a price index should not allow involve any undue discrimination or company systems may have franchised
utilities to escape scrutiny.554 preference, we do not believe it is public utility members with captive
appropriate to create a rebuttable customers as well as numerous non-
presumption. regulated power sales affiliates that
540. The Commission adopts the 542. Further, the Commission will engage in non-power goods and services
proposal to continue its approach for continue to allow an established, transactions with each other, the
determining what types of affiliate relevant market price or index such as Commission stated that it is important
transactions are permissible and the in an RTO or ISO to be used as a to have in place restrictions that
criteria used to make those decisions. benchmark for the reasonableness of the preclude transferring captive customer
Although we are not codifying a safe price of an affiliate transaction. In this benefits to stockholders through a
harbor in our regulations, when regard, we disagree with commenters company’s non-regulated power sales
affiliates participate in a competitive that relying on such prices or indices business. Therefore, the Commission
solicitation process for power sales, we allows utilities to escape Commission stated its belief that it is appropriate to
will consider proper application of the scrutiny. Such an index is acceptable condition all market-based rate
Allegheny guidelines to constitute a safe benchmark evidence and mitigates authorizations, including authorizations
harbor that the affiliate abuse concerns affiliate abuse concerns so long as that
are satisfied in a transaction between a benchmark price or index reflects the ¶ 61,093 at 61,378 (2001); FirstEnergy Trading, 88
franchised public utility with captive market price where the affiliate FERC ¶ 61,067 at 61,156 (1999).
customers and its non-regulated power transaction occurs (i.e., is a relevant
558 Policy Statement on Natural Gas and Electric
sales affiliate. The Commission will index).556 The Commission previously Price Indices, 104 FERC ¶ 61,121 (2003) (Price
549 NASUCA
Index Policy Statement).
at 20–29. 555 Southern California Edison Co., 109 FERC 559 November 19 Price Index Order, 109 FERC
550 Indianapolis P&L at 7–10.
¶ 61,086 at P 35 (2004) (noting that Commission’s ¶ 61,184 at P 40–69.

551 FirstEnergy at 12–27.
concern in cases involving sales to affiliates has 560 Repeal of the Public Utility Holding Company
552 New Jersey Board reply comments at 6.
been the potential for cross-subsidization at the Act of 1935 and Enactment of the Public Utility
553 State AGs and Advocates reply comments at expense of the public utility’s captive customers). Holding Company Act of 2005, Order No. 667, 70
12–13. 556 Brownsville, 111 FERC ¶ 61,398 at P 10 (2005). FR 75592 (Dec. 20, 2005), FERC Stats. & Regs.
554 Industrial Customers at 16–18. See also Portland General Elec. Co., 96 FERC Regulations Preambles 2001–2005 ¶ 31,197 (2005).
for sellers within holding companies, on Indianapolis P&L argues that a single that modeling these restrictions and the
the seller abiding by a code of conduct tariff/code of conduct does not make exceptions to those restrictions on the
for sales of non-power goods and sense for diversified energy companies standards of conduct will lead to greater
services and services between power with geographically widespread consistency and transparency and a
sales affiliates. In addition, the operations.566 greater understanding of permissible
Commission stated that greater 548. FP&L states that the Commission activities.
uniformity and consistency in the codes should include in the regulatory text the
statement that the affiliate restrictions 551. The Commission clarifies that
of conduct is appropriate and, therefore,
proposed to adopt a uniform code of are waived where a seller demonstrates any sellers that have previously
conduct to govern the relationship that there are no captive customers.567 demonstrated and been found not to
between franchised public utilities with EEI states that utilities already found have captive customers, and therefore
captive customers and their ‘‘non- not to have captive customers because have received a waiver of the market-
regulated’’ affiliates, i.e., affiliates of retail choice should be grandfathered based rate code of conduct requirement
whose power sales are not regulated on and should not have to request waiver in whole or in part, will not be required
a cost basis under the FPA. The of the code of conduct again.568 to request another waiver of the
Commission proposed to codify such associated affiliate restrictions.
affiliate restrictions in the regulations However, those sellers are still under
and to require that, as a condition of 549. The Commission will adopt the the obligation to report to the
receiving market-based rate authority, proposed affiliate restrictions with Commission any changes in status that
franchised public utility sellers with certain modifications and clarifications. may affect the basis on which the
captive customers comply with these These restrictions govern the separation Commission relied in granting their
restrictions. The Commission proposed of functions, the sharing of market waiver, consistent with the
that the failure to satisfy the conditions information, sales of non-power goods requirements of Order No. 652.570
set forth in the affiliate restrictions will or services, and power brokering. The
Additionally, those sellers also will be
constitute a tariff violation. Commission will require that, as a
required to meet the requirements
545. The Commission sought condition of receiving and retaining
market-based rate authority, sellers necessary to maintain their market-
comments on this proposal and on based rate authority when they file their
whether the specific affiliate restrictions comply with these affiliate restrictions
unless otherwise permitted by regularly scheduled updated market
proposed in the NOPR are sufficient to power analyses. As a result, they will be
protect captive customers. In particular, Commission rule or order. As discussed
herein, these affiliate restrictions govern required to demonstrate that they
the Commission sought comments on
the relationship between franchised continue to lack captive customers in
what changes, if any, should be
adopted. public utilities with captive customers order to support a continued waiver of
and their ‘‘market-regulated’’ affiliates, the affiliate restrictions in the
a. Uniform Code of Conduct/Affiliate i.e., affiliates whose power sales are regulations. Sellers will also need to
Restrictions—Generally regulated in whole or in part on a explain why any wholesale customers
Comments market-based rate basis. are not captive, as explained above.
550. Failure to satisfy the conditions 552. In response to FP&L and EEI,
546. Some commenters support
set forth in the affiliate restrictions will because we clarify in this Final Rule
codifying the code of conduct affiliate
constitute a violation of the market- that, where a seller demonstrates and
restrictions in the regulations and
based rate tariff. As discussed in greater
comment that it will lead to consistent the Commission agrees that it has no
detail below, the Commission agrees
codes of conduct across all sellers, thus captive customers, the affiliate
with many of the commenters that the
creating greater transparency, and will restrictions will not apply, the
requirements and exceptions in the
aid the Commission’s enforcement Commission does not believe it is
affiliate restrictions should follow those
efforts.561 ELCON argues that the ability necessary to include in the regulatory
requirements and exceptions codified in
of large utility holding companies with text a provision stating that the affiliate
the standards of conduct, where
one foot in ‘‘competition’’ and one foot restrictions are waived where a seller
applicable.569 The Commission believes
in ‘‘regulation’’ creates a myriad of demonstrates and the Commission
potential problems.562 Several State 566 IndianapolisP&L at 12. agrees that it has no captive customers.
agencies and consumer commenters 567 FP&Lat 5–6.
generally support the proposal to codify 568 EEI at 43; EEI reply comments at 35.
uniform code of conduct restrictions in 569 On November 17, 2006, the D.C. Circuit
Transmission Providers, Order No. 690–A, 72 FR
the Commission’s regulations.563 vacated the Order No. 2004 standards of conduct 14235 (Mar. 27, 2007); FERC Stats. & Regs. ¶ 31,243
NASUCA comments that the separation orders as they related to natural gas pipelines and (2007). On January 18, 2007, the Commission issued
remanded the orders to the Commission. National a Notice of Proposed Rulemaking proposing to
of function requirements should apply Fuel Gas Supply Corporation v. FERC, 468 F.3d 831
make the changes in the Interim Rule permanent
to any affiliate with retail customers, not (D.C. Cir. 2006). The court found that the
and seeking comment on whether the restrictions
just to affiliates who are franchised rulemaking record did not support the
covering relationships between electric
public utilities.564 Commission’s attempt to extend the standards of
conduct beyond pipelines’ relationships with their transmission providers and non-marketing affiliates
547. FP&L, however, does not believe marketing affiliates to also govern pipelines’ that are engaged in energy transactions should be
it is unduly preferential to have relationships with numerous non-marketing retained. Standards of Conduct for Transmission
different codes of conduct.565 affiliates, such as producers, gatherers, and local Providers, Notice of Proposed Rulemaking, 72 FR
distribution companies (which Order No. 2004 3958 (Jan. 29, 2007), FERC Stats. & Regs. ¶ 32,611
561 ELCON and EPSA support codifying a uniform defined as ‘‘energy affiliates’’). In response to this (2007).
decision, the Commission issued an interim rule on
code of conduct. ELCON at 2 and EPSA at 28. 570 Reporting Requirement For Changes in Status
January 9, 2007 reinstating those provisions of

562 ELCON at 3.
Order No. 2004 that were not specifically appealed For Public Utilities with Market-Based Rate
563 Id. at 6–10, New Jersey Board at 2, and NRECA
to the D.C. Circuit. Standards of Conduct for Authority, Order No. 652, 70 FR 8253 (Feb. 18,
at 11. Transmission Providers, Order No. 690, 72 FR 2427 2005), FERC Stats. & Regs., Regulations Preambles
564 NASUCA at 20–29. January 2001–December 2005 ¶ 31,175, order on
(Jan. 19, 2007); FERC Stats. & Regs. ¶ 31,237 (Jan.
565 FP&L at 3. 9, 2007); order on reh’g, Standards of Conduct for reh’g, Order No. 652–A, 111 FERC ¶ 61,413 (2005).
b. Exceptions to the Independent broad and unduly restrictive.575 PPL employees, officers or directors that are
Functioning Requirement similarly requests clarification of which not shared.
employees would be deemed ‘‘shared 562. The Commission agrees that a
Commission Proposal Regarding
employees’’ under the affiliate franchised public utility with captive
Separation of Employees and Shared
restrictions.576 customers and its market-regulated
Employees
558. NiSource requests that the power sales affiliates should be
553. In the NOPR, the Commission permitted to share senior officers and
Commission create an exception to
proposed regulatory language in members of the board of directors to
allow the sharing between operational
§ 35.39(b)(2) (now § 35.39(c)(2)) conduct corporate governance
employees of the franchised public
codifying the independent functioning functions, and to take advantage of the
utility and its non-regulated sales
requirement. Specifically, the efficiencies of corporate integration.581
affiliates of any information necessary to
Commission stated, to the maximum Therefore, the Commission is adopting
maintain the safe and reliable operation
extent practical, the employees of a non- an exception at § 35.39(c)(2)(d) that
of the bulk power system, similar to the
regulated power sales affiliate will permits a franchised public utility with
exception in the standards of conduct at
operate separately from the employees captive customers and its market-
§ 358.5(b)(8) of the Commission’s
of any affiliated franchised public regulated power sales affiliate to share
regulations.577
utility. senior officers and members of the
554. The Commission did not propose 559. EEI and FirstEnergy also request board of directors. Specifically, a
to include any exceptions to the that the independent functioning franchised public utility with captive
independent functioning requirements. requirement and information sharing customers and its market-regulated
However, the Commission invited restrictions in the proposed affiliate power sales affiliate may share senior
commenters to propose additions to, restrictions should have an exception officers and members of boards of
substitutions for or elimination of the for sharing employees and market directors provided that these
proposed affiliate restrictions.571 information for emergency individuals do not participate in
circumstances affecting system directing, operating or executing
Comments reliability.578 generation or market functions.582 In
555. A number of commenters request 560. On the other hand, Morgan addition, to prevent permissibly shared
that the Commission modify the affiliate Stanley urges the Commission not to senior officers or members of the board
restrictions to adopt some of the adopt a blanket exception to the affiliate of directors from using their preferential
requirements and exceptions consistent restrictions for emergency situations access to market information to harm
with those codified in Order No. 2004, because the commenters’ proposal captive customers, consistent with the
such as allowing the sharing of senior regarding what constitutes an no-conduit rule codified at § 35.39(g),
officers and members of the board of ‘‘emergency’’ is vague and leaves too the permissibly shared senior officers
directors, field and maintenance much discretion to the individual and directors may not act as a conduit
employees and support employees. sellers. Additionally, Morgan Stanley to provide market information to non-
According to EPSA, the affiliate explains that communications with an shared employees of the franchised
restrictions should provide specifically affiliate during an emergency may not public utility with captive customers or
for permissible sharing of officers (not adequately address an emergency; its market-regulated power sales
just sharing of support personnel) sharing information with all sellers in affiliates.
between a franchised public utility and the market would provide a better 563. The Commission also agrees that
a non-regulated power sales affiliate. foundation to deal with any it is appropriate to codify an exception
EPSA notes that Order No. 2004 allows emergency.579 that permits the sharing of support
for shared officers as long as they do not employees between the franchised
direct, organize or execute day-to-day Commission Determination public utility with captive customers
business transactions.572 561. The Commission will revise the and its market-regulated power sales
556. Duke comments that treatment of independent functioning requirement of affiliates comparable to the standards of
shared employees under the affiliate the affiliate restrictions to include conduct exception, likewise subject to
restrictions should follow the exceptions relating to permissibly the no-conduit rule.583
obligations adopted in the standards of 564. The Commission rejects Duke’s
shared senior officers and members of
conduct. For example, Duke urges the request that the Commission include a
boards of directors, shared support
Commission to allow the sharing of non-exhaustive list of examples of
personnel, and shared field and
officers and directors.573 Additionally, permissible shared support employees
maintenance personnel. With regard to
Avista states that the proposed affiliate within the body of § 35.39. However, we
permissibly shared individuals, the
restrictions should distinguish between clarify that the types of permissibly
Commission will impose a ‘‘no-conduit
operational and non-operational shared support employees under the
rule’’ similar to that in the standards of
employees.574 standards of conduct are the types of
conduct.580 Under the no conduit rule,
557. PG&E urges the Commission to permissibly shared support employees
to be codified at § 35.39(g), a
clarify which employees cannot be that will be allowed under the affiliate
permissibly shared employee is
shared. PG&E states that prohibiting restrictions in § 35.39(c)(2)(c). Such
prohibited from acting as a conduit for
employees involved in general employees include those in legal,
disclosing market information to
operation of generation facilities, who accounting, human resources, travel and
lack control over generation availability, 575 PG&E
information technology.584 Because
at 14–21.
from being shared would be overly 576 PPL
reply comments at 21–22.
permissibly shared employees may have
access to market information, they are
577 NiSource at 1.
571 NOPR at P 132. 578 EEI at 44; FirstEnergy at 22.
572 EPSA 581 Order No. 2004–A at P 134.
at 31. 579 Morgan Stanley reply comments at 7–8.
573 Duke at 43. See also EPSA at 31; FirstEnergy 580 18 CFR 358.4(a)(5) (shared senior officers and 582 See 18 CFR 358.4(a)(5).
at 26. directors); 18 CFR 358.5(b)(7) (general ‘‘no conduit’’ 583 Order No. 2004 at P 99–101.
574 Avista at 7–10. rule covering employees). 584 Id. at P 96.
prohibited from acting as a conduit to take actions to harm captive customers However, the market-regulated power
provide market information to based upon their decision making sales affiliate or the franchised public
employees of the franchised public authority and control over the bulk utility must report to the Commission
utility with captive customers and the power system. The Commission will and disclose to the public on its Web
market-regulated power sales affiliates consider requests for waiver of the site each emergency that resulted in any
that are not permitted to be shared. affiliate restriction requirements to deviation from the restrictions of
565. The Commission also agrees to address the specific circumstances of § 35.39(c)(2)(b), within 24 hours of such
codify an exception to the independent the operation of a bulk power system deviation. Reports to the Commission of
functioning requirement to allow and notes that, subsequent to NiSource’s emergency deviations under the affiliate
franchised public utilities with captive comments, the Commission granted a restrictions in § 35.39(c)(2)(b) will be
customers and their market-regulated partial waiver of the code of conduct made using the ‘‘EY’’ docket prefix.
power sales affiliates to share field and requirements for the situation described 569. The Commission and the public
maintenance employees. Field and in NiSource’s comments.587 will be able to monitor the frequency of
maintenance employees perform purely 568. While the Commission does not these emergency deviations through the
manual, technical or mechanical duties agree with NiSource’s proposal for a reporting requirement. Members of the
that are supportive in nature and do not broad exception to the affiliate public can seek redress from the
have planning or direct operational restrictions for everyday operations of Commission if they feel that the
responsibilities. Such employees would the bulk power system, the Commission exception has been abused or used
likely be part of shared work crews to does agree with EEI and FirstEnergy that improperly.
do repair or maintenance work on the affiliate restrictions should contain
an exception related to emergency c. Information Sharing Restrictions
facilities or equipment. Examples of
activities that may be performed by circumstances affecting system Commission Proposal
shared field and maintenance reliability. As such, the Commission 570. In the NOPR, the Commission
employees are reading meters, replacing will adopt an exception to the proposed regulatory language to codify
parts in generators, restringing independent functioning requirement the information sharing restrictions.
transmission lines, snow removal or and the information sharing restrictions Specifically, the Commission proposed
maintaining roadways. The key is that for emergency circumstances affecting that the regulations provide that all
these employees do not also perform system reliability comparable to the market information sharing between a
operational duties.585 A field or exception in the standards of franchised public utility and a non-
maintenance employee cannot be shared conduct.588 The exception will apply to regulated power sales affiliate will be
if that employee also engages in both the independent functioning disclosed simultaneously to the public.
marketing activities, makes decisions requirements and the information This includes, but is not limited to any
that would affect marketing activities, or sharing restrictions. The Commission communication concerning power or
controls generation. We also consider will modify proposed § 35.39(d) (to be transmission business, present or future,
the immediate supervisors of field and codified at § 35.39(c)(2)(b)) to add a positive or negative, concrete or
maintenance employees as permissibly provision that states that, potential.589
shared employees so long as they cannot notwithstanding any other restrictions
control operations, e.g. restrict or shut in this section, in emergency Comments
down generation facilities.586 circumstances affecting system 571. Ameren supports codification of
566. The Commission agrees with reliability, a market-regulated power the information sharing restrictions, but
commenters that allowing the sharing of sales affiliate and the franchised public recommends that proposed § 35.39(c) be
field and maintenance employees utility with captive customers may take revised to allow permissibly shared
between a franchised public utility with the necessary steps to keep the bulk senior officers and directors to receive
captive customers and its market- power system in operation. The market information so long as they do
regulated power sales affiliates is relaxation of the requirements during not act as a conduit to improperly share
unlikely to harm captive customers, system emergencies is intended to such information, akin to the standards
provided that those shared employees ensure that the franchised public utility of conduct.
do not act as a conduit for sharing with captive customers and market- 572. Avista argues that the
market information with employees of regulated power sales affiliate(s) can Commission should allow officers to be
the franchised public utility with maintain reliability of the power grid. shared by affiliates, subject to the no-
captive customers or market-regulated conduit rule.590 EEI argues that for
587 Northern Indiana Public Service Company
power sales affiliates. The permissibly corporate governance and accountability
and Whiting Clean Energy, Inc., 116 FERC ¶ 61,248
shared field and maintenance (2006). Northern Indiana Public Service Company purposes, there should be an exception
employees are required to observe the (NIPSCO) sought a waiver of the code of conduct to the information sharing prohibitions
no-conduit rule. so that it could perform its duties as a balancing for shared senior officers, subject to the
authority. Specifically, NIPSCO wanted the ability
567. The Commission disagrees with to have access to real-time information regarding
no conduit rule.591
NiSource that a broad exception to the the amount of energy being delivered to NIPSCO 573. EPSA also asks the Commission
independent functioning and from its affiliate, Whiting Clean Energy, Inc., to provide a specific time period for the
information sharing requirement is (Whiting). The Commission granted a partial waiver length of time that posted information
limited to Whiting providing NIPSCO with the real- needs to remain on the Web site.592
needed for the reliable operation of the time information NIPSCO needed to carry out its
bulk power system. Such an exception responsibilities as a balancing authority in 574. PPL comments that the
would be so broad that it would accordance with the requirements of the North Commission should clarify which
swallow the rule and create too many American Electric Reliability Council (NERC), situations would permit deviations from
NERC approved regional reliability organization the code of conduct regarding
opportunities for shared employees to
and the Midwest Independent Transmission System

Operator, Inc. Id. at P 13. The Commission also
585 Id. 589 See NOPR at P 121, 129.
at P 145–146. reminded NIPSCO that its employees were
590 Avista at 2.
586 Seeid. at P 145–46. As discussed later, such prohibited from being a conduit for improperly
actions would be permitted in emergency sharing Whiting’s generation information. Id. 591 EEI at 44.
circumstance affecting system reliability. 588 18 CFR 358.4(a)(2). 592 EPSA at 31–32.
information sharing. Specifically, it unregulated affiliate were to share circumstances affecting system
suggests that the Commission adopt, for market information with the utility.597 reliability in order to keep the bulk
the affiliate restrictions, the standards of 578. According to FP&L, the proposed power system in operation, provided
conduct exception that permits the two-way information sharing restriction that the subsequent reporting provisions
sharing of information to comply with does not provide any additional are followed.
Nuclear Regulatory Commission (NRC) protection for captive customers. Rather, 581. In response to PPL Companies’
requirements.593 such a restriction may place artificial concern as to communications relating
and unnecessary barriers on a to nuclear power plants, the
575. A number of commenters argue company’s ability to conduct Commission clarifies that the types of
that the Commission should not adopt business.598 According to FP&L, the communications permitted under the
the two-way information sharing two-way restriction proposed in standards of conduct for nuclear safety
prohibition in the uniform code of § 35.39(c) (to be codified at § 35.39(d)) and regulatory requirements are also
conduct because they disagree that a concerning the communication of all permitted under the affiliate
communication from the non-regulated market information between a restrictions.601 Specifically, the
power sales affiliate to the franchised franchised public utility and its non- Commission permitted transmission
public utility could potentially harm regulated power sales affiliates is providers to communicate with
captive customers.594 unnecessary if sales of capacity and affiliated and nonaffiliated nuclear
576. Duke notes that while the two- energy between those entities are power plants to enable the nuclear
way restriction is consistent with the prohibited under the specific terms of power plants to comply with the
default code of conduct that the the market-based rate tariff. It submits requirements of the NRC as described in
Commission has used since 1999, the that, if the Commission nevertheless the NRC’s February 1, 2006 Generic
Commission has approved many codes concludes that a two-way restriction on Letter 2006–002, Grid Reliability and
of conduct that contain one-way communications should be adopted, the Impact on Plant Risk and the
restrictions (i.e., codes that restrict a then the final regulations should Operability of Offsite Power.602
franchised public utility from sharing provide an exception if, in the market- 582. In response to EPSA’s request
marketing information with its non- based rate tariff, the non-regulated regarding the specific time period that
regulated power sales affiliates, but do power sales affiliates have restricted posted material needs to remain on the
not place a similar restriction on a non- sales to, and purchases from, their Web site, the Commission concludes
regulated power marketer from sharing franchised public utility affiliate that it is appropriate to use the
market information with its affiliated without having received advance requirements set forth regarding OASIS
franchised utility). Duke says the Commission approval pursuant to a postings in 18 CFR 37.7(b). Specifically,
Commission has failed to explain the separate filing under section 205 of the the material must be posted for 90 days
elimination of previously-approved one- FPA.599 and then be retained and made available
way restrictions.595 It submits that the 579. Similarly, EEI argues that the upon request for download for five years
one-way code of conduct is sufficient to Commission has not explained how the from the date when first posted. The
address affiliate abuse concerns and that two-way information sharing archived material must be available in
prohibition protects captive the same electronic form used as when
the two-way code of conduct
customers.600 it was originally posted.
requirement will impose substantial
583. The Commission will adopt the
costs on market-based rate sellers with Commission Determination two-way information sharing restriction
no discernible benefits.596 According to 580. The Commission will revise the in proposed § 35.39(c) (now § 35.39(d)).
Duke, a number of market participants information sharing prohibitions to The purpose of the affiliate restrictions
have made important organizational and adopt certain exceptions. As discussed in § 35.39 is to ensure that franchised
commercial decisions based on current earlier with regard to the independent public utility sellers with captive
policies and precedents allowing one- functioning requirement, we are customers will not be able to engage in
way communications. In the absence of creating exceptions to permit shared affiliate abuse to the detriment of those
any basis for reversing that policy, Duke senior officers and members of a board captive customers. One way the
submits that the Commission should of directors, as well as to permit shared Commission achieves this is by
reconsider its proposal to mandate two- field and maintenance employees. restricting the sharing of information
way information sharing restrictions. Permissibly shared employees may between a franchised public utility with
577. In addition, Duke argues that share all types of market information. captive customers and a market-
only two commenters, EPSA and However, the information sharing regulated power sales affiliate. The
ELCON, expressed even generalized provision, like all the affiliate Commission has long required a seller
support for a standardized code of restrictions, is subject to the ‘‘no-
conduct containing the two-way code conduit’’ rule that we codify in the 601 Interpretive Order Relating to the Standards of
restriction, but did not address the regulations. The no-conduit rule allows Conduct, 114 FERC ¶ 61,155 (2006), order on
request for additional clarification, 115 FERC ¶
underlying policy issues of why or how permissibly shared employees to receive 61,202 (2006).
a traditional utility’s regulated market information so long as they are 602 Nuclear Regulatory Commission’s Generic
customers could be harmed if their not conduits for sharing that Letter 2006–002, Grid Reliability and the Impact on
information with employees that are not Plant Risk and the Operability of Offsite Power.
February 1, 2006. OMB Control No.: 3150–0011.
593 PPL reply comments at 21–22 citing permissibly shared. In addition, as also Transmission providers may share with affiliates
Interpretive Order Relating to the Standards of discussed earlier in the independent information to operate and maintain the
Conduct, 114 FERC ¶ 61,155 (2006), order on functioning section, market information transmission system and information required to
request for additional clarification, 115 FERC ¶ maintain interconnected facilities. However,
may be shared to address emergency
61,202 (2006). transmission providers may not share transmission

594 Allegheny Energy Companies’ Comments at 3;
597 Id.
or marketing information that would give a
Duke at 37–40; PG&E at 20, FirstEnergy at 23 and at 20. transmission provider’s marketing or energy
FP&L at 4. 598 FP&L at 4. affiliates undue preference over a transmission
595 Duke at 38. 599 Id. at 4–5.
provider’s non-affiliated customers in energy
596 Duke reply comments at 20–21. 600 EEI at 45. markets. 114 FERC ¶ 61,155 (2006).
to address any potential affiliate abuse the potential for affiliate abuse, the outages, generator heat rates,
concerns before receiving Commission Commission will adopt the proposed unconsummated transactions, or
authorization to sell at market-based two-way information restriction in historical generator volumes. Market
rates. The Commission has previously § 35.39(d). Any sellers whose activities information includes information from
held that ‘‘[t]here are many ways for the are currently governed by a code of either affiliates or non-affiliates.’’
affiliated public utility and the affiliated conduct with a one-way information 592. The Commission clarifies that
power marketer to exchange information restriction will be deemed to have the definition does not prohibit the
that would exacerbate affiliate abuse adopted a two-way information disclosure of publicly available
concerns.’’ 603 Therefore, the restriction as of the effective date of this information. We find that, because of its
Commission required that the sellers Final Rule. very nature of being publicly available
‘‘ensure that market information is not 589. The Commission restates that the to all entities, restrictions on sharing
shared among affiliates.’’ 604 affiliate restrictions only apply when publicly available information are
584. The Commission later reaffirmed captive customers exist; therefore, if the unnecessary. In addition, the definition
this in stating the general standards Commission has found that there are no does not prohibit the sharing of
under which it reviews applications for captive customers, then, consistent with transmission information. The standards
market-based rate authority, including a § 35.39(b) through (g), the affiliate of conduct already prevent improper
demonstration by an affiliate that ‘‘there restrictions, including the prohibition disclosures of non-public transmission
are adequate procedures in place to on information sharing, will not apply. information by a transmission provider
ensure that market information is not to its marketing and energy affiliates,
d. Definition of ‘‘Market Information’’
shared between it and the affiliate which would include both the
public utility.’’ 605 Comments franchised public utility with captive
585. With regard to Duke’s suggestion 590. Progress Energy urges the customers and the market-regulated
that we have failed to explain the Commission to clarify the definition of power sales affiliate.609
elimination of the one-way restriction, the term ‘‘market information’’ which it 593. Further, as we have indicated, a
we will provide the following example argues is arbitrarily broad and may principal purpose of the affiliate
of our concern in this regard. include public as well as non-public restrictions is to ensure that the
586. One example of how of improper market information.606 SoCal Edison interaction between a franchised public
sharing of information could harm states that the Commission should only utility and its market-regulated affiliate
captive customers is a circumstance prohibit the sharing of non-public does not result in harm to the franchised
where both a franchised public utility market information among a utility and public utility’s captive customers.
and its market-regulated power sales its market-regulated power sales Therefore, we clarify that, as a general
affiliate are considering whether to bid affiliates, as outlined in the standards of matter, the definition of ‘‘market
into an RFP to provide power. If the conduct.607 EPSA also asserts that the information’’ includes information that,
market-regulated power sales affiliate Commission should clarify that the if shared between a franchised public
has absolute freedom to inform its simultaneous posting requirement utility and a market-regulated affiliate,
franchised public utility affiliate that it should apply to the communication of may result in a detriment to the
intends to bid into the RFP, including all non-public market information (not franchised public utility’s captive
but not limited to the price and quantity all market information). It notes that customers. Therefore, market
it intends to offer, the franchised public Order No. 2004 specifically applies to information includes, but is not limited
utility affiliate has the ability and non-public transmission information, to, information concerning sales and
incentive to use that information to not all transmission information. purchases that will not be made such as
in circumstances where parties have
benefit its stockholders at the expense of Commission Determination discussed a potential contract but no
its captive customers (e.g., by either not
591. The Commission previously agreement has been reached. In contrast,
bidding into the RFP or doing so at a
explained that ‘‘market information’’ market information does not include
price above that of its affiliate).
includes information on sales or information that would not result in an
587. While we recognize that some
purchases that will not be made (as well advantage to the recipient that could be
sellers may need to adjust their
as purchases and sales that will be used to the detriment of the franchised
activities to comply with the two-way
made), as well as any information public utility’s captive customers. For
information restriction, we do not
concerning a utility’s power or example, a franchised public utility
believe that such adjustments will
transmission business—broker-related with captive customers and its market-
impose significant costs upon those
or not, past, present or future, positive regulated power sales affiliate may share
sellers. Furthermore, as explained
or negative, concrete or potential, information related to the relocation of
above, we believe that the two-way
significant or slight.608 In an effort to the franchised public utility’s
information sharing restriction will
provide additional clarity and headquarters, business opportunities
provide captive customers a more
regulatory certainty, we will provide outside the United States, general
complete protection from affiliate abuse.
further guidance and adopt and codify turbine safety information and internal
We find that any potential cost to sellers
in § 35.36(a)(8) the following definition procedures for general maintenance
is outweighed by the increased
of market information: ‘‘market activities (other than scheduling). We
protection a two-way information
information means non-public clarify that the definition of ‘‘market
sharing restriction provides to captive
information related to the electric information’’ includes, but is not
customers.
energy and power business including, limited to, written, printed, verbal,
588. Therefore, to ensure that all
but not limited to, information regarding audiovisual, or graphic information.
captive customers are protected from 594. We are adding language to the
sales, cost of production, generator
603 Heartland Energy Services, Inc., 68 FERC

information sharing restriction of
¶ 61,223 (1994). 606 Progress
Energy at 36–37. § 35.39(d)(1) to make clear that
604 Id. 607 SoCal
Edison at 3–6. disclosures of market information are
605 LG&E Power Marketing, Inc., 68 FERC 608 UtiliCorp United, Inc., 75 FERC ¶ 61,168
¶ 61,247 (1994). (1996). 609 18 CFR 358.5(a) and (b) (2006).
prohibited, unless simultaneously at the higher of cost or market price, and pay too much for goods and services
disclosed to the public, if the that sales of any non-power goods or that the utility receives from a market-
information could be used to the services by a market-regulated power regulated power sales affiliate.
detriment of captive customers. For sales affiliate to an affiliated franchised 598. We note that PG&E fails to
example, if a franchised public utility public utility will not be at a price provide the Commission with any
with captive customers conducts above market. specific examples of non-power services
negotiations with an unaffiliated for which there is no corresponding
Comments third-party provider. Therefore, we are
generator to acquire power, but does not
reach an agreement, the franchised 596. PG&E argues that, while charging not persuaded by PG&E that there is a
public utility with captive customers is the high of cost or market price may be need or a benefit to changing our
prohibited from sharing with its market- appropriate for sales of goods, it is precedent on this issue. We will adopt
regulated power sales affiliate any non- ‘‘inoperable and inappropriate’’ for sales the affiliate restrictions as proposed and
public information it acquired through of services because market prices for require that sales of non-power goods or
the unsuccessful negotiations unless sales of service by a third party may be services by a franchised public utility
such information is simultaneously hard to ascertain due to limited with captive customers to a market-
disclosed to the public. Information providers and that prices from a third regulated power sales affiliate be at the
relating to any other entities’ electric party provider will not take into account higher of cost or market price.
energy or power business is also subject efficiencies resulting from a utility and Nevertheless, we will address on a case-
to the sharing of market information its affiliate sharing services.610 PG&E by-case basis arguments that charging
restriction if such information could be further comments that charging the the higher of cost or market for certain
used to the detriment of captive higher of cost or market, as proposed, sales of non-power services may not be
customers. Also subject to the may increase costs for both the utility appropriate in a particular case.
information sharing restriction is and the affiliate by discouraging the
efficient sharing of services. Therefore, f. Service Companies or Parent
information regarding brokering Companies Acting on Behalf of and for
activities, past sales and purchase PG&E proposes that instead of charging
the higher of cost or market price for the Benefit of a Franchised Public
activities, and the availability or price of Utility
inputs to generation such as natural gas non-power services, the Commission
supply if such information could be should allow a proxy for the market Commission Proposal
used to the detriment of captive price such as the fully-loaded cost plus 599. The Commission proposed in the
a reasonable profit, e.g., five percent.611 NOPR to treat companies that are acting
customers. For example, a franchised
public utility with captive customers is Commission Determination on behalf of and for the benefit of
restricted from disclosing to its market- franchised public utilities with captive
597. The Commission will adopt the
regulated power sales affiliate any non- customers, for purposes of the affiliate
NOPR proposal to codify the
public information about a non- provisions, as that franchised public
requirement that sales of non-power
affiliated generator’s upcoming utility. Likewise, in the case of non-
goods and services by a franchised
maintenance or outage schedules or regulated affiliates, the proposed
public utility with captive customers to
information about the non-affiliated affiliate provisions treat companies that
a market-regulated power sales affiliate
generator’s historical generation are acting on behalf of and for the
be at the higher of cost or market price,
volumes, unless such information is benefit of non-regulated affiliates, for
unless otherwise authorized by the
simultaneously disclosed to the public. purposes of the affiliate provisions, as
Commission. This requirement, along
In addition, neither the franchised the non-regulated affiliates.613
with other requirements in the affiliate
public utility with captive customers restrictions, protect a franchised public Comments
nor its market-regulated power sales utility’s captive customers against
affiliate may tell the other that it intends 600. EEI asks the Commission to
inappropriate cross-subsidization of clarify that the code of conduct (affiliate
to sell power to a third party, including market-regulated power sales affiliates restrictions) provisions to be codified in
but not limited to the price and quantity by ensuring that the utility with captive the regulations do not preclude the use
it intends to offer, unless such customers does not recover too little for of service companies that manage assets
information is simultaneously disclosed goods and services that the utility for both regulated and unregulated
to the public. Similarly, a market- provides to a market-regulated power affiliates.614 EEI submits that the
regulated power sales affiliate is sales affiliate.612 We also adopt the language of proposed § 35.39(b) (now
likewise restricted from telling its NOPR proposal to codify the § 35.39(c)) uses ‘‘entities acting on
franchised public utility affiliate with requirement that sales of any non-power behalf of and for the benefit of a
captive customers about any other goods or services by a market-regulated franchised pubic utility (such as entities
business opportunity that it is power sales affiliate to an affiliated managing the electric generation assets
considering or is undertaking, unless franchised public utility with captive of the franchised public utility)’’
such information is simultaneously customers will not be at a price above whereas the NOPR text reads ‘‘entities
disclosed to the public. market, unless otherwise authorized by acting on behalf of and for the benefit
e. Sales of Non-Power Goods or Services the Commission. This requirement of a franchised public utility (such as
protects a utility’s captive customers service companies and entities
Commission Proposal against inappropriate cross- managing the generation assets of the
595. In the NOPR, the Commission subsidization of market-regulated power franchised pubic utility).’’ EEI argues
proposed regulatory language to codify sales affiliates by ensuring that the that the treatment of service companies
the requirements governing sales of non- utility with captive customers does not as part of the franchised public utility
power goods or services. The in the preamble to the NOPR is different

610 PG&Eat 20–21.
Commission proposed that sales of any 611 Id. from the language in the proposed
at 21.
non-power goods or services by a 612 See generally National Grid plc and Keyspan
franchised public utility to a market- Corp., 117 FERC ¶ 61,080 at P 65–66 (2006), reh’g 613 NOPR at 83–84.
regulated power sales affiliates will be pending. 614 EEI at 45–46.
regulation and makes the Commission’s approved system agreements should not cost plus a 10 percent adder; (2) sales of
intent unclear. It submits that many be treated as non-regulated power sales power of more than one week but less
companies use service companies to affiliates.621 than one year (sometimes referred to as
provide support activities to the ‘‘mid-term sales’’) will be priced at an
franchised utility and non-regulated embedded cost ‘‘up to’’ rate reflecting
affiliates consistent with the no-conduit 603. The Commission clarifies that it the costs of the unit or units expected
rule. EEI asks the Commission to clarify did not intend to include service
to provide the service; and (3) new
that the standardization of the code of companies as ‘‘entities acting on behalf
contracts for sales of power for one year
conduct is not intended to change this of and for the benefit of a franchised
public utility’’ for purposes of the or more will be priced at a rate not to
practice. PG&E claims that under a plain
separation of functions provision in exceed the embedded cost of service,
reading of the proposed regulation, a
§ 35.39(b) (now § 35.39(c)) to the extent and the contract will be filed with the
parent company that acts on behalf of
that such service companies do not Commission for review and approved
either the utility or the affiliate will be
considered a part of the utility or engage in generation or marketing prior to the commencement of
affiliate, and communication with either activities.622 Although service service.623
entity will be restricted under proposed companies not engaged in generation or 605. In the NOPR, the Commission
§ 35.39(c) (now § 35.39(d)).615 It argues marketing activities are not included in sought comment on the following four
that the Commission should only the coverage of § 35.39(e), they may not issues that have arisen in implementing
consider a holding company or parent act as a conduit for providing non- cost-based mitigation: (i) The rate
company as an affiliate subject to the public market information between a methodology for designing cost-based
information sharing prohibitions if it franchised public utility and a market- mitigation; (ii) discounting; (iii)
engages in energy transactions on its regulated power sales affiliate. However,
protecting customers in mitigated
own behalf.616 unless otherwise permitted by
markets; and (iv) sales by mitigated
601. Southern states that it is unclear Commission rule or order, service
companies cannot be used to direct, sellers that ‘‘sink’’ in unmitigated
how the Commission intends to address markets.
and apply the requirements of organize or execute generation or
separation of functions and information marketing activities for both the 1. Cost-Based Rate Methodology
sharing in the context of public utility franchised public utility and the market-
regulated power sales affiliate(s). In a. Sales of One Week or Less
holding companies that have system
pooling agreements.617 Southern response to Southern’s and EEI’s request Commission Proposal
recommends the Commission refine the to clarify that affiliated operating
definition of ‘‘non-regulated power sales companies may continue to operate as a 606. The Commission noted that two
affiliate’’ at least insofar as that term is pool or pursuant to an approved system principal issues concerning rate
used in the proposed separation of agreement, nothing in this Final Rule methodology have arisen in
functions and information sharing precludes pool operation pursuant to implementing the April 14 Order. The
provisions to exclude pooled system filed tariffs or agreements approved by first relates to power sales of one week
affiliates of traditional franchised the Commission and nothing in this rule or less being made at incremental cost
utilities where affiliate interactions and changes filed system agreements plus 10 percent.624 The Commission
sharing of benefits and burdens of approved by the Commission. To the noted that sellers have argued that this
pooled operations are addressed under extent that individual companies enter is a departure from the Commission’s
an arrangement filed and approved into new pooling or system agreements, historical acceptance of ‘‘up to’’ rates for
under section 205.618 the Commission will continue to review short-term energy sales, including sales
602. EEI requests that the Commission those agreements on a case-by-case basis of one week or less, and sought
clarify that, in circumstances where to ensure that, among other things, comment on whether to continue to
sales between affiliates have been made affiliate transactions meet the apply a default rate for such sales that
in connection with an approved system requirements of section 205 of the FPA is tied to incremental cost plus 10
agreement, such agreements continue to and otherwise satisfy our affiliate abuse percent. The Commission sought
govern.619 Southern requests that the concerns. comment as to: (i) Whether there are
Final Rule clarify that affiliated D. Mitigation problems associated with using ‘‘up to’’
operating companies may continue to rates for shorter-term sales and, if so,
operate on a pooled basis.620 Southern 604. In the NOPR, the Commission
sought comment on whether the default what are they; (ii) whether the current
states that traditional centralized service approach provides utilities a
company affiliates providing system mitigation adopted in the April 14
Order is appropriate as currently disincentive to offer their power to
pooling support services under filed and wholesale customers in their local
structured. The Commission’s current
615 PG&E default mitigation rates are as follows: control area for short-term sales; and
at 16–17.
616 PG&E at 17. (1) Sales of power of one week or less (iii) whether an ‘‘up to’’ rate adequately
617 Southern at 49. will be priced at the seller’s incremental mitigates market power for such sales.
618 Southern at 50.
619 EEI at 46–49. 621 Southernat 48–52. 623 April 14 Order, 107 FERC ¶ 61,018 at P 151;
620 Southern at 44–52. Southern also asks that the 622 As
proposed in the NOPR, the separation of see also NOPR at P 22, 137.
Commission revise the affiliate abuse regulations to functions provision provided that ‘‘entities acting 624 In a number of instances, the NOPR referred
include a definition of ‘‘pooled system affiliates’’ on behalf of and for the benefit of a franchised to these sales as ‘‘sales of less than one week,’’ and
and clarify that the definition of non-regulated public utility (such as entities managing the a number of commenters likewise used ‘‘sales of
power sales affiliate excludes ‘‘pooled system generation assets of the franchised public utility) less than one week’’ in their comments. We clarify
affiliates’’ of traditional franchised utilities. are considered part of the franchised public utility.’’ that the reference in the NOPR should have been
Southern states that any definition of ‘‘pooled In this Final Rule, we modify the parenthetical in to ‘‘sales of one week or less,’’ consistent with the
system affiliates’’ should address both existing that provision to state: ‘‘(such as entities controlling April 14 and July 8 Orders. Accordingly, for
arrangements (that have been reviewed and or marketing power from the electrical generation purposes of this Final Rule, we use ‘‘sales of one
approved by the Commission) and prospective assets of the franchised public utility).’’ See 18 CFR week or less’’ even if the commenters used ‘‘sales
arrangements. 35.39(c)(1). of less than one week.’’
Comments to refund, upon Commission review of 613. MidAmerican and Westar note
the quarterly compliance filing.630 that, in support of the default rate, in
607. While not opposing the default 610. NASUCA urges the Commission the April 14 Order the Commission
rate, APPA/TAPS state that as an to require that all mitigated rates, and cited a PJM tariff provision pursuant to
alternative, sales of one week or less any rate discounts, whether for more or which generators dispatched out of
could occur under the traditional ‘‘split less than one year in duration, must be economic merit have their bids
the savings’’ methodology.625 APPA/ filed and made subject to public mitigated to incremental costs plus 10
TAPS submit that both of these methods scrutiny and Commission review under percent to prevent them from exercising
are consistent with the Commission’s section 205 of the FPA.631 NASUCA is market power and, at the same time,
observation that ‘‘[a]bsent market concerned that under the NOPR, only providing revenues which include a
power, a generator would typically run rates to be in effect for more than one margin.638 MidAmerican and Westar
if it had excess power and could cover year are required to be filed publicly in contend that this is merely an example
its incremental costs plus some advance and subject to protest, of a mitigation mechanism, not a
return.’’ 626 intervention, prior Commission review rationale for a broad-scale default
608. While the Carolina Agencies and revision. It argues, however, that mitigation scheme that ignores years of
claim that sales of one week or less section 205 contains no exception from precedent.639 They submit that the PJM
should not carry a capacity charge, they the filing requirement for sales of less tariff mitigates bids for a select set of
concede that a reasonable contribution than one year.632 Given that all new rate generators. They state that, regardless of
to the mitigated supplier’s fixed costs schedules and contracts affecting rates the level of their bids, those generators
may be appropriate (e.g., by including a must be publicly filed, NASUCA asks are still paid the market clearing price
modest adder over the supplier’s the Commission not to reduce section because only the offer is capped.
incremental cost of energy).627 205’s procedural safeguards for sales of Further, because PJM’s methodology
less than one year at cost-based rates applied this offer cap only to a limited
609. NRECA and AARP ask the (i.e., by not requiring that they be number of hours, MidAmerican and
Commission to retain the incremental subject to prior notice and review).633 Westar state that sellers were also free
cost plus 10 percent methodology for 611. Some commenters oppose the to bid above the cap in the majority of
mitigating sales of one week or less.628 incremental cost plus 10 percent default the hours of the year.640 In contrast,
NRECA expresses a concern that the rate, with several alleging that it MidAmerican and Westar claim that the
Commission’s default cost-based rates deviates from prior Commission incremental cost plus 10 percent default
(for all three products—sales of one precedent without sufficient rate is an absolute cap on revenues that
week or less; sales of more than one justification and fails to adequately would apply to all sales of one week or
week but less than one year; and sales compensate sellers.634 Some less in length.641
of one year or longer) may be subject to commenters also allege that such an 614. Although the July 8 Order
gaming by larger public utilities, approach will deter new entry and gives explained that incremental cost plus 10
especially because the sellers hold all of sellers the incentive to sell outside the percent was a backstop, default rate, and
the critical data. It asserts that if sellers mitigated market. that entities were free to propose
have too much leeway in choosing 612. For example, Westar states that alternative mitigation schemes,
which units they will use to calculate the Commission’s reasoning in the July MidAmerican asserts that this ignores
their incremental or embedded costs, 8 Order which explained that the cost the fact that the Commission has
the default cost-based rates will not plus 10 percent default rate represents routinely accepted alternative cost-
provide an effective rate ceiling, and the a ‘‘conservative proxy for a reasonable based rates for sales of one week or less.
purpose of the default mitigation will be margin available in a competitive As such, MidAmerican maintains that
undermined. NRECA proposes that the market,’’ 635 suffers from two fatal flaws. there is no reason why ‘‘split the
Commission require sellers subject to First, the Commission failed to savings’’ rates, or rates reflecting a
default cost-based rates to submit both distinguish or even mention Terra demand charge, could not be used as a
pre- and post-approval filings Comfort wherein, Westar and Duke default rate for mitigated sales of one
supporting the mitigated cost-based submit, the Commission found that 10 week or less.642
rates for short- and mid-term sales. percent adders provide no contribution 615. Several commenters also argue
NRECA suggests that the seller justify its to fixed costs, and it rejected the that the energy-only incremental cost
mitigated rates beforehand by argument that ‘‘utilities routinely forego plus 10 percent methodology does not
demonstrating its incremental costs or these margins and sell at 110 percent of allow for proper recovery of capacity-
embedded costs, as appropriate, and incremental cost.’’ 636 Second, according based costs on sales of one week or less
then file after-the-fact quarterly reports to Westar, in adopting this default rate thereby artificially depressing the prices
of the actual sales and the actual the Commission relied heavily upon an of these short-term sales and possibly
incremental or embedded costs incurred order that applied the formula in an deterring new entry.643 These
in making these sales.629 NRECA RTO under entirely different commenters state that sellers should be
suggests that this approach would circumstances.637
subject mitigated cost-based rate sales to
on reh’g, PJM Interconnection, L.L.C., 110 FERC
a cost-based formula rate, and therefore 630 NRECA at 30–32. ¶ 61,053 (2005)).
631 NASUCA at 18–19; NASUCA reply comments 638 April 14 Order, 107 FERC
625 APPA/TAPS at 45–46. at 16–18. ¶ 61,018 at P 152, n.146.
626 Id. 632 NASUCA at 18 (citing NOPR at P 22). 639 MidAmerican at 10; Westar at 25.
(quoting April 14 Order, 107 FERC
633 Id. at 18–19.
¶ 61,018 at P 152). 640 Id.
627 Carolina Agencies at 11. 634 MidAmerican at 9–11, Westar at 24. 641 Id.
628 NRECA at 30; AARP at 8. 635 July 8 Order, 108 FERC ¶ 61,026 at P 155. 642 MidAmerican at 13.
629 Suez/Chevron voice a similar concern, adding 636 Westar at 24 (quoting Terra Comfort Corp., 52 643 Pinnacle at 10; Ameren at 15; Duke at 8;
that a true-up provision would also help improve FERC ¶ 61,241 at 61,839–40 (1990)); Duke at 8–9, MidAmerican at 9–11; Westar at 24; Drs. Broehm
transparency with regard to the cost of mitigated n.9. and Fox-Penner at 15–16; Xcel at 9; Progress Energy
sales for the benefit of state commissions. Suez/ 637 Westar at 25 (citing PJM Interconnection, at 9; PPL reply comments at 17–18; EEI at 29; NRG
Chevron at 13–14. L.L.C., 107 FERC ¶ 61,112, at 61,366 (2004), order at 5, 11.
allowed to recover a contribution to unmitigated market price of competing competitive market.655 On this basis, we
their fixed/capacity costs. sellers dictates that price, or (2) the find incremental cost plus 10 percent to
616. Some commenters contend that mitigated seller needs to sell its excess be an appropriate default rate.
the default cost-based rates create an generation at that price to maintain a Moreover, we allow sellers the
incentive to sell outside the mitigated minimum generation control margin. opportunity to design, support, and
market because they recover less than Given that there is a short-term market propose other cost-based rates that they
cost-based rates historically accepted for capacity, Progress Energy asks that believe are more appropriate for their
that included a demand charge. the default cost-based rates include a particular circumstances.
However, they assert that setting rates price structure that allows pricing of 622. Several commenters note that the
that require buyers to make a reasonable capacity-only sales.651 Commission has permitted various cost-
contribution to the seller’s fixed costs 619. Xcel suggests that the based rate methodologies prior to the
for the use of the capacity would create Commission should allow for an even April 14 Order, including a split-the-
an incentive for the seller to make sales higher emergency price in situations savings formula. These entities express
within its mitigated control area.644 where purchasers need to make a concern that the use of the incremental
Duke and the Oregon Commission add purchase not simply to achieve cost plus 10 percent methodology as the
that allowing recovery of capacity-based economic benefits but where the default mitigation rate for sales of one
costs also ensures that wholesale purchaser is capacity deficient. Xcel week or less forecloses the possibility of
customers bear their fair share of system submits that in such instances, a other cost-based pricing methodologies.
costs.645 purchaser plainly obtains a capacity However, this is not the case. Rather
617. Several commenters also claim benefit from the purchase of such than precluding alternative mitigation
that by artificially depressing short-term power. Historically, the Commission has proposals, the April 14 Order allows
sales prices, the default rate transfers allowed an emergency rate of $100 per sellers to propose case-specific tailored
wealth from the supplier’s retail MWh for emergency service. Given that mitigation, or adopt the default cost-
customers to wholesale customers.646 gas prices have dramatically increased based rate. The April 14 Order
Such retail customers, these since that standard rate began to be described the default mitigation rate as
commenters state, have paid the fully- utilized, Xcel claims that an emergency ‘‘a backstop measure’’ intended to
allocated costs of the system and obtain rate of the higher of cost plus 10 percent ensure a just and reasonable rate.656 The
revenue credits to their costs from the or $1,000 per MWh would be Commission re-emphasized this in its
supplier’s short-term sales. Where short- appropriate in the present July 8 Order explaining: ‘‘In the instant
term sales are made on a non- environment.652 case, the 10 percent adder is to be used
interruptible basis, and the incremental only as a backstop or default measure in
cost plus 10 percent rate prices them Commission Determination
the event that an applicant does not opt
only at incremental running cost, 620. The Commission will retain the to propose its own mitigation.’’ 657
Progress Energy contends that wholesale incremental cost plus 10 percent 623. As such, the incremental cost
purchasers are receiving the benefits of methodology as the default mitigation plus 10 percent rate represents a default,
capacity without cost.647 Progress for sales of one week or less, while cost-based rate to protect customers
Energy and EEI submit that retail native continuing to allow sellers to propose from the potential exercise of market
load customers, as a result, lose the alternative cost-based methods of power and provide sellers regulatory
economic benefits that would otherwise mitigation tailored to their particular rate certainty by establishing a ‘‘safe
accrue to them through revenue credits circumstances. As discussed more fully harbor.’’ Any proposal for alternative
from short-term wholesale sales.648 below, we clarify that in retaining the cost-based rates will be considered on a
Wholesale customers charged through incremental cost plus 10 percent
case-by-case basis.
an embedded cost-of-service are also methodology as the default mitigation 624. Further, with regard to including
harmed, Progress Energy adds, because for sales of one week or less we do not capacity charges in rates for one week
they lose the economic benefits that otherwise limit a seller’s ability to or less, a seller may propose to recover
would otherwise accrue to them through propose different cost-based rates for such charges and the Commission will
revenue credits from short-term sales of one week or less.653 consider these charges based on the
wholesale sales.649 621. Although a number of
specific facts and circumstances
618. Progress Energy and Duke commenters suggest that the
presented. Rather than ignoring
instead favor an ‘‘up to’’ cost-based Commission should adopt a different
alternative forms of cost-based rates, as
default rate for sales of one week or default cost-based ratemaking
some commenters claim, the
less.650 For such sales, Progress Energy methodology for sales of one week or
less, they have failed to persuade us that Commission’s policy offers sellers the
supports an ‘‘up to’’ rate design flexible
the existing default rate is opportunity to propose such
enough to allow rates as low as the
inappropriate. As the Commission has alternatives.
mitigated seller’s incremental costs and 625. Use of the default rate as set forth
as high as 100 percent of the seller’s previously stated, an incremental cost
in the April 14 and July 8 Orders also
capacity and energy costs. According to rate that allows a fair recovery of the
is not inconsistent with Terra Comfort,
Progress Energy, a mitigated seller could incremental cost of generating with a 10
as some commenters claim. As
choose to make sales as low as its percent adder to provide for a margin
explained above, contrary to some
incremental cost when either (1) The over incremental cost is reasonable.654
Incremental costs plus 10 percent commenters’ allegations, the
644 See, represents a conservative proxy for a Commission does not confine mitigated
e.g., Duke at 9.
645 Id. at 10; Oregon Commission reply comments reasonable rate available in a sellers to rates that forego a contribution
at 2. to fixed/capacity costs. In Terra
646 Westar at 16; Progress Energy at 9; EEI at 33– Comfort, the Commission explained that
651 Progress
Energy at 10.
34; Pinnacle at 10; MidAmerican at 9. 652 Xcel
at 10.
647 Progress Energy at 9–10. 655 July
653 For that matter, we also do not limit a seller’s 8 Order, 108 FERC ¶ 61,026 at P 155.
648 Id. at 10, n.13; EEI at 29. 656 April
ability to propose and support different cost-based 14 Order, 107 FERC ¶ 61,018 at P 148.
649 Progress Energy at 10, n.13. rates for any of the default cost-based rates. 657 July 8 Order, 108 FERC ¶ 61,026 at P 157
650 Progress Energy at 10; Duke at 8. 654 April 14 Order, 107 FERC ¶ 61,018 at P 152. (emphasis added).
‘‘most utilities maintain on file for all permitting the pricing of short-term 629. Similarly, in response to
services flexible demand charge ceilings sales at cost-based ‘‘up-to’’ capacity NASUCA’s request that the Commission
designed to reflect a 100-percent charges and cost-based energy require all mitigated rates and discounts
contribution to the fixed costs of their charges.665 Rather than artificially to be filed under section 205 of the FPA,
facilities.’’ 658 The Commission then depressing the prices of short-term we note that all mitigation proposals
added that utilities are not obligated to sales, exacting a wealth transfer, or must be filed with the Commission for
‘‘forego these margins and sell at 110 limiting a seller’s ability to respond to review. These filings are noticed and
percent of incremental costs.’’ 659 In the market conditions, as Progress suggests, interested parties are given an
April 14 Order, the Commission, the default cost-based rate for sales of opportunity to intervene, comment, or
consistent with its holding in Terra one week or less provides a backstop protest the submittal. With regard to
Comfort, explained that ‘‘as a backstop measure intended to protect customers discounts, as we explain in the
measure, we will also provide ‘default’ by ensuring that, in the event a seller discounting section of this Final Rule,
rates to ensure that wholesale rates do loses or relinquishes its market-based discounts made to customers, like all
not go into effect, or remain in effect, rate authority, there is a readily other rates, are required to be reported
without assurance that they are just and available cost-based rate under which in the seller’s EQRs.
reasonable.’’ 660 Contrary to Duke’s such sellers may choose to transact, and 630. We also note that the
assertion that this default rate suggests the mitigated seller by establishing a Commission stated in the April 14
that sellers do not have economic refund floor that provides it with rate Order that where a seller proposes to
justification (or need) to recover a share certainty. adopt the default cost-based rates (or
of their fixed/capacity costs in the 627. As to some commenters’ where it proposes other cost-based
prices charged for such transactions,661 suggestion that the incremental cost rates), it must provide cost support for
the Commission’s policy allows plus 10 percent methodology, and cost- such rates.669 The Commission will
‘‘applicants to propose case-specific based rates in general, adversely affect examine the proposed rates on a case-
mitigation tailored to their particular retail rates because they exact a wealth by-case basis. With regard to sales of
circumstances that eliminates the ability transfer from the supplier’s retail one week or less, where the seller fails
to exercise market power, or adopt cost- customers to wholesale customers, the to provide sufficient cost support, the
based rates such as the default rates July 8 Order rejected such claims on the Commission will direct the seller to
herein.’’ 662 The Commission explained ground that they were ‘‘unsupported submit a compliance filing to provide
in the April 14 Order that ‘‘[p]roposals and speculative.’’ 666 Not only do these the formulas and methodology
for alternative mitigation in these claims remain unsupported but they according to which it intends to
circumstances could include cost-based suggest that the Commission should calculate incremental costs.670 We note
rates or other mitigation that the allow wholesale rates in excess of a just here that, to the extent a seller proposes
Commission may deem appropriate.’’ 663 and reasonable rate. This result would a cost-based rate formula, we will
Consistent with industry practice and not be just and reasonable. As the require the rate formula used be
Commission precedent, therefore, where Commission stated in the July 8 Order, provided for Commission review and
mitigated sellers can properly justify ‘‘our rate making policy is designed to such formula included in the cost-based
such contributions, they may propose to provide for recovery of prudently rate tariff including formulas used in
recover contributions to fixed/capacity incurred costs plus a reasonable return calculating incremental cost.
costs under the Commission’s on investment.’’ 667 Moreover, the 631. The Commission also has set
mitigation policy. Commission explained that ‘‘the proposed default cost-based rates for
626. Such alternative mitigation has opportunity for the applicants to hearing when appropriate.671 We
been proposed and accepted. For propose alternative, tailored mitigation believe that this case-by-case review of
example, Progress Energy correctly measures should allow adequate proposed default cost-based rates
notes that one of its subsidiaries consideration of the effect on adequately addresses NRECA’s and
proposed as mitigation—and the investment and customers.’’ 668 Suez/Chevron’s concerns. Moreover, to
Commission approved—a cost-based 628. We will not adopt Progress the extent that an entity contends that
‘‘up-to’’ capacity charge and a cost- Energy’s request that the default rate be a mitigated seller is flowing
based energy charge for the subsidiary’s modified to include a price structure inappropriate costs through its formula
power sales of less than one year, allowing pricing of capacity-only sales. rate, section 206 of the FPA provides a
including sales of one week or less, in Progress Energy fails to provide process for filing a complaint.
the mitigated control area.664 Progress adequate justification to provide for
Energy is correct in observing that this such a rate in our default cost-based b. Sales of More Than One Week But
decision was consistent with the rates. For example, Progress Energy Less Than One Year
Commission’s long-standing policy of states that there is a short-term market Commission Proposal
for capacity-only sales but fails to
658 Terra Comfort Corp., 52 FERC at 61,839. explain how this market is a power sales
sought comment on issues related to the
659 Id.
market (for which our default cost-based
660 April 14 Order, 107 FERC ¶ 61,018 at P 148. design of an ‘‘up to’’ cost-based rate.
rates apply) rather than an ancillary
661 Duke at 9 (citing Terra Comfort, 52 FERC at The Commission noted in the NOPR
services market which is not
61,839).
contemplated in the default cost-based 669 April 14 Order, 107 FERC ¶ 61,018 at P 208.
663 663 April 14 Order, 107 FERC ¶ 61,018 at power sales rates. Nevertheless, as noted See Entergy Services, Inc., 115 FERC ¶ 61,260 at P
n.142. above, a mitigated seller has the 49 (2006) (accepting cost-based rates based on
664 Carolina Power & Light, 113 FERC ¶ 61,130 at opportunity to propose and justify an incremental cost plus 10 percent, noting that filing
P 23–24 (2005) (citing Detroit Edison Co., 78 FERC included the formula and methodology according to
alternative to the default rate.
¶ 61,149 (1997) (approving a demand charge for which seller intends to calculate incremental costs).
670 See, e.g., Aquila, Inc., 112 FERC ¶ 61,307 at
power sales for periods of an hour up to one year); 665 Progress
Illinois Power Co., 57 FERC ¶ 61,213, at 61,699–700 Energy at 8–9. P 26 (2005); Oklahoma Gas and Electric Co., 114
666 July 8 Order, 108 FERC ¶ 61,026 at P 140, 154.
(1991) (permitting utilities to include in their rates FERC ¶ 61,297 at P 19 (2006).
667 Id. at P 152.
an amount above incremental costs to provide a 671 AEP Power Marketing, Inc., 112 FERC
contribution to fixed costs)). 668 Id. at P 154 ¶ 61,047 at P 28 (2005).
that it has allowed significant flexibility that taking only a small snapshot of 639. Westar argues that the use of a
in designing ‘‘up to’’ rates in the past, certain generating plants to develop standard methodology based on average
and invited comments on whether such cost-based rates will subject buyers to costs would constitute a radical
flexibility is still warranted. In the discretion of sellers possessing departure from long-settled Commission
particular, the Commission noted that market power. policy. Westar states that in Opinion
there are often disputes over which 636. APPA/TAPS, the Carolina No. 203, the Commission found that
units are ‘‘most likely to participate’’ or Agencies and AARP oppose allowing cost-based pricing cannot keep pace
‘‘could participate’’ in coordinated mitigated sellers too much flexibility in with fluctuating markets,680 and that
sales, and asked if it should continue to designing mitigation methods on the imposing average cost pricing would
allow utilities flexibility in selecting the grounds that such an approach would only exacerbate the market
particular units that form the basis of result in market-based rates disguised as inefficiencies that result under cost-
the ‘‘up to’’ rate. If not, the Commission cost-based mitigated rates.676 For mid- based rate making by eliminating
asked which units should form the basis term sales, APPA/TAPS and AARP urge pricing flexibility and lowering ceiling
of an ‘‘up to’’ rate, and how such a rate the Commission to require a well- rates.681
should be calculated. In addition, supported analysis of the units most 640. Westar adds that public utilities
parties were invited to comment on likely to provide the service.677 have the statutory right under section
whether a standard rate methodology 637. The Carolina Agencies ask the 205 to propose and file their rates, and
should be prescribed that would allow Commission to consider whether that the Commission lacks the power to
a seller to avoid a hearing on this issue. pricing service based on the costs of impose rates upon public utilities.682
The Commission asked whether a units ‘‘likely to participate’’ is Westar therefore opposes standardizing
methodology that is based on average sufficiently rigorous to meet the cost-based rates in any manner that
costs (both variable and embedded) operative statutory standards. They would curb a mitigated seller’s section
would allow a seller to avoid a hearing oppose the ‘‘units most likely to 205 discretion to select a pricing
because it eliminates the seller’s participate’’ method on the basis that methodology.683 Westar contends that
discretion in designating particular the cost and dispatch assumptions used the Commission’s section 206 authority
units as ‘‘likely to participate.’’ The in the underlying analyses are to require rate changes is limited to
Commission also inquired as to whether subjective and difficult to verify. The instances where the Commission finds
there are other approaches that would Carolina Agencies state that the that the utility’s presumptively just and
accomplish a similar objective. identified ‘‘likely to participate’’ units reasonable existing rate is unjust and
often wind up being those units on the unreasonable, and that the
Comments system with the highest fixed costs, Commission’s proposed alternative is
i. Selecting the Particular Units That regardless of whether the units are of a just and reasonable.684 According to
Form the Basis of the ‘‘Up to’’ Rate type that one might expect to be cycled Westar, the NOPR offers no support for
or ramped for short-term sales. If a finding that the wide variety of
633. Regarding whether the mitigated utilities are allowed to previously approved cost-based rate
Commission should continue to allow continue using this method, the methodologies are no longer just and
utilities flexibility in selecting the Carolina Agencies urge the Commission reasonable, and must be replaced with
particular units that form the basis of to develop a set of generic guidelines a standardized rate method.685
the ‘‘up to’’ rate, EEI argues for that will yield more rigorous, less 641. Duke and PPL support ‘‘up to’’
flexibility because selection of subjective analyses.678 rates 686 based on the embedded costs of
generating units for these short-terms
sales is made with the goal of ii. Standard Default Rate Methodology 680 Similarly, Southern states that the use of an
minimizing the cost-of-service to the To Allow a Seller To Avoid a Hearing ‘‘up to’’ rate design protects customers against
utility’s native load customers.672 638. With regard to whether a unreasonably high prices (the purpose of mitigation
in the first place), while giving mitigated sellers the
Several commenters note that the standard methodology should be ability to respond to pricing and market dynamics.
Commission has the ability to verify the prescribed that would allow a seller to Southern at 66; see also EEI reply comments at 19–
validity of the seller’s analysis through avoid a hearing on rate methodology 20; Xcel at 10.
an audit of the company’s records to (e.g., a methodology that is based on 681 Westar at 14, 23.
682 Id. at 17–18, 23–24 (citing Atlantic City
monitor transactions made under the average costs (both variable and
Electric Company v. FERC, 295 F.3d 1, 9 (D.C. Cir.
‘‘up to’’ rates.673 embedded)), many commenters urge the 2002)).
634. Pinnacle asks the Commission to Commission to continue to allow 683 See Westar at 14, n.26 (claiming that an
establish a stacking methodology that flexibility rather than imposing a average cost methodology would eliminate the
determines default units most likely to standard methodology based on average seller’s discretion in designating particular units as
run while allowing utilities to propose ‘‘likely to participate’’ in cost-based sales and
costs.679 conflicts with utilities’ fundamental rights under
a different stack based on historical section 205 of the FPA, and long-standing
operational sales data. Pinnacle also various vintages and operating characteristics could precedent under the ‘‘units most likely’’
urges the Commission to clarify that the manipulate the rate ceiling and undermine methodology.)
mitigation). 684 Id. at 18 (citing Tennessee Gas Pipeline
variable cost for the unit can be defined 676 APPA/TAPS at 44–45; Carolina Agencies at Company v. FERC, 860 F.2d 446, 456 (D.C. Cir.
as the system incremental cost.674 24–25; AARP at 8. 1988)); see also id. at 23–24. See also MidAmerican
635. Other commenters raise concerns 677 APPA/TAPS at 46; AARP at 8. Alternatively, reply comments at 22.
with respect to the discretion given to both APPA/TAPS and the Carolina Agencies agree 685 Westar at 24.
utilities to choose units used to that the Commission’s proposal to use an average 686 Drs. Broehm and Fox-Penner also support the
embedded cost basis for mid-term sales would be use of an ‘‘up to’’ rate because it offers flexibility
calculate the ceiling.675 They submit acceptable and would avoid the need to make in conducting transactions. However, they suggest
determinations about units most likely to run. a methodology that reflects the incremental cost of
672 EEI at 30–31. APPA/TAPS at 4, 44–47; Carolina Agencies at 24. new entry to encourage new investment and allow
673 MidAmerican at 12; Duke reply comments at 678 Carolina Agencies at 24.
sellers a reasonable opportunity to earn a fair return
14; EEI reply comments at 20. 679 See, e.g., Westar at 14; MidAmerican at 11; on their investment. According to Drs. Broehm and
674 Pinnacle at 11.
PPL reply comments at 17–18; Southern at 66–67; Fox-Penner, the weakness of setting a price cap
675 See, e.g., NC Towns at 4–5; NRECA at 30–32 Duke at 10; Progress Energy at 10–12; Xcel at 10; based on embedded cost stems from disputes that
(utilities with a portfolio of generation units of EEI at 30–31. Continued
the units most likely to provide the could easily form the basis of such a embedded-cost rate. In no case should a
service.687 According to Duke, the standard methodology.693 seller be allowed to mix high-fixed-cost
average costs of all units in a utility’s 644. Because of concerns with regard units with high-variable-cost units to
installed generating capacity base could to the discretion given to sellers to artificially inflate the embedded-cost
be quite different than the costs of the choose units used to calculate the cost- rate. If a seller can show that a portfolio
specific units most likely to participate based rate, the NC Towns assert that a of generating units is likely to be used
in the short-term wholesale market.688 standard, system-average ratemaking to provide service, then the seller might
As such, Duke claims that a system- methodology would provide a certainty be permitted to use a weighted average
average cost approach could force the beneficial to both utilities and of the fixed and variable costs of the
mitigated seller to charge non-native wholesale customers, as well as help portfolio.’’ 698
load customers less than the cost reduce protracted negotiations and
litigation surrounding parties’ concepts Commission Determination
actually incurred for generating power
whenever incremental costs are greater of a cost-based rate.694 648. Under the Commission’s current
than average costs, thereby creating a 645. For mid-term sales that carry a policy, the default mitigation rate for
disincentive for the mitigated seller to capacity charge, the Carolina Agencies mid-term sales (sales of more than one
market wholesale power in a control contend that charge should be based on week but less than one year) is priced
area where it does not have market- the utility’s fully allocated system-wide at an embedded cost ‘‘up to’’ rate
based rate authority.689 cost of capacity. The Carolina Agencies reflecting the costs of the unit(s)
642. Progress Energy states that it state that energy associated with the expected to provide the service. The
opposes a standardized methodology purchased capacity also should be Commission will retain this approach as
because it will not send appropriate priced on a system average basis, in the default mitigation for mid-term
price signals to customers or order to adhere to the principle that sales. As is the case with sales for one
appropriately compensate the seller for capacity and energy charges be week or less, sellers may choose to
costs where the seller’s generating units developed on a consistent basis.695 For adopt the default cost-based rate or
or the customer’s usage deviates these mid-term sales, the Carolina propose alternative cost-based rates.
materially from the standardized Agencies also support giving Load
Selecting the Particular Units That Form
methodology. Rather than adopting a Serving Entities (LSEs) located within
the Basis of the ‘‘Up to’’ Rate
‘‘units most likely’’ approach, Progress the mitigated utility’s control area an
Energy prefers a methodology that option between: (1) Locking-in their 649. When a seller adopts the default
identifies units based on load price for capacity and/or energy in cost-based mid-term rate or otherwise
conditions that are more closely advance of delivery, at the mitigated proposes a cost-based rate designed on
associated with typical market clearing utility’s forecasted cost of energy and its the unit or units expected to run, the
opportunities, between the average of cost-based tariff rate for capacity; or (2) Commission will continue to allow the
monthly minimum loads and the having their charges determined seller flexibility in selecting the
average of monthly peak loads. Such an through a formula rate that would particular units that form the basis of
approach, Progress Energy argues, better charge purchasers an annually-updated the ‘‘up to’’ rate. Entities that included
represents conditions where sales price reflecting the utility’s actual various proposals for ‘‘up to’’ cost-based
occur.690 system-wide average costs.696 rate methodologies in their comments
643. While supporting flexibility in 646. The Carolina Agencies add that may propose those or other
the design of up-to rates,691 Ameren any change in the Commission’s pricing methodologies as alternatives to the
urges the Commission to prescribe a policy that would yield more reasonable default cost-based rates, and the
standard methodology that sellers could cost-based rates must be coupled with a Commission will consider any such
opt to use to avoid prolonged and costly ‘‘must-offer’’ requirement. Lower cost- proposal on a case-by-case basis. Any
factual disputes. Ameren asserts that a based rates without a concurrent ‘‘must- seller proposing an alternative
formula rate based on information from offer’’ requirement, they argue, will only mitigation methodology, including a
FERC Form No. 1, where available, and provide the mitigated utility with an cost-based methodology with demand or
incorporating the AEP Methodology 692 even greater incentive to sell all its capacity charges, carries the burden of
available power beyond the mitigated justifying its proposal.
arise over which units are selected as the basis for region, thereby exacerbating the 650. We agree with commenters that
the price cap. Because the cost of new entry problems of depleted supply and the Commission has the ability to verify
methodology would allow the price cap to be profiteering by remaining suppliers.697 the validity of the seller’s analysis and
formulaic and generic based on the estimate of the
annualized total cost of building a new combustion
647. For mid-term sales, NRECA asks will continue to do so in our review of
turbine peaking facility, they suggest that this the Commission to enforce a matching proposed cost-based rates. We will
approach would minimize discretion in or consistency principle. Here, NRECA continue to conduct our own analysis of
determining the foundation of a cost-based rate. advocates using the same generating whether a proposed cost-based rate is
Drs. Broehm and Fox-Penner at 16.
687 Duke at 10; Duke reply comments at 13–14;
units ‘‘as the basis for the fixed and just and reasonable and, if warranted,
PPL reply comments at 17–18. variable costs in determining the default will set such a proposed rate for
688 Duke at 10; see also MidAmerican at 9–11; evidentiary hearing where there are
PPL reply comments at 17–18; Southern at 66–67. methodology, Ameren explains that a seller must issues of material fact.
689 Duke at 10; Duke reply comments at 14. develop a cost-based annual rate, which then is
divided by 52 to derive a weekly rate, which then
651. In response to the concerns
690 Progress Energy at 11–12.
is divided by 5 to derive a daily peak rate, which raised by some commenters regarding
691 Ameren maintains that allowing mitigated
sellers to sell at cost-based ‘‘up to’’ rates from which

then is divided by 16 to derive an hourly peak rate. the discretion given to sellers in the
Ameren at 15. design of ‘‘up-to’’ rates, as noted above,
the seller may discount adequately mitigates the 693 Ameren at 16.
seller’s market power while still allowing that the Commission considers all evidence
694 NC Towns at 4–5.

entity to participate in competitive markets. when reviewing a cost-based rate
695 Carolina Agencies at 11; see also APPA/TAPS
Ameren states that ‘‘up to’’ rates thus can benefit
customers by resulting in a more robust market. at 46–47, n.50 (citing Florida Power & Light Co., 66 proposal and, if a company has not
Ameren at 15. FERC ¶ 61,227 at 61,532 (1994)). justified selection of certain generating
692 American Electric Power Company, 88 FERC 696 Carolina Agencies at 11.
¶ 61,141 at 61,453–54 (1999). Under this 697 Carolina Agencies at 25. 698 NRECA at 32.
units, we will not accept the proposed reasonable until the Commission makes priced at the mitigated utility’s fully
rate. Under the FPA, we have the a contrary finding.699 allocated average embedded cost of
authority to accept, reject, or modify a 656. The Commission will continue to capacity and system average energy
proposed rate based on an analysis of allow sellers flexibility in designing ‘‘up costs. As with short-term sales, the
the specific facts and circumstances. to’’ cost-based rate proposals as Carolina Agencies urge the Commission
alternatives to the default methodology. to allow the embedded LSEs the choice
652. Further, we find that the
Entities that included various proposals between: (1) Locking-in their price at
approach we adopt in this regard for ‘‘up to’’ cost-based rate the mitigated utility’s embedded cost
allowing sellers flexibility in designing methodologies in their comments may rates; or (2) agreeing to have their
‘‘up to’’ rates for purposes of mitigation, propose those or other methodologies as charges determined through an annually
subject to Commission review and alternatives to the default cost-based updated formula rate that reflects the
approval, is consistent with the rates, and the Commission will consider utility’s actual system-wide average
Commission’s historical approach to the any such proposal on a case-by-case costs.703
pricing of cost-based rates. Because the basis.700 Any seller proposing an
Commission will have the opportunity alternative mitigation methodology Commission Determination
to review a seller’s proposed ‘‘up to’’ carries the burden of justifying its 659. We will retain our existing policy
rates, we find that allowing mitigated proposal. for sales of one year or more (long-term)
sellers flexibility in choosing which 657. We acknowledge that a standard sales. Specifically, we will continue to
units are used to calculate the proposed default rate methodology may provide, require mitigated sellers to price long-
cost-based rate will not result in market- as several commenters suggest, some term sales on an embedded cost of
based rates being disguised as cost- level of certainty and avoid prolonged service basis and to file each such
based mitigated rates. factual disputes. However, we are contract with the Commission for
653. In response to Pinnacle’s persuaded by the concerns expressed by review and approval prior to the
suggestion that the Commission make others that designing a standard default commencement of service.704 We
available a stacking methodology to be rate methodology based, for example, on discuss below the Carolina Agencies’
used to determine which units are most average costs may not account for the request for a ‘‘must offer’’ requirement.
likely to run, we will do so for actual costs of the units making the
d. Alternative Methods of Mitigation
informational purposes and will make sales, and thus may not allow the seller
to recover its costs. Commission Proposal
the methodology available on the FERC
Internet site. We also note, however, c. Sales of One Year or Greater 660. In the NOPR, the Commission
that sellers may propose to use their noted that sellers that are found to have
Comments market power (i.e., after the Commission
own stacking methodology.
658. While the NOPR did not propose has ruled on a DPT analysis), or that
654. With regard to the Carolina changes to the default pricing for long- accept a presumption of market power,
Agencies’ question of whether pricing term sales (sales of one year or more), can either accept the Commission’s
service based on the costs of units several entities filed comments on that default cost-based mitigation measures
‘‘likely to participate’’ is sufficiently issue. APPA/TAPS and AARP reiterate or propose alternative methods of
rigorous to meet the operative statutory their support for pricing such sales on mitigation. With regard to alternative
standards, we find that it is. an embedded cost basis.701 They submit methods of mitigation, the Commission
Historically, the Commission has that the Commission should not depart asked in the NOPR whether it should
allowed such an approach and the from its default cost-based mitigation allow as a means of mitigating market
Carolina Agencies have failed to policy with regard to long-term sales. power the use of agreements that are not
convince us that, whether or not the The NC Towns also favor using system tied to the cost of any particular seller
underlying analysis is difficult to verify, average costs in a rate base, rate of but rather to a group of sellers. The
the approach does not result in just and return model for determining long term Commission asked whether the use of
reasonable rates. In addition, with cost-based rates.702 Similarly, the such agreements as a mitigation
regard to Carolina Agencies’ position Carolina Agencies assert that long-term measure would satisfy the just and
with regard to a ‘‘must-offer’’ provision, sales to embedded LSEs should be reasonable standard of the FPA.
we discuss proposals for a ‘‘must-offer’’
provision below in the section on 699 In response to Westar, as discussed herein,
Comments
protecting mitigated markets. Commission precedent supports flexibility in 661. Many commenters favor allowing
designing cost-based rates and we are not proposing alternative mitigation methods tied to
Standard Default Rate Methodology To to standardize cost-based rates here. Upon loss or
surrender of market-based rate authority a seller has the costs of a group of sellers, in
Allow a Seller To Avoid a Hearing a number of options on how to make wholesale particular the Western Systems Power
655. Regarding a standard default rate
power sales. It can revert to a cost-based rate tariff Pool Agreement (WSPP Agreement),705
on file with the Commission, file a new proposed or transparent competitive market prices
methodology that would allow a seller cost-based rate tariff, or propose other mitigation.
While we provide a default cost-based rate in regional markets. Xcel asserts that the
to avoid a hearing on rate methodology
methodology, we also allow a seller to submit its FPA does not require a mitigated rate to
(e.g., a methodology that is based on own cost-based mitigation. On this basis, a seller’s reflect a utility’s own cost-of-service.706
average costs (both variable and filing rights under section 205 of the FPA are not 662. E.ON U.S. supports mitigation
embedded)), we note that the eroded and we are not finding methodologies
that sets prices at competitive market
Commission has approved various rate different from the default methodology necessarily
to be unjust and unreasonable.
methodologies in the past. Rather than 700 In response to Pinnacle’s request for 703 Carolina Agencies at 12–13.
adopting a specific default rate clarification that the variable cost for the unit can 704 April 14 Order, 107 FERC ¶ 61,018 at P 151,
methodology in this Final Rule, we
be defined as the system incremental cost, a 155.

affirm that, to the extent the mitigated seller can make that argument in support 705 Westar at 26–27; Pinnacle at 10; Ameren at
of an alternative cost-based mitigation 16–17; PG&E at 22; MidAmerican at 12; Xcel at 8;
Commission has previously accepted a methodology. PPL reply comments at 18; and PNM/Tucson reply
particular rate methodology, that 701 APPA/TAPS at 47; AARP at 8. comments at 2–3.
methodology is presumed to be just and 702 NC Towns at 4. 706 Xcel reply comments at 7.
levels. It claims that cost-based rate Thus, Westar claims that the NOPR’s particular market, the WSPP Agreement
mitigation eliminates the potential for implicit question whether additional rate for coordination energy sales is just
new competition in a mitigated area. In authorization is needed to make and reasonable in such market.
this regard, E.ON U.S. argues that profits mitigated sales is misplaced since the 669. The WSPP Agreement was
are available only when market prices WSPP Agreement, as an accepted tariff/ initially accepted by the Commission on
are below the mitigated utility’s cost- rate schedule, establishes the lawful a non-experimental basis in 1991,717
based rates, which reduces the incentive filed rate. providing for flexible pricing for
for investment in new generation as 664. Pinnacle notes that the WSPP coordination sales and transmission
long as buyers can obtain below market- Agreement’s price caps were established services. Currently, there are over 300
price energy from generation facilities of based on a system-wide average cost members of the WSPP Agreement
the mitigated utility’s ratepayers.707 and serve to put entities without located from coast to coast in the United
E.ON U.S. adds that mitigation market-based rate authority on a similar States and Canada, including private,
reflective of competitive prices results footing. In Pinnacle’s view, such public and governmental entities,
in mitigated sellers that are indifferent agreements enhance liquidity in the financial institutions and aggregators,
as to the buyer’s location and regional markets and facilitate and wholesale and retail customers. The
competitive price signals to which transactions due to the commonality of WSPP Agreement as it exists today
buyers can respond accordingly.708 terms and conditions.713 permits sellers of electric energy to
665. PG&E adds that the WSPP charge either an uncapped market-based
Use of the WSPP Agreement Rate To rate (for public utility sellers, they must
Agreement is the most commonly used
Mitigate Market Power have obtained separate market-based
standardized power sales contract in the
663. Several entities suggest that the electric industry. PG&E states that the rate authorization from the Commission
rates under the WSPP Agreement may WSPP membership continuously to do this), or an ‘‘up to’’ cost-based
be an appropriate alternative mitigation updates the WSPP Agreement to ensure ceiling rate. For sellers without market-
method.709 Westar asserts that the that it represents up-to-date terms for based rate authority, the cost-based
purpose of the cost-based rate schedules power sales contracts and notes that the ceiling rate under the WSPP Agreement
under the WSPP Agreement is to process of updating its terms involves a consists of an individual seller’s
mitigate perceived market power,710 and diversified, experienced group of market forecasted incremental cost plus an ‘‘up-
notes that the Commission has also participants focused on developing an to’’ demand charge based on the costs of
accepted use of the WSPP Agreement to appropriate rate for short-term sales. a sub-set (eighteen sellers) of the
mitigate market power in various PG&E concludes that the terms of the original WSPP Agreement members, not
contexts.711 Westar contends that WSPP tariff should be an accepted necessarily the costs of any one seller.
parties to the WSPP Agreement may sell alternative rate to the default rate The up-to demand charge is based on
under the cost-based rate schedules of determined by the Commission.714 the average fixed costs of the generating
the WSPP Agreement regardless of 666. In contrast, APPA/TAPS and facilities of that sub-set of WSPP
whether they have a separate tariff and AARP oppose alternative mitigation Agreement members; it was designed to
authorization from the Commission.712 methods tied to the costs of a group of reflect the costs of a hypothetical
sellers because there is no assurance average utility member in 1989. The
707 E.ON U.S. reply comments at 3; see also EPSA
that the group rate would reflect the only limitations are: (1) That the trades
at 13.
708 E.ON U.S. reply comments at 3. costs of the seller subject to by Commission-regulated public
709 See, e.g., Westar at 26 (‘‘The Commission mitigation.715 Further, APPA/TAPS utilities must be short-term (lasting one
developed and approved the rates under Schedules have concerns that selecting the year or less), and (2) that they be priced
A and C of the WSPP Agreement as ‘rates that are appropriate group and obtaining the at or below the ceilings for sellers
within the zone of reasonableness and that are just without market-based rate authority.
and reasonable under the [Federal Power Act]’’’
necessary cost information could be
(citing Western Systems Power Pool, 55 FERC ¶ extremely difficult and controversial.716 670. In a number of recent orders, the
61,099, at 61,321 (WSPP), order on reh’g, Western Commission accepted the use of the
Systems Power Pool, 55 FERC ¶ 61,495 (1990), aff’d Commission Determination WSPP Agreement as a mitigation
in relevant part and remanded in part sub nom. 667. We will address on a case-by- measure subject to the outcome of the
Environmental Action and Consumer Federation of
America v. FERC, 996 F.2d 401 (D.C. Cir. 1992), case basis whether the use of an instant proceeding and any
order on remand, 66 FERC ¶ 61,201 (1994)); agreement that is not tied to the cost of determinations that the Commission
Pinnacle at 10; PG&E at 22. any particular seller but rather to a makes regarding mitigation in this
710 Westar at 26 (citing Pacific Gas and Electric
group of sellers is an appropriate proceeding. In those cases, we
Company, 38 FERC ¶ 61,242 (1987) (accepting
WSPP Agreement on experimental basis); Pacific
mitigation measure. explained that the WSPP Agreement
Gas and Electric Company, 50 FERC ¶ 61,339 668. With regard to the WSPP contains a Commission-approved cost-
(1990) (reducing the ceiling price on economy Agreement, as discussed below, we based rate schedule that has been found
energy and capacity service under Schedules A, B conclude that use of the WSPP to be just and reasonable. Further, we
and C from $245/MWh to $124/MWh); WSPP;
Western Systems Power Pool, 83 FERC ¶ 61,099
Agreement may be unjust, unreasonable noted that parties to the WSPP
(1998) (order accepting amendments); Western or unduly discriminatory or preferential Agreement have ‘‘the option of
Systems Power Pool, 85 FERC ¶ 61,363 (1998) for certain sellers. Therefore, in an order transacting under the WSPP Agreement
(Letter Order accepting revised WSPP Agreement); being issued concurrently with this and thus can make sales under the
Western Systems Power Pool, Inc., 95 FERC ¶
61,483 (2001) (order accepting amendments)).
Final Rule, the Commission is WSPP Agreement without any further
711 Id. (citing, among other cases, Western instituting a proceeding under section authorization from the Commission.’’ 718
Resources, Inc., 94 FERC ¶ 61,050, at 61,247 (2001) 206 of the FPA to investigate whether,
(accepting WSPP Agreement to mitigate potential for sellers found to have market power 717 WSPP, 55 FERC ¶ 61,099 (1991). Prior to 1991,
affiliate preference concerns between prospective or presumed to have market power in a the WSPP Agreement was used for three years on
merger partners)). an experimental basis. See Western Sys. Power Pool,

712 Id. at 27 (citing NorthPoint Energy Solutions, 50 FERC ¶ 61,339 (1990) (extending the initial two-
713 Pinnacleat 10.
Inc., 107 FERC ¶ 61,181 (2004) (rejecting wholesale year period for an additional year).
714 PG&Eat 22.
cost-based rate tariff as unnecessary in light of 718 Westar Energy, Inc., 116 FERC ¶ 61,219 at
715 APPA/TAPS at 47; AARP at 8.
seller’s intent to make sales under the WSPP P 33 (2006); The Empire Dist. Elec. Co., 116 FERC
Agreement)). 716 APPA/TAPS at 41. ¶ 61,150 at P 12 (2006); Xcel Energy Services, Inc.,
671. Though the Commission has interested entities will have an mitigation on a case-by-case basis.723
allowed sellers to charge flexible cost- opportunity to address this issue MidAmerican suggests that any specific
based ceiling rates that are not through a paper hearing. index chosen could be reflected in the
necessarily based on a particular seller’s 674. As noted above, the Commission tariff of mitigated sellers (for sales up to
own costs (such as the WSPP Agreement has accepted, subject to the outcome of one year) or in agreements filed with the
ceiling rate), we are concerned that the this rulemaking proceeding, the use of Commission (for sales of one year or
evolution and use of the WSPP the WSPP Agreement ceiling rate as longer).724
Agreement ceiling rate and the mitigation by a number of sellers. These 677. Duke explains that market-based
evolution of competitive markets have sellers may continue to use the WSPP rate mitigation alternatives could be
resulted in circumstances in which the Agreement ceiling rate as mitigation, applied to mitigated sellers whose
WSPP rate may no longer be just and subject to refund (and the refund control area markets are adjacent to a
reasonable for sellers that are found to effective date established in Docket No. Commission-approved market. If the
have market power or are presumed to EL07–69–000) and subject to the proxy prices are established in markets
have market power in a particular outcome of the section 206 proceeding. that the Commission has found to be
market, i.e., sellers under the WSPP Market-Based Proposals for Mitigation functionally competitive, Duke
Agreement that do not have market- contends that the price will by
based rate authority or that lose or Comments definition be just and reasonable. Duke
relinquish market-based rate authority. 675. Commenters are generally submits that the Commission approved
672. We recognize that the ceiling rate concerned that where the Commission’s similar mitigation for sales by the LG&E
under the WSPP Agreement has been current mitigation approach focuses on Parties sinking in the Big Rivers control
found to be a just and reasonable cost- a seller’s own cost of service, it imposes area capped at the Midwest ISO’s LMP
based rate by this Commission as well cost-based rates on a mitigated utility in at the Big Rivers control area
as by the U.S. Court of Appeals for the the home control area regardless of interface.725
D.C. Circuit,719 and that it has been in whether the prices of alternative sources 678. E.ON U.S. argues that allowing
use for over 15 years by sellers of supply in the mitigated market index-based price caps as a mitigation
irrespective of whether they have exceed the mitigated seller’s cost-based option is just and reasonable because
market power. Nevertheless, the WSPP rates.720 Rather than relying on cost- such sales are either subject to the
Agreement ceiling rate contains based price caps that may bear no market monitoring provisions of an
extensive pricing flexibility and relies in relationship to market conditions, RTO, or in the case of price indices, are
part on market forces to set the rate at several commenters support allowing structured according to the
or below the demand charge cap, and mitigation methods based on Commission’s instructions with regard
we believe the WSPP Agreement rate transparent competitive market prices in to market price reporting. They add that
needs to be revisited in light of its regional markets.721 Commenters index-based price caps are efficient
widespread use and changes in electric suggest various market indicia that the because: (a) They can be used to address
markets since 1991. When originally Commission could use as price proxies pricing requirements for varying time
approved by the Commission in 1991, in market-based mitigation commitments; (b) they meet the
there were 40 members under the WSPP alternatives.722 Commission’s criteria for accurate and
Agreement; now there are over 300 676. Because different markets may be timely reporting; and (c) they do not
members. Additionally, the WSPP uncompetitive for different reasons, and require the administrative overhead and
Agreement is now used by entities not the same mitigation measure is not complexity associated with calculating
only in the Western Interconnection, but necessarily equivalent in all situations, and reporting cost-based rates.726
throughout the continental United several commenters urge the 679. MidAmerican and the Oregon
States. Further, the demand charge Commission to consider more tailored, Commission submit that using an
component of the WSPP Agreement market-based rate approaches to appropriate price index as a proxy could
ceiling rate is based on the costs of only ensure that prices are derived from
720 See,
e.g., Xcel at 7–9.
18 of the original WSPP members in competitive conditions and do not
721 Dukeat 3, 13–14; Drs. Broehm and Fox-Penner
1991 (utilizing 1989 data) and does not reflect the market power of the
at 16–17; MidAmerican at 12–13; E.ON U.S. at 10–
reflect the costs of the members that 12; Southern at 65, n. 104, 66; Ameren at 14; Xcel mitigated seller (or, for that matter, of
joined the agreement since 1991. at 8–9; PNM/Tucson at 12,14; EEI at 26–29; Dr. Pace any seller).727 Duke, MidAmerican, and
673. For these reasons, concurrently at 23; PPL reply comments at 17–18; and Oregon the Oregon Commission reason that
Commission reply comments at 2–3. allowing a published price index would
with issuance of this Final Rule, we are 722 For example, Duke (prices from an adjoining
instituting in Docket No. EL07–69–000 LMP market that are transparent and
effectively make the mitigated seller a
a proceeding under section 206 of the contemporaneously available); MidAmerican price taker rather than a price setter.728
FPA to investigate whether the WSPP (reference prices for the region or from neighboring E.ON U.S., PNM/Tucson, and
LMP markets, published index prices reported by Indianapolis P&L also suggest that
Agreement ceiling rate is just and public subscription services, or prices capped at
reasonable for a public utility seller in levels reported in the Commission’s Electric
requiring cost-based mitigation may
a market in which such seller has been Quarterly Report for sales in neighboring markets); result in sellers giving up their market-
found to have market power or is Xcel (proximate price indexes where available, the based rate authority in mitigated areas
WSPP Agreement, a utility’s own sales in areas
presumed to have market power. All where it does not possess market power, 723 MidAmerican at 14; NYISO at 8; Duke at 13–
competitive solicitations with a sufficient amount 14; Drs. Broehm and Fox-Penner at 15.
117 FERC ¶ 61,180 at P 49 (2006). However, we of bidders or opportunity cost pricing); EEI 724 MidAmerican reply comments at 5.
note that a review of EQR data indicates that of 65 (published index prices at liquid regional trading 725 Duke at 14 (citing LG&E Energy Marketing
sellers reporting contracts under the WSPP hubs or LMP nodal prices for adjacent Day 2 RTOs);
Agreement, 56 sellers reported sales under that the Oregon Commission (price at a frequently Inc., 113 FERC ¶ 61,229 at P 30 (2005)).
726 E.ON U.S. at 12.

agreement in 2006. Fifty-five of these sellers traded energy hub or an LMP determined by an
reported sales that were identified as market-based adjoining RTO would be appropriate price indexes). 727 MidAmerican at 13; Oregon Commission reply
rate sales. If an appropriate and valid price index is not comments at 2; see also PPL reply comments at 17–
719 Environmental Action and Consumer available, the Oregon Commission would require 18.
Federation of America v. FERC, 996 F.2d 401 (D.C. the seller to make mitigated sales at cost-based 728 Duke at 14; MidAmerican at 13–14; Oregon
Cir. 1993). rates. Commission reply comments at 2.
due to the significant time and expense market.734 This, in turn, would obviate energy rates that provide a competitive
of developing a cost-of-service filing.729 the need for a ‘‘must offer’’ requirement rate of return on new generation units
Where sellers opt to give up market- or mitigation of sales outside the built in the region. Where transmission
based rate authority, these commenters mitigated region. Somewhat similarly, constraints bind only occasionally and
conclude that buyers will be harmed by EEI warns that if the Commission the seller does not have market power
a reduction in the number of implements a ‘‘must offer’’ obligation, absent such constraints, this commenter
competitive options available to them in suppliers may not apply for market- reasons that it is rational to only apply
mitigated markets. based rate authorization in markets mitigated rates to sales made at the time
680. MidAmerican claims that using where they are likely to fail any of the such constraints are binding. Similarly,
price indices would (a) Eliminate the market power screens.735 where indicative screens or the DPT
incentive for round-trip transactions; (b) 683. Some commenters add that the analysis point to the existence of a
alleviate the need to determine whether Commission surrenders nothing in market power problem in a well-defined
the need for mitigation should be based terms of consumer protection by seasonal or peak period, this commenter
on the point of delivery, the sink allowing market-based price caps as a favors confining rate mitigation to sales
location, or some other determinant; mitigation option. In their view, made in the relevant market during that
and (c) reduce contention over how to permitting such mitigation will likely period.740
calculate cost-based rates.730 EEI and increase the willingness of sellers to 686. APPA/TAPS acknowledge that
the Oregon Commission conclude that engage in market transactions in cost-based rates do not achieve
allowing mitigated rates to be based on mitigated areas and result in buyers competitive wholesale markets.741
competitive market prices would: (1) paying no more than what is already Ideally, wholesale customers should
Maintain supply choices for captive recognized as a just and reasonable have a meaningful choice of suppliers
customers by encouraging mitigated competitive market price.736 whose costs are disciplined by
suppliers to participate actively in the 684. MidAmerican, E.ON U.S., PNM/ competitive forces and remedies
mitigated markets; (2) avoid the Tucson, and Indianapolis P&L all note focused on fostering structurally
unintended consequences of cost-based that the Commission (1) Has found that competitive markets will help to ensure
rate mitigation (e.g., incentive to sell inter-affiliate sales are permissible at that future consumers have choices.
outside the mitigated region); (3) help to RTO price indices, and (2) proposes in Until such structural remedies are fully
ensure that buyers continue to receive the NOPR (at P 113–14) to extend this implemented, APPA/TAPS maintain
accurate price signals and not policy to market indices satisfying the that mitigated sellers should sell at cost-
inappropriately lean on cost-based rates November 19 Price Index Order.737 based rates.742
in times of peak demand; and (4) be These commenters argue that if sales at 687. APPA/TAPS and Morgan Stanley
consistent with the Commission’s goal a meaningful market index are per se do not categorically oppose the use of
of encouraging competitive market just and reasonable for affiliate price indices as a mitigation alternative
solutions.731 transactions, there is no reason why that could be justified with substantial
681. APPA/TAPS reject this such sales are not per se just and evidence, but urge caution and ask the
reasoning, arguing that a dominant reasonable for non-affiliate Commission not to assume that the
supplier has other incentives not to sell transactions.738 PNM/Tucson add that index relied upon is a just and
to captive customers beyond just the even in regions without organized RTO/ reasonable, and comparable, proxy for
availability of a higher price elsewhere, ISO markets, sellers with market-based the mitigated market.743 Morgan Stanley
including the desire to disadvantage rate authority have established highly explains that given the price variation
competing suppliers within its control liquid trading hubs (e.g., Four Corners among transmission nodes, it is not
area. Therefore, even if a market price or Palo Verde) that also produce market possible to generically find that any one
index is used as a mitigation alternative, prices that are readily available, index-based price would be an adequate
APPA/TAPS submit that a ‘‘must offer’’ transparent, can serve as an appropriate proxy for another node(s). APPA/TAPS
obligation remains necessary.732 proxy, and satisfy the Commission’s explain that a thinly traded market, or
682. According to some commenters,
index pricing standards.739 one separated by transmission
capping mitigated prices at the levels of 685. Another commenter supports the constraints, could create volatility or
relevant price indices would also reduce adoption of more market-oriented arbitrage possibilities that would leave
the market distortions that exist under approaches to mitigation. For daily and captive customers worse-off than a cost-
dual price systems.733 E.ON U.S., Xcel, hourly transactions, this commenter
PNM/Tucson, Duke, EEI, MidAmerican based mitigated rate. They add that
asks the Commission to be receptive to appropriate price proxies may not be
and the Oregon Commission generally
rates tied to an acceptable price index available for all products, and that RTO-
contend that allowing market-based rate
at a liquid trading point. For long term administered real-time or day-ahead
mitigation methods would reduce the
transactions, rather than focusing on markets would not generally provide
incentive, arising from price disparities
average embedded costs, which this acceptable proxies for price mitigation
in dual-price systems (a regime where a
commenter claims are likely to be a poor in markets for weekly, monthly or
seller has market-based rate authority in
proxy for market rates, the Commission annual sales. APPA/TAPS also note that
some markets but is limited to cost-
should consider capacity and associated the Southeast has no real liquid trading
based sales in other market(s)), for
mitigated sellers to seek market-based hubs.744 While urging the Commission
734 E.ON U.S. at 10–11; Xcel at 8–9; PNM/Tucson
rate sales beyond the mitigated to continue requiring cost-based
at 13; Duke at 9; EEI at 28; MidAmerican at 14;
Oregon Commission reply comments at 3.
mitigation, Morgan Stanley does not
729 Indianapolis P&L at 11; E.ON U.S. at 11; PNM/ 735 EEI reply comments at 18. oppose allowing mitigated sellers to
Tucson at 13. 736 Duke at 14; APPA/TAPS at 64; MidAmerican
740 Dr. Pace at 23–24.
730 MidAmerican reply comments at 3–4, 20. at 13.

731 EEI reply comments at 12; Oregon 737 MidAmerican at 13; E.ON U.S. at 11; PNM/ 741 APPA/TAPS at 48.
Commission reply comments at 3. Tucson at 12; Indianapolis P&L at 7. 742 Id. at 48–49.
732 APPA/TAPS reply comments at 15. 738 E.ON U.S. at 11; Indianapolis P&L at 11; 743 APPA/TAPS reply comments at 13; Morgan
733 PNM/Tuscon at 13–14; MidAmerican at 14; MidAmerican reply comments at 5. Stanley reply comments at 2, 8–10.
EEI at 26; see also, CAISO at 6. 739 PNM/Tucson at 13. 744 APPA/TAPS reply comments at 14–15.
justify an index-based mitigation RTOs with Day 2 markets have some provider’s control area allow it to charge
approach as appropriate for their ability to limit their exposure to LMP supra-competitive market-based rates
specific circumstances. According to spikes through the use of hedging tools there, APPA/TAPS submit that the
Morgan Stanley, such an approach may (i.e. Auction Revenue Rights and Commission must require these
prove justifiable where a viable, liquid Financial Transmission Rights). constraints to be addressed.757 These
index exists within or adjacent to the However, the Carolina Agencies argue, commenters ask the Commission to
territory in which a finding of market LSEs in mitigated markets would face impose mitigating conditions on market-
power exists.745 these LMP gyrations from adjacent based rate authority to increase access to
688. NRECA likewise is concerned markets as proxy prices without any existing transmission facilities as well
that there is no assurance that (1) The hedging protections. These agencies as to expand their transmission access
external market price would be a further claim that there are no other through rolled-in upgrades. For
competitive price; (2) external markets sources of non-LMP price information example, APPA/TAPS,758 and the
are a reasonable proxy for non-existent in their region that are reliable enough Carolina Agencies 759 suggest that the
competitive market prices in the to serve as proxy prices.751 In the Commission could condition the
mitigated market; and (3) there are Carolina Agencies’ view, because price market-based rate authority of a
sufficient monitoring and enforcement information from non-LMP markets is mitigated seller on the demonstrated
mechanisms to ensure these first two mostly illiquid, non-transparent and willingness of vertically-integrated
conditions are continually being met.746 easily manipulated due to the low transmission owners to jointly plan and
Unless these three concerns are volume of transactions, such reference construct new generation projects with
addressed, NRECA asserts that the prices are unlikely to be an accurate and market participants, and/or to
Commission may not lawfully rely on reasonable proxy for competitive prices participate with them in collaborative,
an external market price as a proxy in in the mitigated control area. They state open regional transmission planning
a mitigated market, particularly where that, as the Commission has reported, processes.
the FPA is clear that the Commission ‘‘some electric power markets are almost 692. Xcel responds that, aside from
may not approve market-based rates entirely opaque both to regulators and to such a requirement being impractical,
absent ‘‘empirical proof’’ that ‘‘existing price takers. In these markets (such as the Commission has no legal authority
competition would ensure that the electricity in the Southeast), so little to impose a condition requiring joint
actual price is just and reasonable.’’747 information is available that price planning of new facilities nor
Moreover, where ‘‘Congress could not indices either do not develop or have jurisdiction over the construction of
have assumed that ‘just and reasonable’ little value in price discovery.’’ 752 The new facilities.760 Xcel states that the
rates could conclusively be determined Carolina Agencies also wonder how a FPA does not provide the Commission
by reference to market price,’’ 748 meaningful proxy could be determined with certificate jurisdiction over
NRECA argues that the Commission for a market price in a control area generation facilities or otherwise, nor
may not rely exclusively on market where a dominant supplier has market does the Commission have the authority
prices but rather must have a regulatory power.753 to order utilities to enter into such a
‘‘escape hatch’’ or ‘‘safeguard’’ 690. The Carolina Agencies and contract.761
mechanism 749 if actual competitive NASUCA oppose providing mitigated
pressures alone cannot keep rates just utilities with the option of filing cost- Commission Determination
and reasonable. NRECA, similar to based rates or choosing the market rates 693. The Commission continues to
APPA/TAPS, is concerned that proxy of a neighboring control area.754 believe that proposed alternative
indices are irrelevant oftentimes NASUCA adds that commenters methods of mitigation should be cost-
because they are too far removed from articulate no legal theory by which based. However, as discussed below,
the mitigated market to be adequately mitigated sellers should be allowed any while we will not allow the use of
representative. While NRECA admits market rate or how the Commission has alternative ‘‘market-based’’ mitigation
that such indices may be adequate in power to grant any waiver of the rate on a generic basis, we will permit sellers
some instances, it takes the position filing and review requirements of to submit alternative non-cost-based
that, at most, the Commission could section 205 of the FPA.755 Rather than mitigation proposals for Commission
entertain proxy index proposals from allowing mitigated rates to be consideration on a case-by-case basis.
mitigated sellers on a case-by-case determined by market prices in adjacent 694. A variety of suggestions have
basis.750 market areas, NASUCA urges the been made such as basing mitigated
689. The Carolina Agencies are
Commission to deny any form of market prices on: Prices from an adjoining LMP
similarly concerned that market-based
rates to mitigated utilities and require market that are transparent and
indices based on LMPs from adjacent
such suppliers to comply with section contemporaneously available; published
markets in many hours will reflect
205 of the FPA by filing their rates index prices; prices capped at levels
transmission congestion that may not be
subject to the traditional review to reported in the Electric Quarterly
representative of congestion patterns in
ensure just and reasonable rates.756 Reports for sales in neighboring
the mitigated market, and therefore 691. If the presence of transmission markets; a utility’s own sales in areas
must not be deemed a just and constraints in a dominant transmission where it does not possess market power;
reasonable proxy for an entirely
different market. Moreover, LSEs in 751 Carolina Agencies reply comments at 2–3, 10, 757 APPA/TAPS at 50.
14–18. 758 Id. at 40–41, 49, 50–51.
745 Morgan Stanley reply comments at 9–10. 752 Id. at 18, n. 11 (citing Federal Energy 759 Carolina Agencies at 12, n.10.
746 NRECA reply comments at 31–33. Regulatory Commission—Office of Market 760 Xcel reply comments on 9–10.
747 Id. at 32 (quoting Farmers Union Cent. Exch., Oversight and Investigations, 2004 State of the 761 Id. at 10. Duke likewise opposes any proposal
Market Report (June 2005)).
Inc. v. FERC, 734 F.2d 1486, 1510 (D.C. Cir. 1984)). granting an automatic entitlement to participate in
748 Id. (quoting FPC v. Texaco, 417 U.S. 380, 399 753 Id. at 15, n. 9.
new generation planned by the mitigated utility,
(1974)). 754 Id. at 18–19; NASUCA reply comments at 18–
arguing that the commercial terms of any joint
749 Id. (quoting Louisiana Energy & Power Auth. 19. ownership arrangements must be negotiated by the
v. FERC, 141 F.3d 364, 370–71 (D.C. Cir. 1998)). 755 NASUCA reply comments at 18–19.
parties. Duke reply comments at 11; see also, EEI
750 Id. at 33. 756 Id. reply comments at 8–9.
and competitive solicitations with a competitive conditions and do not propose such alternative mitigation will
sufficient amount of bidders or reflect the market power of the carry the burden of showing why and
opportunity cost pricing. However, mitigated seller; allowing a published how the proposed index-based price is
while some commenters suggest that price index would effectively make the relevant, appropriate and a just and
market-based rate mitigation may cure mitigated seller a price taker rather than reasonable price for the mitigated
several of the cost-based mitigation a price setter; use of an index price market. While several commenters also
regime’s alleged ailments, they fail to would eliminate the incentive for seek to have the Commission make
convincingly address a fundamental round-trip transactions and alleviate the market-based rate authorization of
concern with such mitigation. That is, need to determine whether the need for mitigated sellers contingent upon their
why a market-based price from one mitigation should be based on the point pledging to jointly plan and construct
market would be a relevant and of delivery, the sink location, or some future generation projects with market
appropriate proxy price to mitigate other determinant; would maintain participants, or pursue other structural
market power found in a different supply choices for captive customers by conditions, they have not justified
market. encouraging mitigated suppliers to imposing such a burden. For those
695. Specifically, we reject Duke’s participate actively in the mitigated sellers that are affected with a market
argument that we should allow market- markets; would help to ensure that power concern, we discuss elsewhere in
based rate mitigation alternatives to be buyers continue to receive accurate
used by mitigated sellers whose control this Final Rule the means by which we
price signals and not inappropriately
area markets are adjacent to a will require adequate mitigation.
lean on cost-based rates in times of peak
Commission-approved market because if Moreover, we believe that we have
demand; and, would be consistent with
the proxy prices are established in the Commission’s goal of encouraging adequately addressed these concerns
markets that the Commission has found competitive market solutions. related to planning in our recent Order
to be functionally competitive, the price 697. However, we agree with Morgan No. 890, where we require all
will by definition be just and Stanley and others that, given price jurisdictional transmission owners to
reasonable. Although Duke is correct variations among transmission nodes, engage in transmission planning with
that a price in a market may be we should not generically find that one other market participants. Therefore, we
presumed to be just and reasonable in index-based price is necessarily an find no reason to mandate a mitigated
the market in which it has been adequate proxy for another node. seller’s participation in such
approved, Duke’s claim fails because Commenters urging the Commission to arrangements.
that price has not been shown to be just consider such alternatives on a case-by-
2. Discounting
and reasonable for other markets with case basis acknowledge that different
differing competitive circumstances.762 markets may be uncompetitive for Commission Proposal
Duke’s argument also fails to recognize different reasons.764 While commenters
that the Commission does not certify speak of ‘‘relevant price indexes,’’ their 699. In the NOPR, the Commission
markets as competitive; rather, we make comments contain little more than explained that a supplier authorized to
determinations on whether individual undeveloped proposals and limited sell under an ‘‘up to’’ cost-based rate has
sellers in a market have market power. discussion as to how such an index an incentive to discount its sales price
In addition, contrary to Duke’s view, the would be chosen, and why it would be when the market price in the supplier’s
Commission’s acceptance of proposed an appropriate proxy for the mitigated local area is lower than the cost-based
mitigation in the Big Rivers control area market. For example, commenters fail to ceiling rate. During these periods, a
does not support Duke’s proposal in this explain how a proxy price based on rational seller will discount its sales to
regard. In LG&E Energy Marketing existing competition from one market maximize revenue. In the past, the
Inc.,763 the Commission accepted a with distinct traits such as transmission Commission has encouraged
proposal that capped—at the Midwest congestion ensures a just and reasonable discounting as an efficient practice that
ISO’s LMP price at the Big Rivers price in another market that has its own can maximize revenues to reduce the
control area interface—all market-based unique traits and circumstances. revenue requirements borne by
sales by LG&E sinking in the Big Rivers Deriving prices from competitive requirements customers.
control area not sold pursuant to conditions, making a mitigated seller a 700. Here, the primary issue is
contractual agreements already in price taker rather than a price setter, and whether a seller can ‘‘selectively’’
existence. However, Duke fails to point reducing market distortions are all goals discount, i.e., offer different prices to
out that, when LG&E proposed to commenters claim market-based different purchasers of the same product
mitigate its sales into the Big Rivers mitigation can help achieve. during the same time period. The
control area, LG&E was a member of the Nonetheless, the use of an external
Midwest ISO and, accordingly, capping Commission invited comment on
market price to establish the just and
LG&E’s sales price at the Midwest ISO whether selective discounting should be
reasonable price in the mitigated market
LMP at the Big Rivers interface was allowed for sellers that are found to
has not yet been shown to be
appropriate. have market power or have accepted a
appropriate.
696. Commenters raise many reasons 698. While we will not allow the use presumption of market power and are
why allowing the use of an index could of ‘‘market-based’’ mitigation on a offering power under cost-based rates. If
be beneficial such as: Using an generic basis, we nevertheless will so, the Commission sought comment on
appropriate price index as a proxy could permit sellers to submit non-cost-based what mechanisms (reporting or
ensure that prices are derived from mitigation proposals, such as the use of otherwise), if any, are necessary to
an index or an LMP proxy, for protect against undue discrimination.
762 E.ON U.S.’ proposal that the use of index-
Commission consideration on a case-by- By contrast, were it to forbid selective
based price caps subject to the market monitoring

case basis based on their particular discounting, the Commission asked for
provisions of an RTO is a just and reasonable comment on whether it should require
mitigation option equally fails to address whether circumstances. Sellers choosing to
the index-based price is relevant to the market in the utility to post discounts to ensure
which the sale is made. 764 MidAmerican at 14; NYISO at 8; Duke at 13– that they are available to all similarly-
763 113 FERC ¶ 61,229 (2005). 14; Drs. Broehm and Fox-Penner at 15. situated customers.
Comments dedicated to native load service.771 EEI manipulation and affiliate transactions
adds that where a mitigated seller is rules.777
701. Some commenters favor selective 710. Suez/Chevron urges the
already precluded from making market-
discounting because it provides an Commission to require selective
based rate sales within mitigated areas,
opportunity to meet competition where discounts to be contemporaneously
selective discounting does not give rise
necessary to retain and attract business. offered to similarly-situated buyers, and
to conditions that support the potential
They add that the contracting flexibility separately identified in the mitigated
exercise of market power.772
afforded by selective discounting allows seller’s EQR.778 To minimize the
706. Other commenters generally
sellers to modify rates and tailor sales potential for market power abuse when
oppose allowing mitigated sellers to
based on customer-specific factors such a mitigated seller selectively discounts
selectively discount sales. For example,
as load characteristics and credit to an affiliate,779 Suez/Chevron supports
TDU Systems claim that selective
ratings. They argue that such flexibility requiring a presumption that
discounting is unnecessary because a
maximizes liquidity and available nonaffiliated buyers are similarly-
seller subject to cost-based mitigation in
capacity and energy.765 situated, and therefore entitled to the
its home control area would not face
702. MidAmerican and Indianapolis competition by definition. They also same discount as a mitigated seller
P&L both state that section 206 of the contend that selective discounting offers to its affiliate.780
FPA already prohibits undue would allow mitigated sellers to engage 711. PG&E, in contrast, opposes
discrimination and provides well- in price discrimination in a non- requiring the seller to make discounts
established procedures for entities that competitive market, thereby permitting available to all similarly-situated
have been subjected to undue the seller to exercise market power by entities. According to PG&E, it would be
discrimination.766 Westar notes that the economically or physically withholding difficult to determine which entities are
Commission’s long-standing policy is to capacity to increase the posited market in fact similarly-situated because the
allow selective discounting and asserts price. Thus, in the TDU Systems’ view, seller would have to consider multiple
that discounting to customers who have a rule allowing selective discounting factors, such as quantity of load, timing,
competitive alternatives is not unduly would effectively grant market-based flexibility, credit rating, and purchases
discriminatory.767 rate authority in a non-competitive history.781
703. PG&E maintains that it is just and 712. Ameren disagrees with a posting
market, in contravention of the
reasonable for a seller to offer a discount requirement, arguing that the
requirements of the FPA.773
below its cost-based mitigated rate if the Commission’s requirements for separate
707. While NC Towns generally
seller will gain other (non-market filings and advance approval of affiliate
encourage discounts to cost-based rates,
power) advantages such as repeat power sales provide the appropriate
they oppose selective discounting
customers or lower transaction costs. oversight and mechanisms necessary to
because they do not believe that the size
PG&E also suggests that principles of police discounting concerns regarding
of a load should be a factor when
efficiency and competition support selective discounts favoring affiliates.
determining whether to give a buyer a
providing selective discounts to entities Ameren concludes that a requirement to
discount.774 post discounts is unduly burdensome
with larger needs.768 708. APPA/TAPS question why a
704. Duke contends that sales arising given that the only discounts of concern
dominant seller would offer discounts are in the affiliate sales, which are
from selective discounting spread fixed to captive customers with no other
costs over more units of service, thereby subject to separate filing
viable supply options. They add that requirements.782 PG&E, in turn, notes
reducing the ‘‘up to’’ rate.769 Moreover, there is no evidence that local,
without the ability to selectively that the affiliate restrictions also provide
competing generation exists or that protection against the use of selective
discount, Duke submits that utilities there is available transmission capacity
will not have the opportunity to discounts to benefit affiliates.783
that could support significant imports.
compete for many wholesale In order to avoid discrimination, APPA/ Commission Determination
transactions in the mitigated control TAPS advocate requiring a mitigated 713. We will continue our practice of
area.770 supplier to offer captive customers any allowing discounting from the default
705. Southern asserts that if selective discounts that it offers to other cost-based mitigated rates for short- and
discounting were eliminated, then the purchasers.775 Factors such as a mid-term sales and will permit selective
resulting loss of a low-cost source of customer’s capacity factor, credit rating discounting by mitigated sellers
supply would harm the customers. In or fuel costs may justify adjustments to provided that the sellers do not use such
Southern’s view, captive customers also seller-specific cost-based rates, but such discounting to unduly discriminate or
lose because of foregone opportunities factors, argue APPA/TAPS, should be give undue preference. We believe that
to optimize capacity nominally reflected in the seller’s cost-based rates selective discounting that does not
rather than through selective constitute undue discrimination can
765 See, e.g., Indianapolis P&L at 10;
discounting.776 improve liquidity, available capacity
MidAmerican at 15–16; Duke at 10–11; EEI at 34; 709. If selective discounting is
PG&E at 23; Progress Energy at 12.
and energy, and customer supply
766 MidAmerican at 15; Indianapolis P&L at 10. permitted, TDU Systems and NRECA
767 Westar at 26 (citing Town of Norwood v. FERC, urge the Commission to require sellers 777 TDU Systems at 24; NRECA at 32.
587 F.2d 1306, 1312 & n.17 (D.C. Cir. 1978) (rate to file reports of the discounts offered, 778 NC Towns and Morgan Stanley state that any
disparity may be justified by, inter alia, differences and encourage the Commission to discount the seller wishes to offer should be
in the customers’ level of risk aversion and required to be posted with sufficient time for other
vigorously enforce its market interested parties to take advantage of the offer. NC
bargaining power)); see Policy for Selective
Discounting by Natural Gas Pipelines, 111 FERC ¶ Towns at 5–6; Morgan Stanley at 7.
771 Southern
at 67. 779 Suez/Chevron states that sellers should be
61,309, reh’g denied, 113 FERC ¶ 61,173 (2005)
772 EEI
at 31; see also PG&E at 23. required to post any affiliate discounts on their
(affirming Commission’s 16-year policy to allow

selective discounting by interstate natural gas 773 TDU Systems at 19–21. OASIS. Suez/Chevron at 13.
pipelines when necessary to meet competition). 774 NC Towns at 5. 780 Suez/Chevron at 12–13.
768 PG&E at 23. 775 APPA/TAPS reply comments at 15–16; APPA/ 781 PG&E at 24.
769 Duke at 11. TAPS at 44–48. 782 Ameren at 17–18.
770 Id. 776 APPA/TAPS reply comments at 16. 783 PG&E at 23.
options. In other words, non- making power sales must submit EQRs selective discounting are best addressed
discriminatory discounting can provide containing: A summary of the on a case-by-case basis.
benefits to the market. contractual terms and conditions in
714. APPA/TAPS question why a 3. Protecting Mitigated Markets
every effective service agreement for all
dominant seller would offer discounts jurisdictional services, including a. Must Offer
to captive customers with no other market-based and cost-based power Commission Proposal
viable supply options, and the TDU sales and transmission services; and,
Systems comment that selective 720. Under the Commission’s current
transaction information for effective
discounting is unnecessary because a mitigation policy, a seller that loses
short-term (less than one year) and long-
mitigated seller by definition would not market-based rate authority in its home
term (one year or greater) power sales
face competition in its home control control area is limited to charging cost-
during the most recent calendar
area. However, in times when there are based rates in that control area;
quarter.789 Through this reporting
viable alternatives, a seller under an ‘‘up however, there is no requirement that
requirement, the Commission monitors
to’’ cost-based rate has an incentive to the seller offer its available power to
the rates charged by mitigated sellers.
discount its sales price when the market customers in that home control area.
718. Several commenters also seek to Instead, the seller is free to market all
price in the seller’s mitigated market is have the Commission require selective
lower than the cost-based ceiling rate. of its available power to purchasers
discounts to be posted and outside that control area if it chooses to
Allowing a mitigated seller to non- contemporaneously offered to similarly-
discriminatorily discount the rate when do so. If, for example, market prices
situated buyers. Some seek a outside the mitigated seller’s control
there are viable alternatives in the presumption that nonaffiliated buyers
market benefits customers by providing area exceed the cost-based caps within
are similarly situated whenever a the mitigated control area, then the
more supply options in such instances. mitigated seller offers an affiliate a
715. Discounting also can maximize seller will, other things being equal,
discount. The Commission will not have an incentive to sell outside. As
revenue by optimizing capacity require mitigated sellers to
nominally dedicated to native load noted in the NOPR, wholesale
contemporaneously post in a public customers have argued that default cost-
service, allowing the supplier to spread forum all discounts provided for cost-
fixed costs over more units of service. based mitigation of this kind is of little
based sales (i.e., where the sale is made value if a seller can market its excess
Maximizing revenue in this manner can
at a price below the maximum up-to capacity at market-based rates in other
help reduce the ‘‘up to’’ rate, and
cost-based rate approved by the control areas. In the NOPR, the
therefore the revenue requirements
Commission in that tariff or rate Commission sought comment on
borne by captive customers. The
schedule). Proponents of a posting whether its current policy is
Commission has previously determined
requirement have not justified nor appropriate, and if not, what further
that requiring a mitigated entity to limit
demonstrated how the Commission’s restrictions are needed. The
sales to its ceiling rates ‘‘is at odds with
EQR requirement fails to provide an Commission asked whether it should
the long-standing policy of allowing ‘up
adequate means by which to monitor adopt a form of ‘‘must offer’’
to’ cost-based rates.’’ 784
716. The FPA requires that all rates such discounts. In addition, many sales requirement in mitigated markets to
charged by public utilities for the sale are made below the cost-based cap, and ensure that available capacity (i.e.,
or resale of electric energy be ‘‘just and the commenters’ proposals would place above that needed to serve firm and
reasonable.’’ 785 If a seller’s cost-based an undue burden on sellers that would native load customers) is not withheld.
rate has been found to be just and be required to contemporaneously post If so, the Commission asked if such a
reasonable by the Commission, it rates that the Commission has already ‘‘must offer’’ requirement should be
follows that discounted rates below deemed to be just and reasonable. limited to sales of a certain period to
such a cost-based rate are also just and Accordingly, the Commission will not help ensure that wholesale customers
reasonable.786 However, a seller may not require the contemporaneous posting of use that power to serve their own needs,
lawfully discount to gain, or profit from, discounted cost-based rates. Finally, rather than simply remarketing that
market power advantages. We commenters have provided no basis to power outside the control area and
emphasize that section 205 of the FPA conclude that nonaffiliated buyers are profiting. 790 If it were to adopt such a
prohibits public utilities, in any power similarly situated whenever a mitigated ‘‘must offer’’ requirement, the
sale subject to the Commission’s seller offers an affiliate a discount, and Commission asked what rules there
jurisdiction, from granting any undue we will not adopt the proposed should be to define the ‘‘available’’
preference or advantage to any presumption in this regard. Thus, sellers capacity that must be offered , in order
person 787 and also prohibits undue may selectively discount only if they do to avoid case-by-case disputes over this
discrimination.788 so in a manner that is not unduly issue.
717. With regard to comments that the discriminatory or preferential.
Comments
Commission establish a reporting 719. Further, we agree with
mechanism, under the Commission’s MidAmerican that identifying 721. Wholesale customers generally
existing reporting requirements entities discriminatory selective discounting support a ‘‘must offer’’ requirement,’’
requires fact-specific evaluations. stating that it is needed to ensure that
784 Duke Power, 113 FERC ¶ 61,192 at P 17 Because individual proceedings are the power is available for purchase in the
(2005). best instrument available to the mitigated market and to protect them
785 16 U.S.C. 824d(a).
Commission for such efforts, allegations from incurring higher costs to serve
786 Public Service Company of Oklahoma, 54
FERC ¶ 61,021, at 61,032 and fn. 8 (1991) (‘‘If PSO’s

of undue discrimination arising from 790 In this regard, the Commission asked if there
rates set at full cost are reasonable in the presence should be an annual open season under which the
of market power, it follows that PSO’s rates 789 Revised Public Utility Filing Requirements,
mitigated seller offers its available capacity to local
reflecting less than a 100-percent contribution to Order No. 2001, 67 FR 31043 (May 8, 2002), FERC customers for the following year at the cost-based
fixed costs are also reasonable in the presence of Stats. & Regs. ¶ 31,127 (2002). Required data sets ceiling rate and, if customers do not commit to
market power.’’). for contractual and transaction information are purchase that capacity, then the seller would be free
787 16 U.S.C. 824d(b).
described in Attachments B and C of Order No. to sell the remaining capacity at market-based rates
788 16 U.S.C. 824e(a). 2001. where it has authority to do so.
load.791 They argue that the existence of market-based rate authorization outside mitigated utility’s native load and (ii)
a dual price system (a regime where a a mitigated seller’s control area.794 LSEs located within the mitigated
seller has market-based rate authority in APPA/TAPS and the Carolina Agencies utility’s home control area.798 This
some markets but is limited to cost- argue that the Commission already outcome, the Carolina Agencies
based sales in other market(s)) creates imposed a must-offer obligation on the continue, violates the FPA’s mandate
an incentive for a mitigated seller to sell continued availability of market-based that rates be just, reasonable and not
its power outside of the mitigated rate authority for sellers in the unduly discriminatory regardless of
market whenever market prices in the California markets.795 whether the mitigated utility’s decision
outside market are above the mitigated 723. APPA/TAPS also assert that to export power is a conscious
seller’s cost-based price. They are while Order No. 888 rejected a generic ‘‘withholding’’ for anticompetitive
concerned particularly with the obligation that would have required ends.799 APPA/TAPS and Carolina
situation where a wholesale customer sellers to continue wholesale sales past Agencies add that vertically-integrated
faces few or no alternatives in the the expiration of the contract(s) in utilities with substantial generation in
mitigated market due to transmission question in that proceeding, Order No. their home control areas frequently have
constraints. 888 explained that the Commission can the ability and incentive to discriminate
722. APPA/TAPS, the Carolina impose an obligation to continue service against their wholesale customers, who
Agencies and NRECA claim that the on a case-by-case basis.796 compete against them on both the
Commission has both the authority and 724. APPA/TAPS and the Carolina wholesale and retail level.800
obligation to remedy undue Agencies argue that a dominant public 725. APPA/TAPS and Carolina
discrimination in wholesale sales, utility’s physical withholding of Agencies maintain that undue
which are clearly set forth in sections generation in the mitigated market in discrimination occurs if a dominant
205 and 206 of the FPA.792 They order to make market-based sales public utility unjustifiably
specifically argue that a ‘‘must offer’’ elsewhere results in undue disadvantages a class of market
condition is within the Commission’s discrimination that the Commission has participants. They cite case law that the
authority as a remedy for the unjust and an obligation to remedy. They assert D.C. Circuit found ‘‘upholds the power
unreasonable rates and undue that because wholesale customers in the of the Commission to subject approval
discrimination (refusal to sell in the mitigated market are harmed through of a set of voluntary transactions to a
mitigated control area) that are a decreased supply, increased market condition that providers open up the
consequence of the mitigated seller’s concentration, and increased prices, class of permissible users.’’ 801 Absent
accumulation of market power.793 these customers are exposed to the type relevant circumstances that render two
Several commenters reason that, similar of injury against which the FPA was sets of customers differently situated,
to imposing reporting requirements and designed to protect.797 The Carolina they assert that it is unduly
other conditions on a grant of market- Agencies also maintain that, whether or discriminatory for a public utility to sell
based rate authority, where a seller no not exporting behavior can be wholesale power to one set of customers
longer has market-based rate authority considered economically efficient, such (at market-based rates) while denying
in its home control area, the behavior results in undue service to another set (to whom sales, if
Commission may impose a ‘‘must offer’’ discrimination between (i) The made, would need to be priced at cost-
condition on the continuation of based rates). They contend there is no
794 APPA/TAPS at 37–38; APPA/TAPS reply
justification for disparate treatment in
791 See, e.g., APPA/TAPS at 40–42 (also urging comments at 8; Montana Counsel at 21–22; Carolina such a case and, therefore, the
the Commission to apply any ‘‘must offer’’ Agencies at 4–5; Carolina Agencies reply comments
at 3–4. Commission is obligated under sections
requirement to captive customers in the seller’s
transmission service area); Carolina Agencies at 10–
795 APPA/TAPS and Carolina Agencies 205 and 206 to remedy such undue
13; NRECA at 35; Montana Counsel at 19; TDU supplemental comments at 27 (citing San Diego Gas discrimination by either denying or
Systems at 19; NC Towns at 6–8 (asking the & Elec. Co. v. Sellers of Energy and Ancillary Servs. conditioning the grant of market-based
Commission to require mitigated utilities to serve Into Mkts. Operated by the Cal. Ind. Sys. Operator
and the Cal. Power Exch., 93 FERC ¶ 61,294, at
rate authority outside of the mitigated
wholesale customers in the mitigated control area
at long-term system average cost-based rates in 62,010–11 (2000) (extended-refund-period home control area. A ‘‘must offer’’
order to maintain reliability). See also condition), order on rehearing and clarification, 97 condition, they claim, would satisfy this
MidAmerican reply comments at 9–12 (arguing that FERC 61,275, at 62,243–44 (2001), order on obligation by preventing undue
the APPA/TAPS and Carolina Agencies proposals rehearing and clarification, 99 FERC ¶ 61,160
(2002), on rehearing and clarification, 105 FERC ¶
discrimination.802
suffer from significant policy flaws).
792 APPA/TAPS and Carolina Agencies 61,065 (2003), petitions for rev. granted in part sub 726. APPA/TAPS and the Carolina
supplemental comments at 4, 9–18 (citing, among nom. Bonneville Power Auth. v. FERC, 422 F.3d 908 Agencies further allege that, while it
others, 16 U.S.C. 824d(a), 824d(b), 824e(a); (9th Cir. 2005) and Public Utils. Comm’n of Cal. v. may not be unduly discriminatory for a
Associated Gas Distributors v. FERC, 824 F.2d 981, FERC, 462 F.3d 1027, 1043 (9th Cir. 2006) utility to elect to sell to the wholesale
998 (D.C. Cir. 1987)). (discussing must-offer condition)).
796 APPA/TAPS at 39 (citing Order No. 888—‘‘we
793 NRECA reply comments at 41 (citing New
798 Carolina Agencies at 6.
York v. FERC, 535 U.S. 1, 27 (2002); Transmission continue to believe that the extent to which a
799 Id. at 9.
Access Policy Study Group v. FERC, 225 F.3d 667, customer could demonstrate a reasonable
expectation of continued service at the existing 800 APPA/TAPS and Carolina Agencies
683–88 (D.C. Cir. 2000), aff’d sub nom. New York
v. FERC, 535 U.S. 1 (2002)); Carolina Agencies at contract rate (or at a cost-based rate, if that was the supplemental comments at 16 (citing FPC v.
4–5; Carolina Agencies reply comments at 2. See customer’s expectation) is best addressed on a case- Conway Corp., 426 U.S. 271, 278 (1976) to further
also Montana Counsel at 19 (citing Atlantic Ref. Co. by-case basis’’); see also Order No. 888, FERC Stats. argue that the Commission can and must take
v. Public Serv. Comm’n of N.Y., 360 U.S. 378 (1959) & Regs. ¶ 31,036, at 31,805 & n.652 (1996) account of competition at retail when determining
and United Gas Improvement Co. v. Callery (explaining that although the Commission whether such discrimination exists.)
Properties, Inc., 382 U.S. 223 (1965), two cases in determined ‘‘not to impose a regulatory obligation 801 Id. at 13 (citing Central Iowa Power Coop. v.
which the Montana Counsel claim that the Supreme on wholesale requirements suppliers to continue to FERC, 606 F.2d 1156, 1172 (D.C. Cir. 1979); and
Court, in recognition of the market power of natural serve their existing requirements customers,’’ ‘‘any quoting Associated Gas Distributors v. FERC, 824
gas producers and the public interest provisions of party claiming to be aggrieved by a utility’s alleged F.2d 981, 999 (D.C. Cir. 1987)). APPA/TAPS and
the NGA, ‘‘virtually ordered’’ the Commission to abuse of generation market power under a Carolina Agencies claim that in this case, a must
exercise its jurisdiction to condition producer wholesale requirements contract can file a offer requirement would expand the class of buyers
natural gas certificates and rate orders to limit gas complaint with the Commission under Section of the mitigated seller’s wholesale services to
prices); APPA/TAPS and Carolina Agencies 206’’); see also Montana Counsel at 22. include customers from the mitigated utility’s home
supplemental comments at 2, 18–30; NRECA 797 APPA/TAPS and Carolina Agencies control area.
supplemental comments at 6–7. supplemental comments at 19. 802 Id. at 15–16.
customer who will pay the highest Fayetteville contends that Progress energy or capacity is pre-empted by the
price, it is unduly discriminatory if the Energy’s dominant position, as well as requirements of Federal regulation.815
price differential is based upon Fayetteville’s inability to access The Carolina Agencies and NRECA add
mitigation required as a result of the alternative suppliers due to the that a ‘‘must offer’’ requirement would
seller’s market power.803 Where sellers inadequacy of Progress Energy’s serve the intended purpose of the
claim a right to seek the highest prices, transmission system, gives Progress Commission’s mitigation policy, which
APPA/TAPS and the Carolina Agencies Energy unmitigated market power.810 is to protect wholesale customers from
counter that this profit maximization 729. The Carolina Agencies add that, the exercise of actual and potential
impulse can neither justify the exercise while economic efficiency is a worthy market power, not to preserve a utility’s
of market power nor insulate it from goal in structurally sound markets ability to reduce retail rates nor its
correction.804 where participants have ready and equal ability to engage in a certain volume of
727. According to APPA/TAPS and access to meaningful choices, the idea of off-system power sales.816
the Carolina Agencies, it is also unduly economic efficiency cannot justify a 732. NRECA, APPA/TAPS and the
discriminatory for a mitigated seller to mitigated supplier’s behavior in a Carolina Agencies all set forth proposals
make market-based rate sales outside its control area where its market power in their comments for implementing a
home control area when constraints on arises from import limitations or other ‘‘must offer’’ requirement.817 NRECA
that entity’s own transmission system factors that deprive captive LSEs of suggests requiring a mitigated seller to
prevent embedded customers from viable options. Nor can, they claim, the hold an annual open season to offer
similarly accessing those markets as goal of economic efficiency trump the long-term service (one year or more), as
buyers. They argue that refusal to sell Commission’s clear duty to protect well as requiring a mitigated seller to
wholesale power supplies to embedded customers by ensuring that rates are offer shorter-term capacity and
LSE customers at fully-compensatory just, reasonable, and not unduly energy.818 While not favoring an annual
cost-based rates effectively compounds discriminatory.811 open season, APPA/TAPS and the
the de facto denial of access by 730. The Carolina Agencies dispute
Carolina Agencies each propose ‘‘must-
exacerbating both the discrimination the claim that there is no need for a
offer’’ parameters to govern short- and
and the resulting harm.805 According to ‘‘must offer’’ requirement given the
long-term sales.819 For both short- and
APPA/TAPS and the Carolina Agencies, Commission’s authority to penalize
market manipulation. They question long-term sales, the Carolina Agencies
the claim that mitigated sellers are
whether refusal to sell in the mitigated would offer captive customers an option
merely engaging in economically
market would be actionable under the between (1) Locking-in their price at the
efficient behavior ignores the market
anti-manipulation rules if there is no mitigated utility’s embedded cost rates
power that the sellers possess.806 They
obligation to offer power to embedded or (2) agreeing to have their charges
state that when captive customers have
LSEs.812 determined through an annually
few or no supply alternatives in the
731. NRECA and others ask the updated formula rate that reflects the
mitigated market and are constrained
from accessing opportunities in the Commission to reject the claim that a mitigated utility’s actual system-wide
broader market (even with open access ‘‘must offer’’ requirement would impede average costs.820 The APPA/TAPS
tariffs), and the dominant supplier sells a mitigated seller’s ability to fulfill its proposal also includes an obligation to
its excess capacity beyond the mitigated retail crediting obligations.813 NRECA offer captive customers participation on
market, the resulting reduction in responds that retail customers can proposed generation projects.821 Both
output in the mitigated market is not sometimes benefit from cost-based rates; APPA/TAPS and the Carolina Agencies
addressed simply by prohibiting the if competition reduces the market price would limit any ‘‘must-offer’’ to loads
mitigated seller from selling at to a seller’s marginal cost, no actually located in the mitigated control
unmitigated prices in the mitigated contribution to fixed costs would be area.
region.807 They conclude that it would recovered. Commenters note that not all 733. NRECA also proposes two
be unjust and unreasonable to permit or utilities are subject to rules requiring the alternatives to a ‘‘must offer’’
facilitate such withholding by allowing sharing of profits from off-system requirement. First, NRECA suggests that
unconditioned sales at market-based sales.814 NRECA argues that a utility’s the Commission give captive wholesale
rates outside a mitigated supplier’s authority to make off-system sales at customers a right of first refusal to
home control area; this would reserve market-based rates is a privilege granted purchase at a market price energy or
the benefits of competitive markets by the Commission; if the Commission capacity that the mitigated seller
exclusively to dominant public utility restricts or conditions that privilege, any proposes to sell outside the mitigated
sellers.808 obligation the public utility has under
728. A number of commenters claim State law or regulation to sell excess 815 NRECA reply comments at 38–39 (citing
that a ‘‘must offer’’ requirement is Entergy La., Inc., v. La. Pub. Serv. Comm’n, 539 U.S.
necessary due to their lack of viable 810 Id. at 6. See also Montana Counsel at 15–23 39 (2003); Miss. Power & Light Co. v. Mississippi ex
(where market power is found, sellers should be rel. Moore, 487 U. S. 354 (1988); Nantahala Power
options in mitigated control areas. For & Light Co. v. Thornburg, 476 U. S. 953 (1986)); see
required to offer power to meet the requirements of
example, Fayetteville submits that it dependent customers at cost). also Carolina Agencies reply comments at 7–8
finds itself without transmission access 811 Carolina Agencies reply comments at 9. (where a utility is satisfying a countervailing
to make short-term energy purchases to 812 Carolina Agencies reply comments at 10–11. regulatory mandate (such as a ‘‘must offer’’
obligation, it cannot be held to be violating the cost
displace its higher cost generation.809 813 See, e.g., NRECA reply comments at 37–39;
minimization duty)).
Carolina Agencies at 17 (citing April 14 Order, 107 816 Carolina Agencies at 17; Carolina Agencies
803 Id. at 30. FERC ¶ 61,018 at P 140, 154, where they claim that
reply comments at 7–8; NRECA reply comments at
the Commission rejected arguments that cost-based
804 Id. at 31. 35.
805 Id. at 30–31.
mitigation rates adversely affect retail rates, because 817 NRECA at 35; APPA/TAPS at 40–42; Carolina
such rates provide for the recovery of the mitigated
Agencies at 10–13.
806 APPA/TAPS at 6–7; Carolina Agencies reply

utility’s longer-term costs, and because the adverse
comments at 6. impact claims were ‘‘unsupported and
818 NRECA at 35–36.
807 APPA/TAPS reply comments at 6–7. 819 APPA/TAPS at 40–42; Carolina Agencies at
speculative.’’); Fayetteville reply comments at 7, 9–
808 APPA/TAPS supplemental comments at 30– 10. 10–13.
31. 814 NRECA reply comments at 38; Carolina 820 Carolina Agencies at 12–13.
809 Fayetteville reply comments at 5. Agencies at 8. 821 APPA/TAPS at 41.
market.822 The weakness of this a ‘‘must offer’’ requirement, claiming the D.C. Circuit concluded that
approach, NRECA acknowledges, is that that existing Commission statutory ‘‘ ‘[p]rofessing that an order ameliorates
it would allow the mitigated seller to authority, regulations, and enforcement a real industry problem but then citing
charge wholesale customers a supra- mechanisms already sufficiently guard no evidence demonstrating that there is
competitive price in the mitigated against the market power abuse and in fact an industry problem is not
market given that the market-based rate market manipulation concerns that reasoned decisionmaking.’’ ’ 833
outside the control area would be higher ‘‘must offer’’ proponents claim such a 740. According to Duke/Progress
than the cost-based rate in the seller’s provision is needed to prevent.827 Energy, the commenters favoring a
control area.823 737. EEI and Progress Energy claim ‘‘must offer’’ requirement ‘‘have
734. NRECA also suggests as an that when the Commission establishes a presented no evidence whatsoever to
alternative an enforceable commitment cost-based rate in a mitigated market, it support the conclusion that any
to provide sufficient additional ensures that the rate meets the just and systemic discrimination is occurring or
transmission import capacity to mitigate reasonable and not unduly that any party is suffering any actual
the generation market power. It states discriminatory requirements of sections harm under the discrimination theory
that such a commitment could be 205 and 206 of the FPA, and thus there they have posited.’’ 834 Duke/Progress
implemented by re-dispatching is no further Commission action that is Energy offer several examples where
resources, relinquishing transmission required to mitigate the indicated they have sold power to LSEs within
reservations, or physically upgrading market power.828 their control areas after the Commission
the transmission grid. This would allow 738. Several commenters that argue imposed cost-based mitigation for those
additional suppliers to make sales in the against imposition of a ‘‘must offer’’ sales as evidence that there is no basis
mitigated region, thereby mitigating the requirement state that wholesale for expecting mitigated utilities to
seller’s generation market power. customers have not presented sufficient abandon long-standing customers and
NRECA contends that this approach evidence to justify the generic ‘‘decades of intersystem coordination
would directly address the larger issue imposition of such a requirement. They and mutual assistance, whereby utilities
of the need to eliminate transmission state that there have been no specific take whatever measures are possible
bottlenecks and load pockets that give instances cited where a wholesale * * * to help their neighbors maintain
rise to generation market power.824 customer in a mitigated market was reliability.’’ 835
unable to obtain service, much less 741. A number of commenters assert
735. The Carolina Agencies also
evidence that such instances are that the Commission’s statutory
propose that mitigated utilities be
commonplace. authority to require wholesale sales
required to investigate and report on 739. Duke/Progress Energy argue that
transmission expansion or other actions under section 202(b) and 202(c) of the
the Commission must make a finding FPA is limited and cannot justify the
that could remove structural that rates or practices are unjust,
impediments causing market power. imposition of a ‘‘must offer’’
unreasonable, or unduly discriminatory requirement in this context.836 Southern
The Carolina Agencies claim that such as a predicate to taking action, and that
a requirement is consistent with the explains that the Commission has forced
in the case of a generic rulemaking, ‘‘the
Commission’s affirmative duty to power sales by a jurisdictional public
Commission’’ cannot rely solely on
remedy undue discrimination, an area utility to wholesale customers under
‘‘unsupported or abstract
in which the Commission has broad section 202(b) of the FPA only if such
allegations.’’’ 829 They cite National Fuel
authority to craft remedies.825 customers have proven they lack service
Gas Supply Corp. v. FERC,830 where the
736. Other commenters argue against alternatives. Southern states that it
D.C. Circuit, describing Tenneco Gas v.
imposition of a ‘‘must offer’’ would be unreasonable to impose a
FERC,831 stated ‘‘[t]he court [in
requirement, stating that it would generic obligation to serve at wholesale
Tenneco] ‘upheld Order 497 in relevant
encourage inefficiencies, undermine by means of a ‘‘must offer’’ requirement,
part because FERC presented an
competition, discourage investment, absent particularized findings based on
adequate justification—by advancing
and perpetuate market power. They also both (i) A plausible theoretical threat of a properly developed record that
assert that such a requirement goes anti-competitive information-sharing wholesale customers lack reasonable
beyond any cost-of-service requirement between pipelines and their marketing alternatives.837
that the Commission has ever 742. EEI agrees that the Commission’s
affiliates and (ii) vast record evidence of
adopted.826 They question the need for section 202(b) authority is clearly aimed
abuse.’ ’’832 They note that the D.C.
Circuit contrasted Tenneco with Order at individual transactions where a
822 NRECA reply comments at 36–37. No. 2004 (at issue in National Fuel), wholesale customer cannot access
823 NRECA at 36–37. MidAmerican disagrees,
where ‘‘ ‘FERC has cited no complaints supply, with ample due process
arguing that market-based prices are not by safeguards to ensure that a requirement
definition always higher than cost-based prices in and provided zero evidence of actual
the mitigated region. Rather, the Commission has abuse between pipelines and their non- to sell is truly warranted and will not
encouraged open access transmission and market marketing affiliates.’ ’’ They assert that 833 National Fuel, 468 F.3d at 843–44.
competition because economically efficient market-
based rates can be lower than cost-based rates. At 834 Duke/Progress Energy supplemental
the same time, where a price index at a trading hub reply comments at 9; NRECA reply comments at 31, comments at 23 (citing TAPS, 225 F.3d at 688,
may be lower than the seller’s incremental cost, 35, 38. (emphasis in original)); see also Xcel reply
827 See, e.g., EEI at 36; Progress Energy at 17.
MidAmerican argues that a seller should never be comments at 6–7 (parties have not provided any
828 EEI at 37; Progress Energy at 13.
required to sell at rates below its incremental cost. supporting rationale that would justify a ‘‘must
MidAmerican reply comments at 21. 829 Duke/Progress Energy supplemental coments offer’’ requirement over other potential purchasers);
824 NRECA at 37. at 21 (quoting Transmission Access Policy Study EEI supplemental comments at 3 (commenters have
825 Carolina Agencies at 16 (citing the OATT Group v. FERC, 225 F.3d 667, 688 (D.C. Cir. 2000) failed to demonstrate that there is discrimination
Reform NOPR at P 210 and n.203). (TAPS)). warranting generic action).
826 See, e.g., Xcel at 5; Progress Energy reply 830 468 F.3d 831, 840 (D.C. Cir. 2006) (National 835 Duke/Progress Energy supplemental
comments at 5. APPA/TAPS and NRECA respond Fuel). comments at 17 and n.7.

831 969 F.2d 1187 (D.C. Cir. 1992) (Tenneco). 836 See, e.g., Pinnacle at 8; EEI at 35–36; Progress
that as long as the rate is cost-compensatory, and
therefore just and reasonable, it provides an 832 Duke/Progress Energy supplemental Energy reply comments at 5, n.5; Duke reply
adequate return and the mitigated supplier is not comments at 22 (quoting National Fuel, 468 F.3d at comments at 6.
disadvantaged by making such sale. APPA/TAPS 840). 837 Southern at 60.
harm the seller.838 EEI states that the 745. MidAmerican adds that in the proceeding, Duke/Progress Energy claim
Commission cannot turn such a limited instances where a wholesale that wholesale customers are seeking a
provision into a blanket regulatory customer cannot obtain service, and superior product to that offered to other
requirement without violating the intent where an obligation to serve exists, the customers outside the mitigated control
of Congress and inappropriately Commission can address the issue in area: ‘‘a Commission-enforced right to a
bypassing these safeguards, nor is such fact-specific proceedings of individual free and unilateral call option to buy
a blanket requirement warranted.839 sellers.846 Duke suggests that the ‘‘must any available energy generated by
743. Several commenters question the offer’’ proponents have failed to [m]itigated [u]tility assets at cost-based
legal support for a ‘‘must offer’’ demonstrate why ‘‘self-supply,’’ prices, exercisable during peak periods
requirement, arguing that the FPA does including new construction and supply when market prices are high.’’ 850
not contain an express obligation to from external resources, is not a viable 747. EEI adds that the courts also
serve wholesale customers,840 and that option in at least some instances.847 recognize that the just and reasonable
neither section 205 nor section 206 of Duke states, for example, that the standard allows—and can even
the FPA authorize the Commission to Carolina Agencies submit that LSEs will require—rate differences to reflect
mandate or prohibit sales, as long as have few if any practical supply options different locations and classes of
they are made at just, reasonable, and if a mitigated supplier is not subject to customers.851 EEI and Progress Energy
non-discriminatory rates approved by a must offer requirement. However in therefore contend that, once the
the Commission.841 Duke’s view, the Carolina Agencies fail Commission has determined whether a
744. Many commenters also contest to demonstrate why ‘‘self-supply,’’ seller may sell at market-based rates or
claims that sales outside the mitigated including construction of local must use mitigated rates in various
control area at market-based rates generation by their members, is not a markets, the seller must be allowed to
constitute withholding or undue viable option in at least some instances. sell electricity at the just and reasonable
discrimination. Westar and others Nor do they demonstrate lack of ability rates approved for the different
suggest that offering generation for sale to secure supply from resources external markets.852
outside of the mitigated control area at to the control area. Duke submits that 748. MidAmerican claims that
the prevailing market price to serve even where construction of new customer concerns that a mitigated
demand does not constitute generation may not be cost-effective, seller will unduly discriminate between
withholding. They state that ‘‘self-supply’’ includes purchasing as the seller’s native load and wholesale
withholding generally refers to either well as self-build. Duke argues that lack customers in the mitigated region are
physical withholding (not offering to of an economic self-build option at a baseless because the Commission’s
sell) or economic withholding (offering given time does not relieve an LSE of its jurisdiction does not extend to a
to sell only at inflated prices), which in obligation to acquire generation comparison of retail and wholesale
either case is intended to raise prices.842 resources through alternate means such rates. MidAmerican states that while a
Duke/Progress Energy claim that ‘‘the as long-term purchases.848 seller typically has an obligation to
Commission has confirmed that it is 746. Several commenters similarly serve retail customers in a franchised
‘legitimate economically rational’ challenge the claim that choosing to service area, that obligation does not
behavior for a market participant to make sales outside the mitigated control extend to wholesale customers.
export power in order to sell at higher area at market-based rates is Therefore, MidAmerican states there is
prices outside a control area rather than discriminatory. EEI notes that not all no issue of undue discrimination
to sell at lower capped prices within a rate distinctions are prohibited by between retail and wholesale rates that
control area.’’ 843 Westar similarly section 205(b) of the FPA. It states that either requires or allows a ‘‘must offer’’
argues that, absent evidence of only undue discrimination between requirement.853
manipulation or fraud, a ‘‘ ‘seller of a 749. Xcel and others submit that
customers of the same class that is not
commodity is acting quite rationally and wholesale customers are seeking a
justified by cost of service differences,
legally to withhold his supply from the preference or entitlement through a
operating conditions, or other ‘‘must offer’’ requirement and are in fact
market if he believes that in the future
considerations is forbidden.849 In this calling for discrimination by asserting a
the commodity will command a higher
price—assuming, of course, the seller is preference to power available for sale by
Commission specifically rejected arguments that
under no legal duty to sell.’ ’’ 844 Westar ‘‘withholding for an anti-competitive purpose can a mitigated seller over all other
and E.ON U.S. reason that the only be remedied by way of a generic ‘‘must offer’’
Commission’s market behavior rules obligation,’’ stating that ‘‘[i]n fact, where a seller projects that have been treated differently.’’); see
intentionally withholds capacity for the purpose of also Badger Power Marketing Authority, 116 FERC
already address economic withholding manipulating market prices, market conditions, or ¶ 61,200 at P 10 (2006) (approving a rate that is
concerns.845 markets rules for electric energy or electricity essentially the same as the rate charged another
products, it has done so without a legitimate similarly-situated customer)).
838 EEI reply comments at 16. business purpose in violation of Market Behavior 850 Duke/Progress Energy supplemental
839 EEI at 35–36 (citing El Paso Electric Co. v. Rule 2.’’ Westar at 12 (quoting Investigation of comments at 9.
FERC, 201 FERC F.3d 667 (5th Cir. 2000)). Terms and Conditions of Public Utility Market- 851 EEI reply comments at 14–15 (citing Town of
840 MidAmerican at 18–19; EEI at 33; Southern at Based Rate Authorizations, 107 FERC ¶ 61,175 at Norwood, Massachusetts v. FERC, 202 F.3d 392 at
59; Westar at 17; Duke at 12; E.ON U.S. reply P 27 (2004) (emphasis added)). 402 (1st Cir. 2000) (‘‘[D]ifferential treatment does
comments at 1–2; Progress at 13. 846 MidAmerican at 19.
not necessarily amount to undue preference where
841 EEI at 35; Progress Energy at 13–14; E.ON U.S. 847 Duke reply comments at 10. APPA/TAPS the difference in treatment can be explained by
reply comments at 1–2; Duke reply comments at 5– responds that the Commission has recognized that some factor deemed acceptable by the regulators
6. not all LSEs can build their own generation. APPA/ (and the courts).’’); City of Vernon, California v.
842 EEI reply at 2; Duke/Progress Energy at 15. TAPS reply comments at 9 (citing April 14 Order, FERC, 983 F.2d 1089 at 1093 (D.C. Cir. 1993)).
843 Duke/Progress Energy at supplemental 107 FERC ¶ 61,018 at P 155). 852 Id. at 15; Progress Energy at 13.
comments 16 (quoting San Diego Gas & Elec. Co., 848 Duke reply comments at 10. 853 MidAmerican reply comments at 7; see also,
103 FERC ¶ 61,345 at P 63 (2003)). 849 EEI reply comments at 13–14 (citations, Duke reply comments at 6. Compare APPA/TAPS
844 See Westar at 11, n.23 (quoting United States including Wisconsin Michigan Power Co., 31 FPC reply comments at 3 (‘‘The Commission is not
v. Reliant Energy Services Co., 420 F. Supp. 2d 1445 (1964); CED Rock Springs LLC, 116 FERC ¶ called upon to decide a struggle between wholesale
1043, 1059 (N.D. Cal. 2006)); see also EEI at 36. 61,163 at P 39 (2006) (In examining potential undue and retail ratepayers, but to set a just and
845 Westar at 12; E.ON U.S. reply comments at 7. discrimination, the Commission properly focuses reasonable wholesale rate, which a Commission-
In adopting those rules, Westar submits that the on whether ‘‘there are any similarly situated approved cost-based rate surely is.’’).
purchasers, even those who value it ‘‘must offer’’ requirement could affect crediting obligations and to provide
more highly,854 and have provided no reliability by making capacity adequate and reliable service to its
evidence to justify such a preference or unavailable to meet State-established native load retail customers, which bear,
entitlement over other potential reserve margins.863 through their retail rates, the fixed costs
purchasers.855 Duke/Progress Energy 752. Xcel and Duke point out that a of the generation to serve them.872
state that customer claims that ‘‘they are ‘‘must offer’’ requirement at cost-based 756. Southern, Duke and others
victims of market power and therefore rates may result in a lost opportunity further suggest that a ‘‘must offer’’
need some specially tailored remedy’’ is cost to the seller.864 A number of requirement could undermine the
erroneous, and that ‘‘[b]y imposing cost- commenters assert that mitigation is required planning and operations
based rates * * * within their control intended to assure that selling utilities processes of utility systems purchasing
area, the Commission has fully do not benefit from the exercise of the ‘‘must offer’’ output.873 They argue
mitigated any market power market power; it is not to guarantee that a ‘‘must offer’’ requirement could
concerns.’’ 856 Xcel and others also note preferential treatment for particular bias shorter-term operating decisions
that the LSEs have no reciprocal customers to obtain below-market where, for example, an LSE has the
obligation to purchase power if a ‘‘must generation through an obligation to opportunity to purchase peak supply in
offer’’ requirement were imposed upon serve.865 real time at less than market prices,
mitigated sellers.857 753. Some commenters further thereby avoiding incurring any fixed
750. According to Duke and others, contend that a ‘‘must offer’’ requirement costs on a day-ahead basis to ensure
when a mitigated supplier sells excess would create significant wealth transfers peak supply availability.874 They
generation at market-based rates outside from mitigated sellers as a result of contend that this would eliminate
of the mitigated control area, it is arbitrage opportunities. For example, incentives for the LSEs to plan to meet
exhibiting economic behavior.858 Such wholesale customers would accept the their resource needs and shift planning
behavior encourages trading within and mitigated offer any time the ‘‘must obligations at the expense of a mitigated
across regions, making markets more offer’’ price was below the market price, utility’s native load customers.875
competitive. Similarly, Westar contends either in or outside of the mitigated 757. Another commenter is also wary
that a ‘‘must offer’’ requirement region.866 E.ON U.S. is concerned that a of a ‘‘must offer’’ requirement, reasoning
prevents markets from allocating scarce ‘‘must offer’’ requirement giving a buyer that such a requirement is normally
resources to customers who value them the option to buy power at mitigated designed to mitigate physical
the most, hindering optimal resource prices will inevitably result in external withholding. This commenter states that
allocation.859 Westar states that this is third parties negotiating with such a it may work well in an organized power
inefficient because ‘‘the highest cost buyer to obtain longer-term access to the market where an independent operator
generation may not be displaced by the mitigated power.867 ensures that the power is used to serve
seller’s lower cost energy.’’ 860 754. In addition, EEI and others argue the local needs caused by reliability or
751. EEI, Progress Energy, and others that a ‘‘must offer’’ requirement would local resource deficiency. However,
also claim that a ‘‘must offer’’ reduce competition and stifle without an independent operator, a
requirement would effectively take development by providing a ‘‘must offer’’ requirement may be more
economic benefits away from the disincentive for sellers to develop new difficult to administer.876 In advocating
mitigated utility’s retail native load and generation resources.868 New entrants for separate market policies and tests for
transfer them to wholesale customers in would be deterred from building short- and long-term markets, this
the mitigated control area.861 Some of generation due to the disparity between commenter prefers a price cap for short-
cost-based and market-based rates; 869 term products rather than a ‘‘must offer’’
these commenters claim that a ‘‘must
other sellers in the mitigated region requirement, asserting that a price cap
offer’’ requirement may result in a
effectively would be mitigated because for short-term products is preferable to
windfall for the wholesale customer
they would not be selected by buyers a ‘‘must offer’’ approach because it is
originally seeking protection from the
unless their price is below the mitigated more economically efficient, fair, and
seller’s market power at the expense of
price of the ‘‘must offer’’ easier to administer.877 For long-term
the mitigated utility and its native load
requirement.870 At the same time, EEI products, this commenter takes the
customers.862 PNM/Tucson adds that
asserts that the mitigated seller would position that, ‘‘[i]n situations where a
sales made by a utility pursuant to a
perpetuate its market power by lack of long-term transmission and/or a
854 Xcel reply at 6–7; EEI supplemental comments
increasing its capacity in the mitigated lack of long-term supply alternatives
at 4–5. control area.871 exist, it is difficult to think of an
855 Xcel reply comments at 6–7; Progress Energy 755. Progress Energy and
reply comments at 2, 4, 7–11; Duke reply comments MidAmerican add that a ‘‘must offer’’ 872 See, e.g., Progress Energy at 14–15; E.ON U.S.
at 7, n.10. requirement would impede a mitigated at 12–13; PNM Tucson at 18; MidAmerican at 21.
856 Duke/Progress Energy supplemental
seller’s ability to fulfill its retail 873 Southern at 61; Progress Energy at 16; Duke
comments at 13 (citing Duke Power, 113 FERC reply comments at 9–10; EEI reply comments at 10–
¶ 61,192 at P 22). 11.
863 PNM/Tucson at 18.
857 Xcel reply comments at 7; Progress Energy 874 Southern at 63.
864 Xcel
at 8; Duke reply comments at 3, n.4.
reply comments at 6; MidAmerican reply comments 875 Duke reply comments at 8–11. APPA/TAPS
865 Xcel at 5; EEI reply comments at 10, 12;
at 9. counters that where a ‘‘must offer’’ requirement
858 Duke at 11; Xcel at 6; Southern at 56–57; EEI Progress Energy at 14.
866 Progress Energy at 16; Westar at 16.
would not, by its own terms, obligate a seller to
reply comments at 11. build, an LSE that relied exclusively on ‘‘must
859 Westar at 13 (citing Pacific Gas and Electric 867 E.ON U.S. at 13.
offer’’ sales would be taking risks that capacity to
Company, 38 FERC ¶ 61,242 at 61,790 (1987)). 868 EEI at 37; Progress Energy at 16; MidAmerican
support those sales might no longer be available.
860 Id. (quoting Pacific Gas and Electric Company, at 22. APPA/TAPS responds that it is in fact the APPA/TAPS reply comments at 9.
38 FERC at 61,790, n.19). mitigated seller’s constrained transmission system 876 Drs. Broehm and Fox-Penner at 16–17.
861 See, e.g., EEI at 33; Progress Energy at 14, 16; that keeps LSEs captive and prevents new entry that 877 Drs. Broehm and Fox-Penner supplemental
Entergy at 2; Westar at 16; see also Dr. Pace at 24– could reduce the seller’s market power. APPA/ comments at 3. Drs. Broehm and Fox-Penner
25. TAPS reply comments at 9. advocate other approaches, such as use of a proxy
862 PPL reply comments at 14; Duke reply 869 EEI reply comments at 10.
price when transmission constraints are not binding
870 MidAmerican reply comments at 8.
comments at 2, 7–8; Progress Energy at 16; E.ON and use of default cost-based rates when they are
U.S. at 13–14; Duke at 12–13; MidAmerican at 27. 871 EEI reply comments at 10. binding.
alternative to full cost-of-service withstand scrutiny and, thus, concluded prohibition in section 222 of the FPA
rates.’’ 878 They add that these cost- the expansion was arbitrary and against market manipulation.
based rates should offer both fair prices capricious in violation of the 764. While we do not impose a
and adequate investment returns to Administrative Procedure Act.881 While generic ‘‘must offer’’ requirement in this
suppliers in the destination market with the court left open the possibility of the Final Rule, we do not rule out the
rate-of-return levels that fully enable Commission relying solely on a possibility that we might find the
incumbent suppliers to make theoretical threat of abuse, it cautioned imposition of a ‘‘must offer’’
appropriate investments to meet such that if the Commission chooses to take requirement, or some other condition on
cost-based obligations.879 that approach, ‘‘it will need to explain the seller’s market-based rate authority,
758. Entergy raises a concern that in how the potential danger * * * to be an appropriate remedy in a
the NOPR the Commission erred by unsupported by a record of abuse, particular case depending on the facts
failing to define what constitutes justifies such costly prophylactic and circumstances, as we have done in
available capacity. It asserts that there is rules.’’ 882 In addition, the court said the the past.886 We note that the
difficulty in calculating available Commission would need to explain why Commission has previously imposed a
capacity because of uncertainty individual complaint procedures were ‘‘must offer’’ requirement as a condition
regarding: (1) Loads; (2) qualifying insufficient to ensure against abuse.883 of market-based rate authority for sellers
facility puts; (3) unit performance; and in the California markets.887 There, the
(4) fuel arrangements and prices.880 762. We find here that, although
record demonstrated a problem in a
wholesale customer commenters have
Commission Determination limited geographic area that warranted a
raised theoretical concerns that they
‘‘must offer’’ remedy to prevent unjust
759. After careful consideration of the will be unable to access power absent a
and unreasonable rates from being
arguments raised by commenters, we ‘‘must offer’’ requirement, they have not
charged during certain times and under
will not impose an across-the-board provided any concrete examples of
certain conditions. If a wholesale
‘‘must offer’’ requirement for mitigated harm nor explained how the potential
customer were to present specific
sellers. While wholesale customer harm justifies the generic remedy they
evidence documenting that a
commenters have raised concerns seek. Given the lack of evidence in the
transmission provider either denied the
relating to their ability to access needed record that wholesale customers in
customer’s request for transmission
power, we conclude that there is mitigated markets will be unable to
service, in violation of the OATT, or
insufficient record evidence to support obtain power supplies at reasonable
was unreasonably delaying responding
instituting a generic ‘‘must offer’’ rates, we conclude that there is
to a request for transmission service, in
requirement. insufficient basis for instituting a
violation of the OATT, we might find
760. As discussed above, some generic ‘‘must offer’’ requirement.
the imposition of a ‘‘must offer’’
commenters argue that undue Indeed, the record includes evidence of
requirement on a transmission provider
discrimination occurs if a mitigated utilities continuing to make cost-based
to be an appropriate remedy.888 As the
seller refuses to sell power to customers sales after loss or surrender of market-
Commission recently explained in
in the mitigated balancing authority area based rate authority.884
Order No. 890, transmission providers
and instead sells that power at market- 763. In addition, consistent with the must process requests for transmission
based rates to customers outside the guidance provided in National Fuel, service ‘‘as soon as reasonably
mitigated balancing authority area. commenters advocating a generic ‘‘must practicable after receipt’’ of such
Some commenters also contend that it is offer’’ have not demonstrated that requests 889 and must post performance
unduly discriminatory for a mitigated existing procedures and remedies under metrics that are intended ‘‘to enhance
seller to make market-based rate sales to the FPA are inadequate to deal with the transparency of the study process
competitive markets outside the specific cases that may arise. To the and shed light on whether transmission
mitigated balancing authority area when contrary, we find that there are potential providers are processing request studies
constraints on that seller’s own remedies available on a case-by-case in a non-discriminatory manner.’’ 890
transmission system prevent embedded basis to a wholesale customer alleging Order No. 890 explained that ‘‘the
customers from similarly accessing undue discrimination or other unlawful revised pro forma OATT will greatly
those markets as buyers. However, these behavior on the part of a mitigated enhance our oversight and enforcement
commenters have not provided any seller. For example, a wholesale capabilities by increasing the
evidence of specific instances in which customer can file a complaint pursuant transparency of many critical functions
the harms they identify have, or are, to section 206 of the FPA. It also can
occurring. Without such evidence, we bring an action under section 202(b) of 886 If an intervenor believes a ‘‘must-offer’’
decline to impose a generic remedy the FPA.885 In addition, it can bring an requirement is the only way to mitigate market
such as a ‘‘must offer’’ requirement. action pursuant to the statutory power, it may present evidence to that effect in a
761. In National Fuel, the D.C. Circuit particular proceeding.
887 See San Diego Gas & Elec. Co., 95 FERC
vacated a final rule of the Commission, 881 National Fuel, 468 F.3d at 844. ¶ 61,418 at 62,557 (2001) (‘‘After carefully
Order No. 2004, as applicable to natural 882 Id. considering the record, the Commission reaffirmed
gas pipelines because of the expansion 883 Id. its general finding that, as a result of the seriously
of the standards of conduct to include 884 See Duke reply comments at 7 and n.10; flawed electric market structure and rules for
Progress Energy reply comments at 9–11; Duke/ wholesale sales of electric energy in California,
a new definition of energy affiliates. The unjust and unreasonable rates were charged and
Progress Energy supplemental comments at 17 and
court explained that the Commission n.7. could continue to be charged during certain times
relied on both theoretical grounds and 885 See, e.g, City of Las Cruces, New Mexico v. El and under certain conditions, unless certain
on record evidence to justify this Paso Electric Co., 87 FERC ¶ 61,220 (1999) (‘‘In our targeted remedies were implemented.’’)
888 We are not prejudging here that such facts
expansion. The court concluded that the view, section 202(b) allows the Commission to
direct a public utility to take three separate actions: warrant imposition of a ‘‘must offer’’ requirement.
Commission’s record evidence did not 889 Preventing Undue Discrimination and
(1) Establish a physical connection of its
transmission facilities with the facilities of one or Preference in Transmission Service, Order No. 890,
878 Id.
more eligible persons; (2) sell energy to eligible FERC Stats. & Regs. ¶ 31,241 at P 1296 (2007)
879 Id. (Order No. 890).
persons; or (3) exchange energy with eligible
880 Entergy at 2–3. persons.’’) 890 Id. at P 1308.
under the pro forma OATT, such as arguments. If the Commission considers significant chance that another buyer
ATC calculation and transmission imposing a ‘‘must offer’’ requirement in from within the mitigated market will
planning.’’ 891 Here too, we reiterate that an individual case, affected parties can usurp their position and instead get the
the Commission ‘‘intends to use its raise these arguments at that time. sale.
enforcement powers with respect to the 769. Though APPA/TAPS and the 773. There are also administrative
OATT in a fair and even-handed Carolina Agencies are correct that the concerns with how the Commission or
manner, pursuant to the principles set Commission has previously imposed a third parties could be certain what the
forth in the Policy Statement on ‘‘must offer’’ requirement as a condition actual price and conditions of service
Enforcement.’’ 892 of market-based rate authority for sellers would be for the sale in the first-tier
765. In addition to our conclusion in the California markets, as discussed market unless the contract was actually
that there is not sufficient record above, that holding supports our executed.
evidence to support the imposition of a approach here. There, the record 774. In response to NRECA’s
generic ‘‘must offer’’ requirement, we demonstrated a problem in a limited suggestion that an enforceable
are also concerned that adoption of a geographic area that warranted a ‘‘must commitment to provide sufficient
‘‘must offer’’ requirement would present offer’’ remedy to prevent unjust and additional transmission import capacity
a number of difficult implementation unreasonable rates from being charged to mitigate generation market power be
and logistical problems.893 during certain times and under certain considered as an alternative, the
766. For example, given the conditions. By contrast, here APPA/ Commission notes that, consistent with
difficulties associated with calculations TAPS and the Carolina Agencies urge us the April 14 Order, a seller that fails one
of available transfer capability,894 we to impose a generic remedy on all of the generation market power screens
foresee similar disputes over the mitigated sellers in all markets without is allowed to propose alternative
calculation of available generation a showing that there is a concrete mitigation that the Commission may
capacity were we to impose a generic problem justifying imposition of a deem appropriate.895 As a result, a
‘‘must offer’’ obligation. For instance, ‘‘must offer’’ requirement in all markets. mitigated seller could propose, as
how far in advance should such 770. Given that we have not adopted alternative mitigation, to provide
calculations occur—one hour, one day, a ‘‘must offer’’ requirement in this Final additional transmission capacity by, for
one month, or some other time frame? Rule, we need not, and do not, address example, committing to relinquish
Would such calculations be derived on arguments asserting that we lack legal transmission reservations or to
a generator specific basis or on a system authority to do so. If the Commission physically upgrade the transmission
basis (and how is transmission factored should adopt any such requirement in grid.896 The Commission would
in)? Would the Commission or the an individual case, affected parties can consider such proposals on a case-by-
raise any related legal arguments at that case basis. Moreover, a primary purpose
industry need to develop a standard
time and nothing in this rule precludes of Order No. 890 is to ‘‘increase the
method of calculating available
them from doing so. ability of customers to access new
generation capacity? How would 771. For many of the same reasons
available generation capacity be generating resources and promote
that we decline to impose a ‘‘must offer’’ efficient utilization of transmission by
allocated to potential purchasers? requirement, we also decline to adopt
767. We also are concerned that requiring an open, transparent, and
the ‘‘right of first refusal’’ requirement coordinated transmission planning
adopting a ‘‘must offer’’ requirement proposed by NRECA. Under this
could harm other markets. For example, process.’’ 897
approach, a wholesale customer in the 775. In particular, we believe recent
if a mitigated seller is required to offer mitigated market would be given a right
its available power first to customers in actions we took in Order No. 890
of refusal to purchase, at the market address the Carolina Agencies’ proposal
the mitigated market, such a price, power that the mitigated seller
requirement may effectively preclude that mitigated utilities be required to
proposes to sell outside the mitigated investigate and report on transmission
the mitigated seller from participating in market. For the reasons provided above,
adjoining markets particularly at times expansion or other actions that could
there is insufficient record evidence to remove structural impediments
when additional supply is most needed support imposition of such an across-
(i.e., when prices in the adjoining exacerbating market power. In Order
the-board requirement. No. 890, the Commission adopted a
market are high). Such a policy may 772. A ‘‘right of first refusal’’ also
serve to assist one set of customers at number of reforms designed to mitigate
would carry significant administrative
the expense of other customers that see transmission market power, including a
burdens. Such an approach would
their supply options reduced. requirement that all transmission
invite disputes about what constitutes a
768. Parties have asserted that legitimate offer by a third party to providers develop a coordinated, open
imposing a must offer requirement may purchase power which establishes the and transparent transmission planning
discourage long-term planning, while basis for the offered rate. There also may process that would, among other things,
others have disagreed with those be disputes if more than one wholesale enable customers to request studies
arguments. Given that we do not impose customer wants to purchase the power evaluating potential upgrades or other
any must offer obligation in this rule, in question. We are also concerned investments that could reduce
we need not and do not address these about the long-term viability of a rate congestion or integrate new resources
setting that is based on mitigated sellers and loads.898 The requests for these
891 Id. at P 1721.
892 Id.
repeatedly negotiating tentative power 895 April 14 Order, 107 FERC ¶ 61,018 at P 147,
at P 1714.
893 Because we have decided not to impose a
sale arrangements with would-be buyers 148 n.142.
generic ‘‘must offer’’ requirement in this Final Rule, in first-tier markets only to have those 896 See, e.g., Westar Energy, Inc., 115 FERC
we do not address the merits of the particular must- offers withdrawn so the sale could be ¶ 61,228, order on reh’g, 117 FERC ¶ 61,011 (2006),
offer proposals made by commenters. made to another buyer. Under such a order on further reh’g, 118 FERC ¶ 61,237 (2007)
894 OATT Reform NOPR at PP 37–41 (outlining (concerning such mitigation proposed in the
regime, buyers from outside the context of a disposition of jurisdictional facilities).
problems that result from inconsistent available
transfer capacity calculation, including missed
mitigated market may be disinclined to 897 Order No. 890, FERC Stats. & Regs. ¶ 31,241
opportunities for transactions, frequent errors, and invest resources to negotiate tentative at P 3.
undue discrimination). contracts knowing that there is a 898 Id. at P 544.
economic planning studies and the market analysis meaningless.902 where the seller does not possess market
responses will be posted on the Moreover, PNM/Tucson and power would reduce the mitigated
transmission provider’s OASIS site, MidAmerican warn that independent seller’s incentive to supply available
subject to confidentiality power producers have no incentive to power to the market, deprive the
requirements.899 We believe these steps invest in new resources in markets mitigated seller and its customers of
may assist in reducing structural where prices are effectively constrained legitimate economic rent, subsidize
impediments that contribute to market to the level of another entity’s those buyers with access to the
power. embedded costs.903 mitigated rates, and create a rationing
780. Southern asks the Commission problem among buyers with access to
b. First-Tier Markets not to impose mitigation that will create the mitigated-rate power.909
Commission Proposal flaws in markets that may have periods 782. MidAmerican states that, if the
of genuine temporary scarcity but where Commission were to eliminate a seller’s
776. In the NOPR, the Commission market-based rate authority in all
the seller does not possess market
sought comment on whether it is regions, the mitigated prices should
power.904 Southern states that
appropriate to continue to allow sellers only apply prospectively. MidAmerican
prohibiting a mitigated seller from
that are subject to mitigation in their reasons that existing transactions
responding to price signals in
home control area to sell power at negotiated in the absence of market
neighboring markets will adversely
market-based rates outside their control power should not be altered, since these
affect efficient resource development
area. The Commission asked if this previously-negotiated transactions
and contradicts the Commission’s desire
represents undue discrimination or would have no impact on a seller’s
to promote competitive markets and
otherwise constitutes ‘‘withholding’’ in willingness to make future sales to
resource adequacy.905 Further,
the home control area that is customers in the home control area.910
foreclosing markets otherwise accessible
inconsistent with the FPA’s mandate 783. Other commenters oppose
to resources nominally dedicated to
that rates be just, reasonable and not allowing mitigated sellers to sell at
native load service may impair the
unduly discriminatory, or, instead, if market-based rates outside the home
optimization of those resources by
this reflects economically efficient control area on the basis that it
impairing a full response to price
behavior and encourages necessary encourages and provides incentives for
signals. This, Southern adds, would
trading within and across regions, the seller to engage in physical or
harm native load customers because the
particularly in peak periods when economic withholding of its generation
mitigated utility would be unable to
marginal prices rise above average output in the home control area. These
optimize surplus resources, as
embedded costs. commenters indicate that their concerns
mandated through State retail credit
777. The Commission also asked if it in this regard would be addressed if
obligations, thereby depriving retail
should find that any seller that has lost mitigation is combined with a
customers of the benefits of system
market-based rate authority in its home requirement that the mitigated seller
optimization.906
control area should be precluded from 781. Another commenter agrees that a make power available to customers
selling power at market-based rates in mitigated seller should be allowed to within the mitigated control area.
adjacent (first tier) control areas. sell available capacity at market-based APPA/TAPS state that, absent a ‘‘must
Comments rates in markets where that seller does offer’’ requirement, it is not clear that
not possess market power, provided that prohibiting mitigated sellers from
778. A number of commenters state this does not raise prices in the making market-based sales outside their
that there is no basis for prohibiting a mitigated region.907 This commenter home control areas would necessarily
mitigated seller from selling excess asserts that such sales facilitate regional prompt the mitigated seller to sell
power at market-based rates in adjacent trading and market efficiency in power in its home control area.911
control areas, as the Commission will developing competitive markets.908 784. However, APPA/TAPS ask the
have determined that the seller does not Another commenter contends that Commission not to rule out across-the-
have the ability to exercise market unless ‘‘costs’’ are defined in a way that board revocation of market-based rate
power in any of those adjacent control effectively allows competitive market authority as it may be necessary to
areas.900 Some commenters also claim rates to be charged, revoking a seller’s motivate mitigated sellers to undertake
that prohibiting these sales would limit market-based rate authority in markets the kind of structural measures needed
market activity and constrain the to mitigate market power on a long-term
benefits of competitive pricing by 902 PNM/Tucson at 19–20. basis. If the Commission adopts a policy
excluding sellers from markets in which 903 MidAmerican at 22, PNM/Tucson at 17. to revoke or condition market-based rate
they do not possess market power.901 904 Southern at 64–65. authority beyond the home control area,
779. PNM/Tucson contends that 905 Id. at 57.
APPA/TAPS state that the policy should
prohibiting sales of available capacity at 906 Id.
not be limited to just the first-tier
907 Drs. Broehm and Fox-Penner at 16. The
market-based rates in adjacent control control area. Rather, the revocation or
NYISO also supports market-based rate sales in
areas where the seller does not possess competitive markets where the mitigated seller does conditions should apply to any market
market power would be a not possess market power. According to the NYISO, where the seller can use generation
disproportionate response that would with regard to the NYISO, PJM Interconnection, located in or originally delivered to its
render the Commission’s market-by- LLC and ISO-New England, the Commission can control area to sell outside that
ensure that sellers respond to market price signals
by designing market power mitigation in a manner mitigated area.912
899 Id. at P 546 (to be codified at 18 CFR
that will permit even mitigated sellers to receive the 785. The Carolina Agencies state that
37.6(b)(2)(iii)). applicable market clearing price. For example, any a generic prohibition on market-based
900 Ameren at 18–19; see also Duke at 12 (citing cost-based rate mitigation imposed could limit the rate sales outside the mitigated market
Florida Power Corp., 113 FERC ¶ 61,131 at P 24 maximum bids that the seller may submit without
(2005)); Southern at 56; PNM/Tucson at 19–20 ; limiting the revenues that the mitigated seller may
909 Dr. Pace at 21.
Xcel at 5–6; EEI at 33; and PPL reply comments at receive. NYISO at 10.
910 MidAmericanat 23.
15–16. 908 Drs. Broehm and Fox-Penner at 16. See also
901 MidAmerican at 22–23; PPL at 24–25; EEI at 911 APPA/TAPS at 43.
PPL at 24; MidAmerican at 17; E.ON U.S. at 12–13;
28. EEI at 28; Duke at 11. 912 APPA/TAPS at 43–44.
appears likely to inhibit regional trade of the portfolio covered by the limitations on a mitigated seller’s ability
to a greater extent than is necessary to Commission’s market power finding, to sell at market-based rates in balancing
protect the interests of embedded regardless of where the actual sale authority areas in which the seller has
LSEs.913 Both the Carolina Agencies and sinks.917 Morgan Stanley asserts that not been found to have market power.
NC Towns state that there is no clear effective mitigation can only occur if it 791. The Commission authorizes sales
need to prohibit mitigated sellers from is imposed on all sales from a mitigated of electric energy at market-based rates
making market-based sales outside their supplier’s generation portfolio and urges if the seller and its affiliates do not
home control areas if a ‘‘must offer’’ the Commission not to focus on who the have, or have adequately mitigated,
requirement is adopted.914 According to purchaser is or where the power horizontal and vertical market power in
the Carolina Agencies, a mitigated seller sinks.918 If a mitigated seller chooses to generation and transmission, and cannot
should be free to engage in market-based offer its excess power only outside the erect other barriers to entry. As the
rate sales in other control areas as long mitigated region and simply refuses to Commission has explained, ‘‘The
as that utility has provided embedded sell inside its home market, Morgan consideration of market power is
LSEs a reasonable opportunity to Stanley is concerned that the market in important in determining if customers
purchase capacity and/or energy. the ‘‘home’’ territory would be even less have genuine alternatives to buying the
786. As to any claim that it would be competitive than if the seller were seller’s product.’’ 921 Commenters
unduly discriminatory for the allowed to sell there on an unmitigated favoring revocation of a mitigated
Commission to deny or condition the basis.919 seller’s market-based rate authority in
market-based rate authority of a utility 789. CAISO states that, where a markets where there has been no finding
that passes the screens in markets competitive supply of imports into a of market power, as well as those
beyond its mitigated home control area, mitigated control area does not exist, supporting broadening mitigation to
APPA/TAPS and the Carolina Agencies market power mitigation mechanisms or first-tier markets, have not provided a
submit that mitigated sellers are not other incentive schemes will be sufficient legal basis for such a policy.
similarly-situated to the other utilities necessary to ensure that the local Where the record demonstrates that a
selling at market-based rates in those supplier makes all of its capacity seller does not have market power in a
other competitive markets. They assert available to supply energy and ancillary market, or has adequately mitigated any
that other sellers’ market-based rate services to the home control area.920 market power, the Commission has
sales do not implicate those sellers’ CAISO asks the Commission to provide authorized such a seller to transact
ability to withhold supply from greater clarity on the extent to which the under market-based rates.922 As the
disfavored wholesale customers in a antifraud and anti-manipulation rules April 14 Order explained, ‘‘Market-
mitigated control area. Moreover, they adopted in Order No. 670 prohibit based rates will not be revoked and cost-
argue that it elevates the importance of economic and physical withholding of based rates will not be imposed until
the screens above the FPA to argue that resources. In particular, CAISO asks the there has been a Commission order
granting unconditioned market-based Commission to provide greater clarity making a definitive finding that the
rate authority to one seller who passes on the deceptive conduct criteria it applicant has market power * * *’’ 923
the screens obligates the Commission to would use to determine whether a 792. We recognize that wholesale
grant unconditioned authority to all particular case of physical or economic customer commenters are generally
who pass the screens. In their view, the withholding would be a violation of the concerned that allowing mitigated
Commission would be failing its duty new Part 47 regulations. CAISO sellers to sell outside their mitigated
under the FPA if it permitted physical explains that greater clarity in this area markets at market-based rates could
withholding by a dominant utility, as will help ISO and RTO market monitors encourage such sellers not to offer
such actions would be unjust, in developing effective RTO/ISO market generation for sale within the mitigated
unreasonable, and unduly power mitigation rules tailored for the market. However, we agree with the
discriminatory.915 types of physical and economic Carolina Agencies that a generic
787. ELCON advocates suspending prohibition against such sales could
withholding that are not addressed
any mitigated seller’s market-based rates inhibit regional trade to a greater extent
under Part 47 regulations.
in all markets it can access. Short of this than necessary to protect captive LSEs.
long-term fix, ELCON asserts that other Commission Determination We note that even some wholesale
proposals such as ‘‘must offer’’ 790. After careful consideration of the customer commenters acknowledge that
requirements will be prone to fail arguments raised by commenters, we it is not clear that prohibiting mitigated
because of likely unintended will retain our current policy and limit sellers from making market-based sales
consequences.916 mitigation to the market in which the beyond their mitigated region would
788. Morgan Stanley favors requiring seller has been found to possess, or prompt the mitigated seller to sell
mitigated sellers to post the mitigated chosen not to rebut the presumption of, power in the mitigated market. For these
price and other material terms on a market power. We will not place reasons, we limit mitigation to the areas
publicly-available Web site for all sales in which the seller has market power.
to be made from the units that are part 917 Morgan Stanley at 7; Morgan Stanley reply 793. For the reasons stated above, we
comments at 6. disagree with Morgan Stanley’s
913 Carolina Agencies at 19. 918 Morgan Stanley reply comments at 6. The
914 Id.
assertion that effective mitigation can
at 18–19; NC Towns at 7. Oregon Commission responds that such broad
915 APPA/TAPS and Carolina Agencies mitigation would not benefit wholesale customers only occur if it is imposed on all sales
supplemental comments at 36–37. NRECA adds that in the mitigated region and would harm the from a mitigated seller’s generation
‘‘the FPA does not bar—as unduly discriminatory— supplier’s native retail load by transferring wealth portfolio. In addition, though we
Commission imposition of remedies in a non- to marketers like Morgan Stanley. Oregon appreciate CAISO’s request for greater
discriminatory fashion, including banning sales Commission reply comments at 4; see also
clarity on the criteria the Commission
outside the mitigated market: the statute protects MidAmerican reply comments at 13–14 (arguing
buyers, not sellers, from undue discrimination.’’ that Morgan Stanley’s proposal would be an
NRECA reply comments at 41; see also Carolina arbitrary and capricious redistribution of income 921 Louisville Gas & Elec. Co., 62 FERC at 61,144.
Agencies at 16 (citing the OATT Reform NOPR at and allow windfall arbitrage profits). 922 Florida Power Corp., 113 FERC ¶ 61,131 at P
P 210 and n.203). 919 Morgan Stanley at 6. 24.
916 ELCON at 11. 920 CAISO at 16. 923 April 14 Order, 107 FERC ¶ 61.018 at P 149.
will use to determine whether economic those sales do not ‘‘sink’’ in the requirement in place, there is no reason
and physical withholding has occurred, mitigated market, other commenters to bar market-based rate sales based on
such a determination must be made on support the current policy of requiring the location of the point of sale or even
a case-by-case basis. all of a mitigated supplier’s sales in the the identified sink.929
mitigated market to be cost-based. The 800. Other commenters support
c. Sales That Sink in Unmitigated allowing sales of power within a
State AGs and Advocates go even
Markets mitigated market that nonetheless sink
further and encourage the Commission
Commission Proposal to apply its mitigation policy to all in unmitigated markets (i.e., markets
794. In the NOPR, the Commission wholesale sales that sink in the where the seller does not possess market
stated that some companies have mitigated market, regardless of the power) to be made at market-based
proposed limiting mitigation to sales seller, arguing that the impact of market rates.930 As discussed below, they offer
that ‘‘sink in’’ the mitigated market, that power on price is market-wide in various proposals on what factors
is, so that mitigation would only apply scope.926 should determine whether a sale should
to end users in the mitigated market. 797. APPA/TAPS support the current be priced at market-based rates.
However, in MidAmerican Energy policy of requiring cost-based rate 801. Several commenters state that the
Company,924 the Commission stated mitigation for all sales in the mitigated relevant inquiry should be whether the
that limiting mitigation to sales that market regardless of whether the sales power serves load (sinks) in a control
‘‘sink in’’ the mitigated market would ultimately sink in an unmitigated area where generation market power is
improperly limit mitigation to certain market. APPA/TAPS argue that allowing an issue. MidAmerican and the Oregon
sales, namely, only to sales to buyers market-based rate sales in a mitigated Commission submit that there is no
that serve end-use customers in the market would yield unlawful rates reason to mitigate sales over which the
mitigated market. The Commission because the mitigated seller would be seller is unable to exercise market
reasoned that limiting mitigation in this making market-based rate sales in a power.931 Rather, MidAmerican asks the
manner would improperly allow market where it has, or is presumed to Commission to refocus on whether a
market-based rate sales within the have, market power.927 seller could exercise market power, not
mitigated market to entities that do not 798. The NYISO agrees that mitigation on the physical location where a change
serve end-use customers in the should not be limited to sales that ‘‘sink in ownership of energy occurs.
mitigated market.925 The Commission in’’ the mitigated market, at least in MidAmerican argues that if a mitigated
stated that such a limitation would not clearing price auctions such as those seller cannot exercise market power
mitigate the seller’s ability to attempt to administered by the NYISO. The over sales made directly in an outside
exercise market power over sales in the clearing prices are established by the competitive market, such seller cannot
mitigated market and is inconsistent interaction of all eligible buyers and exercise market power over sales made
with the Commission’s direction in the sellers, and the NYISO reasons that in its home control area that are for
April 14 and July 8 Orders. On there would be no practical basis, nor export to that outside competitive
rehearing of the April 14 Order, it was economic justification, for carving out market.932 Rather than protecting the
argued that access to power sold under marketers or brokers who may export ultimate buyers, these commenters
mitigated prices should be restricted to their purchases.928 submit that mitigating such sales would
buyers serving end-use customers 799. The Carolina Agencies express transfer wealth from the mitigated seller
within the relevant geographic market concern that limiting mitigation to sales to subsequent entities that can charge
in which the seller has been found to that sink in a mitigated market would market prices in later transactions.933
have market power. In particular, reduce supply options for LSEs 802. MidAmerican and the Oregon
embedded in that mitigated market. Commission claim that if the
arguments were made that a seller
They contend that unrestricted exports Commission requires mitigated sellers
should not be required to make sales at
from a mitigated market increase the to mitigate all their sales in the
mitigated prices to power marketers or
prices charged by other sellers due to mitigated market such an outcome
brokers without end-use customers in
scarcity. Even when a sale sinks outside would encourage gaming, such as
the relevant market. In the July 8 Order,
the mitigated market, the Carolina round-trip or ricochet transactions.934
the Commission rejected the suggestion
Agencies claim that round-trip gaming MidAmerican maintains that such
that mitigated sellers be restricted to
will continue, and they question the gaming can be eliminated when
selling power only to buyers serving
Commission’s ability to effectively mitigation applies only to sales sinking
end-use customers, and has since
detect and stop such gaming by within the mitigated control area.935
rejected tariff language that proposes to
attempting to trace megawatts via NERC 803. Duke, E.ON U.S., Westar, Mid-
do so. tag data or other means. However, the
795. In the NOPR, the Commission American, Ameren, and Xcel all assert
Carolina Agencies submit that with a that the availability of supply
sought comment on whether it should
properly structured ‘‘must offer’’ alternatives to wholesale purchasers
modify or revise its current policy. The
Commission sought comment on 926 State
should be a determining factor when
AGs and Advocates at 43–44.
whether and, if so, how it should allow 927 APPA/TAPS at 47–48. To limit marketers’
deciding whether to permit market-
market-based rate sales by a mitigated arbitrage opportunities, APPA/TAPS suggest based rates for sales that sink in
seller within a mitigated market if those limiting any ‘‘must offer’’ obligation to sales that
sales do not ‘‘sink’’ in that control area. sink in the seller’s control area. The seller could 929 Carolina Agencies at 20.
make additional sales in its control area at the cost- 930 See,
e.g., PPL reply comments at 16.
Comments based rate, but would not be obligated to do so 931 MidAmerican at 26; Oregon Commission reply
because purchasers for loads outside of the seller’s
comments at 5; see also Westar at 20.
796. While some commenters control area would presumably have other power 932 MidAmerican at 25–26; see also Dr. Pace at
generally seek to allow a mitigated seller supply options.
928 NYISO at 8–10. The NYISO suggests that the 18–20.

to make sales at market-based rates if 933 MidAmerican at 26; Oregon Commission reply
Commission can avoid concerns regarding exports
to neighboring markets by applying any cost-based comments at 5.
924 114 FERC ¶ 61,280 at P 29–33 (2006), reh’g 934 MidAmerican at 26–27; Oregon Commission
mitigation it imposes to limit the maximum bids
pending (MidAmerican). that the seller may submit, without limiting the reply comments at 6.
925 Id. at P 31. revenues that the mitigated seller may receive. Id. 935 MidAmerican at 27.
unmitigated markets.936 E.ON U.S. Westar claims that the July 8 Order points inside the mitigated market and
points out that the Commission in the appears to address the question of who do not move the power out will pay
April 14 Order noted that the may buy power from a mitigated seller, mitigated rates, but buyers who choose
foundation of the market power analysis not where mitigated sales can occur. delivery points inside the mitigated
under the Delivered Price Test is the This leads Westar to conclude that the market but move the power outside the
‘‘destination market.’’ As such, E.ON Commission did not originally intend to mitigated market will pay market-based
U.S. asserts that a relevant factor in preclude mitigated sellers from making rates.946
determining whether to permit a sale at market-based sales to buyers over which 809. EEI asserts that its proposal is
market-based rates should be the level the seller lacks generation market consistent with the Commission policy
of choice in supply available to the power, regardless of where the sales that the mitigation must focus on the
purchaser, not where the product occur. Westar urges the Commission to geographic market that is mitigated, not
originates.937 return to this principle.942 the type of customer purchasing the
804. Westar contends that when the 807. Xcel urges the Commission to power. EEI concludes that the proposal
buyer is purchasing to serve load in focus on the parties’ intent and whether will minimize the impacts on
control areas where the seller lacks alternative supply options are available competitive transactions as well as
market power, the buyer presumably to the purchaser at the time of avoid a remedy that will have a negative
has access to other competitive contracting, rather than focusing on impact on the liquidity of the
alternatives and has voluntarily entered where energy purchased in the competitive market.947
into the agreement. Therefore, the transaction actually sinks in real time. 810. PNM/Tucson agree that the
Commission should not second guess At the time of the transaction, if the Commission should use the point of
the buyer’s decision.938 Westar adds purchaser can confirm: (i) It intends to delivery as a determining factor. They
that prohibiting all sales in the use the power outside of the mitigated contend that transmission tags alone—
mitigated control area elevates form control area, and (ii) there are existing which they explain are a reliability tool
over substance because parties can transmission arrangements to actually to ensure systems balance from a
simply alter the implementing details of use the power elsewhere, Xcel transmission perspective—are
their transaction to accomplish the same maintains that it should not matter what inadequate to monitor market
result.939 the purchaser subsequently does with transactions or ensure that sales sink
805. Westar argues that the the power in real time.943 Xcel and outside a mitigated control area.948
Commission’s stated concern in MidAmerican also favor adopting 811. PNM/Tucson, Pinnacle, E.ON
MidAmerican with a seller’s ‘‘ability to market-index or proxy based mitigation U.S., MidAmerican and PPL all
attempt to exercise market power over as a way to reduce the concern about generally argue that sales at or beyond
sales in its control area’’ is misplaced; where sales actually sink when trying to the transmission interface of a mitigated
the Commission’s traditional market ensure proper mitigation.944 control area should not be mitigated if
power analysis is only concerned with 808. EEI, PPL, PNM/Tucson, and the seller lacks market power in the
the ‘‘incentive’’ and ‘‘ability’’ to exercise Pinnacle take the position that the adjacent control area.949 MidAmerican
market power, not with ‘‘attempts’’ to Commission should consider point of asserts that the Commission’s market
do so.940 As such, it is ‘‘ability’’ and not delivery when deciding whether to power analyses demonstrate that the
‘‘attempts’’ to exercise market power permit market-based rate sales.945 EEI seller has no market power over sales at
that is a key determinant of whether an asks the Commission to allow mitigated the border (sales requiring no additional
actual market power problem exists. sellers to make market-based rate sales transmission to exit the mitigated
806. Westar further claims that the if the delivery point in the contract or region).950 PNM/Tucson, Pinnacle and
Commission is not bound by precedent sale confirmation is outside the E.ON U.S. maintain that prohibiting
to prohibit all market-based rate sales in mitigated market, or if the buyer has market-based rate sales at these
a mitigated control area, pointing out transmission service to take the power transmission interfaces would prevent
that the Commission has accepted four outside the mitigated market. In other cross border sales at these unique
proposals after the July 8 Order that words, buyers who choose delivery locations and reduce market liquidity in
limit mitigation to sales that sink in the markets where the seller does not
mitigated control areas.941 Moreover, (Jan. 13, 2006) (letter order accepting uncontested
possess market power.951
settlement applying mitigation to sales that sink in 812. E.ON U.S. and MidAmerican
936 Duke at 13; E.ON U.S. at 6; Westar at 20;
the mitigated control area); AEP Power Marketing, urge the Commission to view interface/
MidAmerican at 25; Ameren at 19–20; and Xcel at Inc., 112 FERC ¶ 61,320 (2005) (dismissing border transactions as fundamentally
13. rehearing requests as moot because of utility’s
937 E.ON U.S. at 6. commitment to mitigate sales ‘‘that sink within
different from sales in, or sinking in, a
938 Westar at 20. AEP-SPP’’); South Carolina Electric and Gas control area. These commenters reason
939 Id. at 21. Company, 114 FERC ¶ 61,143 (2006) (order that, at transmission interfaces, a buyer
940 Id. at 21 (citing MidAmerican Energy accepting utility’s commitment to mitigate sales has competitive choices from sellers in
that ‘‘sink’’ in its home control area, subject to a
Company, 114 FERC ¶ 61,280 (2006), reh’g pending;
compliance filing); LG&E Energy Marketing, Inc.,
both control areas that abut the
Exelon Corp., 112 FERC ¶ 61,011, at P 134 (‘‘As we interface, as well as from any seller that
have said in numerous contexts, we are concerned 113 FERC ¶ 61,229 (2005) (ordering the utility to
about a merger’s effect on the merged firm’s ability apply the proposed mitigation to sales that sink in can transmit power to that interface
and incentive to harm competition.’’), order on the mitigated control area)). from any control area. As a result,
942 Westar at 22–23.
reh’g, 113 FERC ¶ 61,299 (2005); Oklahoma Gas buyers taking title to power at a
943 Xcel at 13. While MidAmerican does not
and Electric Company, 105 FERC ¶ 61,297, at P 35
(2003) (‘‘Both the ability and incentive to raise object to Xcel’s proposal, it submits that its own 946 EEI
proposal regarding use of market-based indices at 38.
prices by restricting access are necessary for a 947 EEI
vertical market power problem to exist.’’); NiSource would provide additional assurance that a seller at 41.
948 PNM/Tucson at 14–15.
Inc., 92 FERC ¶ 61,068, at 61,239 (2000) (‘‘Because would not manipulate prices by arranging round-
the merged company must have both the ability and trip transactions into a mitigated control area. 949 PNM/Tucson at 16; Pinnacle at 8–9; E.ON U.S.
incentive to adversely affect electricity prices or MidAmerican reply comments at 19–20. at 5–8; MidAmerican at 29–30; PPL reply comments
output, and the merged company will lack the 944 Xcel at 11–138; MidAmerican reply comments at 16.
former, no further findings are necessary.’’)). at 4. 950 MidAmerican at 29–30.
941 Id. at 22 (citing American Electric Power 945 EEI at 38; PPL at 25 (supporting EEI’s 951 PNM/Tucson at 16; Pinnacle at 8–9; E.ON U.S.
Service Corp., Docket Nos. ER96–2495–026, et al. comments); Pinnacle at 9; PNM/Tucson at 14–15. at 8.
transmission interface for delivery possess market power.959 Dalton commenters have noted the complex
outside the mitigated control area have Utilities asks the Commission to administrative problems that would be
competitive choices that do not require grandfather existing long-term market- associated with trying to monitor
transacting with the supplier found to based wholesale contracts in the final compliance with such a policy.963
have market power within the mitigated rule.960 819. Allowing market-based rate sales
control area(s).952 Moreover, E.ON U.S. 816. The Carolina Agencies add that by a seller that has been found to have
claims that mitigating transactions at the effect on existing contracts of a market power, or has so conceded, in
control area interfaces could reduce a decision to retain the current mitigation the very market in which market power
utility’s profits from off-system sales, policy of prohibiting sales at market- is a concern is inconsistent with the
thereby affecting retail ratepayers by based rates in a mitigated market should Commission’s responsibility under the
reducing offsets that affect the costs of be determined on a case-by-case basis. FPA to ensure that rates are just and
their retail rates.953 These entities reason that simply reasonable and not unduly
813. PNM/Tucson, Pinnacle, E.ON because market power may exist (or a discriminatory. While we generally
U.S., and MidAmerican note that the presumption that it exists has not been agree that it is desirable to allow market-
Commission indicated in LG&E that rebutted) does not in every instance based rate sales into markets where the
sales at the border need not be mitigated mean that the seller actually abused its seller has not been found to have market
along with sales ‘‘wholly in’’ a control market position to extract unreasonable power, we do not agree that it is
area.954 PNM/Tucson and MidAmerican terms from its purchaser. The reasonable to allow a mitigated seller to
urge the Commission to codify in the circumstances of each contract must be make market-based rate sales anywhere
Final Rule LG&E’s holding that sales at examined to determine whether its within a mitigated market. It is
the transmission interface of a mitigated terms reflect the exercise of market unrealistic to believe that sales made
control area are not ‘‘in’’ the control power. The Carolina Agencies and anywhere in a balancing authority area
area, and therefore need not be Dalton Utilities conclude that generic can be traced to ensure that no improper
mitigated.955 E.ON U.S. similarly asks abrogation or reformation of existing sales are taking place. Such an approach
the Commission to define sales ‘‘in’’ a agreements is neither warranted nor would also place customers and
control area as those where title to consistent with the Commission’s competitors at an unreasonable
power transfers at a physical location manner of resolving other claims of disadvantage because the mitigated
wholly within such control area, and broad-based discrimination.961 seller has dominance in the very market
should not include sales where title Commission Determination in which it is making market-based rate
transfers at a transmission interface.956 sales.
814. Xcel, in comparison, argues that 817. In order to protect customers 820. However, we do recognize that
any buyer purchasing power at a from market power concerns, we will sales made at the metered boundary for
generator bus or elsewhere in a continue to apply mitigation to all sales export do lend themselves to being
mitigated control area for purposes of in the balancing authority area in which monitored for compliance, and the
moving that power out of the mitigated a seller is found, or presumed, to have nature of these types of sales do not
market should be treated no differently market power. However, as discussed unduly disadvantage customers or
than a buyer who takes delivery of below we will allow mitigated sellers to competitors. Prohibiting market-based
purchased power outside of the make market-based rate sales at the rate sales at these metered boundaries of
mitigated region. According to Xcel, metered boundary 962 between a the balancing authority area could
mitigation to discipline market power is mitigated balancing authority area and a prevent or adversely impact cross
unnecessary in either of these cases and balancing authority area in which the border sales at these unique locations
the location of the delivery point does seller has market-based rate authority and reduce market liquidity in markets
not matter.957 under certain circumstances. where the seller does not possess market
815. Both Dalton Utilities and the 818. Commenters advocating allowing power. Buyers taking title to power at a
Carolina Agencies state that it would be market-based rate sales in a mitigated metered boundary for delivery to serve
wrong to assume that every contract market provided the power is intended load in a balancing authority area where
involving a mitigated supplier is unjust for an unmitigated market (e.g., the seller has market-based rate
and unreasonable and must be applying mitigation only to sales that authority have competitive choices and
abrogated to protect consumers.958 sink in the mitigated market) have failed therefore are not required to transact
Dalton Utilities urge the Commission to to adequately explain how customers in with the seller found to have market
clearly state in the final rule that it does the mitigated market would be protected power within the mitigated balancing
not generically abrogate existing long- from the potential exercise of market authority area(s).
term market-based rate wholesale power. In addition, commenters have 821. Accordingly, we will allow such
requirements and transmission failed to adequately address how the sales to be made at market-based rates.
contracts, nor is it requiring such Commission could effectively monitor Mitigated sellers making such sales
abrogation in subsequent proceedings such sales to ensure that improper sales must maintain for a period of five years
that revoke the market-based rate were not being made. Indeed, several from the date of the sale all data and
authority of a public utility found to information related to the sale that
959 Dalton
Utilities reply comments at 6, 9.
960 Id.
demonstrates that the sale was made at
at 6–7. Duke notes its support for the
952 E.ON U.S. at 6; MidAmerican reply comments
Commission’s current policy of not reforming or the metered boundary between the
at 22–23. mitigated balancing authority area and a
953 E.ON U.S. at 8.
abrogating contracts that were negotiated prior to
954 PNM/Tucson at 16; Pinnacle at 8–9; E.ON U.S.
the time of any finding of market power. Duke reply balancing authority area in which the
comments at 8, n.12. seller has market-based rate authority,
at 8; MidAmerican reply comments at 23. 961 Carolina Agencies at 23; Dalton Utilities reply
that the sale is not intended to serve
955 PNM/Tucson at 16; MidAmerican reply

comments at 7–9.
comments at 23. 962 North American Electric Reliability load in the seller’s mitigated market,
956 E.ON U.S. at 5.
Corporation. Glossary of Terms Used in Reliability
957 Xcel at 12.
Standards at 2 (2007), available at ftp:// 963 For example, PNM/Tucson note that
958 Dalton Utilities reply comments at 4–9; www.nerc.com/pub/sys/all_updl/standards/rs/ transmission tags alone are inadequate to monitor
Carolina Agencies at 22–23. Glossary_02May07.pdf. market transactions. PNM/Tucson at 14–15.
and that no affiliate of the mitigated contrivances, and are therefore mitigated seller’s control area.971
seller will sell the same power back into prohibited activities under this Final MidAmerican argues that its approach
the mitigated seller’s mitigated market. Rule, subject to punitive and remedial correctly focuses on whether the
822. Such an approach properly action.’’ 966 Such fraud and mitigated seller could exercise market
balances commenters’ concerns that manipulative conduct therefore remains power over transactions that affect
when a buyer purchases power to serve prohibited and subject to the entities that purchase on behalf of, or for
load in markets where the mitigated Commission’s anti-manipulation and re-sale to, loads within the market
seller lacks market power the buyer has civil penalty authority. subject to mitigation, rather than the
access to competitive alternatives with geographical location where customers
d. Proposed Tariff Language
the Commission’s obligation under the may take responsibility for transmitting
FPA to ensure that rates are just and Comments the power to a final destination.
reasonable. Further, we find that our 825. Several commenters have Moreover, MidAmerican claims that its
approach in this regard does not place proposed specific tariff language in the proposal would allow the market to
an unreasonable burden on the event the Commission allows market- work efficiently in areas where the
customer, mitigated seller, or based rate sales in the mitigated market mitigated seller’s ability to exercise
competitors. We also emphasize that the or at the border. For example, PNM/ market power is not an issue.
mitigation we adopt herein is Tucson would require a sale to ‘‘have a MidAmerican supports a Commission
prospective only. In response to contractual point of delivery at or technical conference to further explore
Dalton’s concern, we clarify that such beyond the transmission interface of the this concept with interested parties.972
mitigation does not modify, abrogate, or mitigated control area (assuming that 828. Several commenters further
otherwise affect existing contractual the point of delivery is not in another propose that mitigated sellers be
agreements.964 control area where the seller is also required to add language to their
823. Further, we disagree with the mitigated).’’ 967 They would also require market-based rate tariffs or to specific
Carolina Agencies’ contention that short the seller’s market-based rate tariff to market-based rate contracts to restrict
of a ‘‘must-offer’’ provision unrestricted explicitly prohibit efforts to collude re-sales from sinking in the mitigated
exports from a mitigated market with a third party to sell to customers control area.973 FP&L argues that
increase the prices charged by other in the mitigated control area at market- requiring such language would reinforce
suppliers due to scarcity. Carolina based rates.968 the idea that re-sales into mitigated
Agencies’ argument would only apply 826. PNM/Tucson point out that their control areas are violations of a
when the market prices in the first-tier proposal contains a significant Commission-approved tariff that also,
markets are higher than the seller’s cost- concession. Under their proposed depending on the facts, might violate
based rate in the mitigated market. This language, a sale by a mitigated seller at the Commission’s market manipulation
situation is not necessarily always the the generation bus in the mitigated regulations.974
case and, therefore, the Carolina control area must be made at mitigated 829. Another commenter agrees that
Agencies’ concern may be based on an rates. They believe this concession is restrictive language in the market-based
unrealistic assumption. fair if the Commission insists that rate tariff could prevent re-sales into the
824. We disagree with MidAmerican market-based rate sales for mitigated mitigated control area by helping to
and the Oregon Commission’s claim that sellers are based on contractual points ensure that any power purchased at
if the Commission requires mitigated of delivery at or beyond the market-based rates within a mitigated
sellers to mitigate all their sales in the transmission interface of the mitigated control area is exclusively for export to
mitigated market this would encourage control area. In these companies’ view, serve loads beyond the mitigated
gaming, such as round-trip or ricochet such an approach would provide market. Where the Commission is
transactions. While the Commission needed certainty through a bright line concerned that gaming could lead to the
issued an order rescinding Market rule and limit factual disputes and
Behavior Rules 2 and 6,965 Order No. investigations.969 971 Under MidAmerican’s proposed tariff
670 finalized regulations prohibiting 827. MidAmerican and Ameren also revisions: (i) Counterparties would be required to
support using tariff or agreement affirmatively confirm that the energy sold within
energy market manipulation pursuant to MidAmerican’s control area will not stay inside that
the Commission’s new Energy Policy language to ensure power sinks outside control area; (ii) MidAmerican energy schedulers
Act of 2005 authority. The Commission of the mitigated market.970 will review NERC tags associated with in-control
emphasized in Order No. 670 that ‘‘the MidAmerican favors using tariff area sales on a daily basis to ensure transactions
safeguards and confirmation/oversight indeed sink outside the mitigated control area; (iii)
specific prohibitions of Market Behavior if a review of the NERC tags shows that a
Rule 2 (wash trades, transactions procedures to mitigate a seller’s ability transaction will sink inside the mitigated control
predicated on submitting false to exercise generation market power, area, the sale will be renegotiated at cost-based
information, transactions creating and prevent gaming, and protect wholesale rates; and (iv) if required by the Commission,
customers in the mitigated region. MidAmerican would submit the NERC tag data to
relieving artificial congestion, and the appropriate market monitor. MidAmerican at
MidAmerican submits that it has
collusion for the purpose of market 28–29.
developed and filed market-based rate 972 MidAmerican at 28–29.
manipulation), * * * are examples of
tariff provisions and verification and 973 FP&L at 6 (proposing the following tariff
prohibited manipulation, all of which
oversight procedures that can ensure language: ‘‘Purchasers are hereby on notice that the
are manipulative or deceptive devices or sink for any energy or capacity sale under this Tariff
that export transactions sink outside the
shall not be in the Seller’s control area.’’); E.ON
964 See South Carolina Electric and Gas Co., 114 U.S. at 10 (proposing ‘‘a simple tariff commitment
966 Prohibition of Energy Market Manipulation,
FERC ¶ 61,143 at P 18 (2006) (accepting mitigation by sellers that power sold at a point of delivery
on a prospective basis; existing long-term Order No. 670, 114 ¶ FERC 61,047 at P 59 (2006). within their mitigated control area will, to the best
967 PNM/Tucson at 15.
agreements remain in effect until terminated of their knowledge, sink elsewhere.’’); Ameren at 20
968 Id.
pursuant to their terms); see also April 14 Order, (proposing that agreements governing market-based
107 FERC ¶ 61,018 at P 154; July 8 Order, 108 FERC 969 Id. at 16–17; MidAmerican submits that its rate sales in mitigated markets explicitly state that
¶ 61,026 at P 145. proposal would also provide the ‘‘bright-line’’ the subject power will sink outside the mitigated
965 Investigation of Terms and Conditions of regulatory certainty sought by PNM/Tucson. region, and that the seller be required to report such
Public Utility Market-Based Rate Authorizations, MidAmerican reply comments at 16–18. sales in its EQR).
114 FERC ¶ 61,165 (2006). 970 MidAmerican at 28; Ameren at 19–20. 974 FP&L at 6.
exercise of market power over wholesale and (iii) no affiliate of the mitigated seller the Commission’s regulations and the
customers in the home control area, this will sell the same power back into the seller’s market-based rate tariff.
commenter suggests that the mitigated seller’s mitigated market. Seller 833. Sellers in Category 2, consisting
Commission reemphasize that efforts to must retain, for a period of five years from
of all sellers that do not qualify for
the date of the sale, all data and information
loop power through an adjacent market Category 1, would be required to file
related to the sale that demonstrates
area in order to raise prices to wholesale compliance with items (i), (ii) and (iii) above. regularly scheduled updated market
customers in mitigated areas above power analyses in addition to change in
competitive levels is a violation of 831. This approach affords necessary status reports. The Commission
market-based rate tariffs. Further, this protection from market power abuse for proposed to codify this requirement in
commenter submits that the customers in the mitigated markets. its regulations. Failure to timely file an
Commission may require buyers to Such language reminds all sellers that updated market power analysis would
confirm that power purchased at gaming resulting in re-sales of any sort constitute a violation of the
market-based rates in a mitigated by an affiliate of the mitigated seller into Commission’s regulations and the
control area is for export, use NERC tag their mitigated balancing authority seller’s market-based rate tariff.
data and transmission scheduling area(s) (i.e., by looping power through 834. Second, to ensure greater
information to verify when purchased adjacent markets) are violations of a consistency in the data used to evaluate
power is being exported from the home Commission-approved tariff that may Category 2 sellers, the Commission
control area, and require oversight by also, depending on the facts, violate the proposed that the required updated
independent market monitors.975 Commission’s market manipulation market power analyses be filed for each
regulations. Such violations may result seller’s relevant geographic market(s) on
Commission Determination in penalties being imposed under the a schedule allowing examination of the
830. Consistent with our decision market manipulation regulations and/or individual seller at the same time that
above, mitigated sellers choosing to the revocation of a mitigated seller’s the Commission examines other sellers
make market-based rate sales at the market-based authority in all markets. in the relevant markets and contiguous
metered boundary between a mitigated markets within a region from which
E. Implementation Process
balancing authority area and a balancing power could be imported. The
authority area in which the seller has Commission Proposal Commission appended a proposed
market-based rate authority will be schedule for the regional review
required to commit and maintain 832. In the NOPR, the Commission
put forth several proposals to streamline process, rotating by geographic region
sufficient documentation to with three regions being reviewed per
demonstrate 976 that: (1) Legal title of the the administration of the market-based
rate program while maintaining a high year. For corporate families that own or
power sold transfers at the metered control generation in multiple control
boundary between a mitigated balancing degree of oversight. The Commission
proposed to modify the practice of areas and different regions, the
authority area and one in which the Commission proposed that the corporate
mitigated entity has market-based rate requiring an updated market power
analysis to be submitted within three family would be required to file an
authorization; and (2) any power sold is update for each region in which
not intended to serve load in the seller’s years of any order granting a seller
market-based rate authority and every members of the corporate family sell
mitigated market and (3) no affiliate of power during the time period specified
the mitigated seller will sell the same three years thereafter by, instead,
putting in place a structured, systematic for that region.
power back into the mitigated seller’s 835. Finally, the Commission
mitigated market. To accomplish these review based on a coherent and
consistent set of data. First, the proposed to require that all updated
requirements, mitigated sellers seeking market power analyses and all new
to make market-based rate sales at the Commission proposed to establish two
categories of sellers with market-based applications for market-based rate
metered boundary between their authority include an appendix listing all
mitigated balancing authority area and a rate authorization. Sellers in the first
category, Category 1,977 would not be generation assets owned or controlled
balancing authority area in which the by the corporate family by control area,
sellers have market-based rate authority required to file a regularly scheduled
updated market power analysis. The listing the in-service date and nameplate
must adopt the following tariff and/or seasonal ratings by unit, and all
provision: Commission proposed instead to
monitor any market power concerns for electric transmission and natural gas
Sales of energy and capacity are intrastate pipelines and/or gas storage
Category 1 sellers through the change in
permissible under this tariff in all balancing facilities owned or controlled by the
authority areas where the Seller has been status reporting requirement and
through ongoing monitoring by the corporate family and their location.
granted market-based rate authority. Sales of
energy and capacity under this tariff are also Commission’s Office of Enforcement. In 1. Category 1 and 2 Sellers
permissible at the metered boundary between this regard, the Commission noted that
the Seller’s mitigated balancing authority failure to timely file a change in status Comments
area and a balancing authority area where the report would constitute a violation of a. Establishment of Category 1 and 2
Seller has been granted market-based rate Sellers
authority provided: (i) Legal title of the 977 Category 1 sellers would include power
power sold transfers at the metered boundary
marketers and power producers that own or control
836. A variety of commenters fully
of the balancing authority area where the 500 MW or less of generating capacity in aggregate support the Commission’s proposed
seller has market-based rate authority; (ii) and that are not affiliated with a public utility with categorization of sellers into two
any power sold hereunder is not intended to a franchised service territory. Category 1 sellers also categories and the boundaries of those
serve load in the seller’s mitigated market; must not own or control transmission facilities
other than limited equipment necessary to connect
categories. ELCON comments that the
Commission’s limited resources should
975 Dr. Pace at 20–21. individual generating facilities to the transmission

grid (or must have been granted waiver of the be focused on the dominant players and
976 Reliance solely on NERC tag data as requirements of Order No. 888 because the facilities not treat every seller as a potential
documentation for such sales will likely be deemed are limited and discrete and do not constitute an
insufficient as such an approach has not yet been integrated grid), and they must not present other
threat. NRECA commends the
shown to be either workable or effective. vertical market power issues. NOPR at P 152. Commission for its attempt to
streamline the process.978 APPA/TAPS California Commission continues by clarified to prevent this scenario. If the
support the proposed categories but stating that reliance solely on market Commission proceeds with its proposal,
suggest that the Commission clarify that monitoring would not necessarily be NASUCA states that the Commission
it retains the ability to determine that a effective in California. It notes that in should consider a much lower
Category 1 seller must still adhere to the markets utilizing LMP, there is a great threshold, such as 75 MW.
triennial update requirements if, for potential for sellers to exert ‘‘local’’ 842. State AGs and Advocates state
example, it is dominant in a particular market power, especially in load that exempting entities, no matter how
load pocket. Explaining that its pockets. In such load pocket areas, it small, would conflict with the concept
generation and power marketing contends that there is no guarantee that that all sellers contribute in varying
activities are only incidental to its a small seller could not have market degrees to the existence of market power
mining operations, and that its market power. Further, it states that a Category in a market.982
share will likely decline over time, 1 seller could suddenly gain market 843. NASUCA and the California
Newmont states that filing an updated power due to another seller’s Commission argue that none of the
market analysis every three years would withdrawal from the market and asserts proponents of an exempt category of
be an unnecessary burden to prepare that ‘‘given the number of markets and sellers have shown how the exemption
and a waste of the Commission’s time to the Commission’s limited resources, it meets the Commission’s legal
review. Newmont finds the 500 MW would seem an enormous task of requirements.983 NASUCA expresses
cutoff a clear, bright line that would be monitoring without requiring regular concern that the blanket exemption for
easy to administer. If the Commission updated market power analyses from all Category 1 sellers from filing updated
determines it necessary to adjust the market participants.’’ 979 market power reviews is inconsistent
threshold, however, Newmont suggests 840. Similarly, NASUCA states that with the justification the Commission
retaining the 500 MW cutoff with a there is no basis in the record to assume has previously made to the courts in
further requirement that no more than that Category 1 sellers would lack support of market-based rates, namely,
250–300 MW be located in any one market power at all times and offers that the Commission makes a discrete
control area. Alternatively, there could examples of when Category 1 sellers finding or determination as to each
be some sliding scale delineation could pose a problem.980 NASUCA also seller’s market power, and periodically
between Categories 1 and 2 based on the warns that there is no apparent limit on reviews it. The California Commission
size of a control area, in terms of load, the total amount of exempt generation similarly disputes that the exemption
unaffiliated capacity, or both. that could be owned by entities other meets the underlying principle found in
837. Financial Companies and than those affiliated with a franchised Lockyer. It states that the Ninth Circuit
Morgan Stanley request that the utility. Specifically, NASUCA argues in that case noted that the Commission’s
Commission release a list of all sellers that: authority to grant market-based rates is
in each category and the region in rooted in the integral nature of the
[U]nder the [Category 1] definition and reporting requirements. The California
which the Commission believes each
[change of status] notice obligations, a
seller belongs to help ensure that sellers ‘‘Category 1’’ seller could qualify for
Commission asserts that the proposed
have notice of their status and related exemption from triennial market power requirement for Category 1 sellers to
filing obligations. These parties also reviews even if its holding company make a filing only upon a change in
suggest that the Commission hold a affiliates—other power marketing and status is inconsistent with the rationale
technical conference on commenters’ generation entities that also have ‘‘Category laid out in Lockyer. It further contends
proposals about how to organize the 1’’ status—collectively have a share of that delegation of ongoing monitoring to
categories. generation far larger than 500 MW, and even the Commission’s Office of Enforcement
838. FirstEnergy opposes the concept if the seller has a retail affiliate without a is vague and contrary to the underlying
franchised service territory. Examples might
of exempting Category 1 sellers from principle found in Lockyer. According
include a group of ‘‘Category 1’’ peaker plant
triennial reporting while continuing the owners in a constrained area, each owned by to the California Commission, the
requirement for Category 2 sellers. a separate entity affiliated with the same assumptions underlying the proposed
FirstEnergy states that there is no reason holding company; owners of a fleet of small Category 1 exemption (that since
for the Commission to require any hydro facilities, each a separate entity within Category 1 sellers are smaller in size
public utility authorized to sell at a holding company structure; or an they do not need to be subject to the
market-based rates to file an updated assemblage of generation control [sic] by same requirements and scrutiny as
market power analysis. According to numerous power marketing subsidiaries, larger sellers of energy, and that
FirstEnergy, the showing made in the each of which controls less than 500 MW of ‘‘ ‘Category 2 sellers are the larger sellers
generation.981
initial market-based rate proceeding and with more of a presence in the market
the change in status rules are adequate, 841. Thus, NASUCA argues that the and are more likely to fail one or more
and relieving Category 1 sellers from regulations should be modified or of the indicative screens or pass by a
filing without abolishing the smaller margin than Category 1
requirement entirely would be unduly 979 California
Commission at 4. sellers’’ ’) are insufficient to justify a
980 For
example, NASUCA asserts that there
discriminatory. departure from the Lockyer rationale.984
appears to be a possibility that a seller with a fleet 844. PPM refutes the California
839. On the other hand, the California of newer power plants that were initially exempted
Commission believes that all sellers from review would be totally exempt from Commission’s arguments. First, PPM
should have to continue filing updated subsequent review based on the size of the power asserts that the California Commission
market power analyses; it states that the plants. These sellers might at times have market is wrong in its generalization that a
power with respect to ancillary services. NASUCA seller that controls less than 500 MW in
assumption that Category 1 sellers do further submits that changed circumstances, such as
not need the same level of scrutiny as declining reserve margins, might create a market that utilizes LMP could exert
larger sellers is erroneous, and argues opportunities for seemingly small sellers to exercise
that the NOPR provides no legitimate market power. 982 State AGs and Advocates reply comments at
981 NASUCA at 12. See also NASUCA reply 14.
justification for creating a disparity 983 NASUCA reply comments at 9–11, California
comments at 9–11 (stating that neither the 500 MW
between Category 1 and 2 sellers. The exemption, nor the expansion to a 1000 MW Commission reply comments at 1–4.
exemption, nor the elimination of a horizontal 984 California Commission reply comments at 3–
978 See also EPSA reply comments at 3, 13–14. market power test, should be adopted). 4 (quoting NOPR at P 153).
local market power. PPM argues that the particular region; 989 up to 1000 MW; 990 847. In addition, Constellation
existence of an LMP market does not less than 1 percent of the installed proposes specific modifications to the
increase the potential for a small capacity in a regional market or 1000 proposal. First, Constellation requests
generator or marketer to possess market MW in that regional market (whichever that the Commission change the
power; LMP is intended to reduce the is higher); 991 or some other formula.992 affiliation standard in the definition of
ability of a party to exercise local market Several commenters urge the Category 1 sellers to be consistent with
power.985 Second, PPM states that the Commission to consider the size of a other definitions set forth in the NOPR.
California Commission is wrong when it particular control area or geographic Because the proposed language would
asserts that Lockyer requires the region or market and whether the exclude from the definition of Category
Commission to require all sellers to file geographic market is served by an RTO/ 1 sellers any affiliate of a public utility
updated market power analyses. ISO,993 and to take into account the with a franchised service territory
According to PPM, in Lockyer, the Court difference between thermal generating regardless of whether it has captive
found that if the Commission is going to capacity and intermittent or non- customers, Constellation suggests using
grant parties the authority to charge dispatchable generation for their ability the defined term ‘‘franchised public
market-based rates, the Commission to impact the competitiveness of a utility’’ 998 instead of ‘‘public utility
must continue to monitor and ensure market.994 with a franchised service territory.’’
that the rates charged are just and 846. PPM argues that without certain Constellation states that the exclusion
reasonable. PPM submits that creating a modifications to the Commission’s should only apply to affiliates of public
categorical exemption to reduce the definition of a Category 1 seller, which utilities with captive customers.
burden on smaller generators and PPM believes is too narrowly defined, Second, Constellation argues that a
marketers does not mean that the many generators and marketers may company should be considered to be a
Commission is eliminating its ability to needlessly have to submit an updated Category 1 seller so long as it is not
effectively monitor the wholesale market power analysis. According to affiliated with a ‘‘franchised public
electric market. It states that the PPM, the Commission should not utility’’ in the same geographic region.
Commission retains the tools necessary eliminate the exemption for new It explains that, with this change, a
to ensure that all rates are just and generation (pursuant to 18 CFR 35.27(a)) company would qualify as a Category 1
reasonable: all entities with market- without expanding the group of seller in California despite the fact that
based rate authority must submit generators and marketers eligible for it is affiliated with a franchised public
electric quarterly reports to the Category 1 status.995 Several utility in New England because any
Commission regarding their commenters also urge the Commission concerns about affiliate abuse would
transactions; all parties have the right to to allow fact-specific requests for exist only in the New England market
ask the Commission for relief under exemption from filing requirements for and not in California.999 Third,
section 206 of the FPA if they believe those sellers who otherwise would Constellation suggests that, if
that rates are improper or unjust; the qualify as Category 2 sellers 996 or other operational control over transmission
Commission may take up an particular exemptions.997 facilities has been transferred to an
independent review of any markets RTO/ISO, then a seller’s affiliation with
which are displaying abnormal 989 EPSA at 36–37; AWEA at 3–4; Suez/Chevron
the owner of such transmission facilities
characteristics; and finally, the at 5–10. should not exclude the seller from
990 See Morgan Stanley at 10–13; Financial
Commission may require certain parties Companies at 13–14; Financial Companies reply
qualifying as a Category 1 seller.
to file updated market power analyses if comments at 7–8. See also Mirant at 12 Further, Constellation seeks clarification
the seller is found to have market power (recommending 1000 MW per geographic market if that the exclusions for owners of
even if the seller meets the threshold for the Commission hopes to have a minimal impact on transmission facilities that are simply
sellers’ compliance costs caused by eliminating the
Category 1 exemption. 18 CFR 35.27(a) exemption).
interconnection facilities, are under
991 EPSA at 36–37. operational control of an RTO/ISO, or
b. Threshold for Category 1 Sellers and
992 Constellation at 9–11 (supports changing are subject to waiver of Order No. 888
Other Proposed Modifications
threshold from 500 MW to the greater of 500 MW and 889, will also apply to affiliates of
845. While the majority of or 2 percent of the total generation capacity in the those transmission owners.
commenters support the concept of relevant geographic market; where the geographic
exempting smaller, Category 1 sellers
market is an RTO or ISO, change threshold to the Commission Determination
greater of 1,000 MW or 2 percent of the total
from filing updated market power generation capacity in that market); Ameren at 21 Adoption of Category 1/Category 2
analyses, many seek clarification or (supports exempting a company that owns or
848. We adopt the NOPR proposal to
modification of the proposal. A number controls more than 500 MW but owns or controls
less than 20 percent of the total uncommitted create a category of sellers that are
of commenters propose a threshold capacity in the relevant geographic market and also exempt from the requirement to
other than ownership or control of 500 is not affiliated with an entity that owns automatically submit updated market
MW or less in aggregate. Suggested transmission facilities in that market).
power analyses, with certain
993 Drs. Broehm and Fox-Penner at 13;
thresholds include: 500 MW or less of modifications. As discussed further
Constellation at 9; PPM at 3–4.
uncommitted capacity (therefore 994 AWEA at 3–4 (asserting that companies
including only that which is available owning or controlling thermal generating capacity an entity that owns or controls Commission-
for sale into markets during peak have a greater opportunity for impacting the jurisdictional transmission presents the possibility
periods); 986 500 MW within a particular competitiveness of a market than those that own or of vertical market power concerns).
control area; 987 500 MW within a control non-dispatchable generation, such as wind 998 Proposed 18 CFR 35.36(a)(5) defines a
power facilities, that rarely achieve production at franchised public utility as ‘‘a public utility with a
geographic market; 988 500 MW within a nameplate capacity levels); PPM at 4 (same); franchised service obligation under state law and
Financial Companies reply comments at 8–9. that has captive customers.’’
985 PPM reply comments at 1–3. 995 PPM at 3–5. 999 Similarly, Constellation contends that, if a
986 See Ormet at 9. 996 See Morgan Stanley; Financial Companies.

seller and its affiliates own more than 500 MW of
987 See, e.g., PPM at 3–4; AWEA at 3–4. 997 See, e.g., Ormet at 7–11 (exemption for self generation capacity in only one region and less in
988 See Constellation at 8–9 (noting that this use/supply, i.e., capacity used to self supply a others, then the seller should be required to file
would be consistent with the Commission’s corporate affiliate and presumptively unavailable updated market power analyses in only the
indicative screen analysis and regional approach to for sale into markets); TXU at 4–5 (case-by-case region(s) where its affiliated generation exceeds the
updated market power analyses). determination of whether a seller’s affiliation with threshold.
below, this finding is fully consistent power analysis based on the schedule in have been carefully defined by the
with our statutory obligation to ensure Appendix D. In our orders acting on the Commission to have attributes that are
just and reasonable rates and with court updated market power analyses, the not likely to present market power
decisions construing that obligation. Commission will make a finding that concerns: ownership or control of
Moreover, it will streamline the the seller is a Category 2 seller, as relatively small amounts of generation
administration of the market-based rate appropriate. capacity; no affiliation with an entity
program by focusing the Commission’s 851. In addition, with regard to new with a franchised service territory in the
resources on sellers that have a applications for market-based rate same region as the seller’s generation
significant presence in the market. It authority, we also will make a finding
facility; little or no ownership or control
also is supported by the majority of regarding the category in which the
of transmission facilities and no
commenters in this proceeding. seller falls. However, all sellers
849. The Commission agrees with submitting initial applications for affiliation with an entity that owns or
Financial Companies and Morgan market-based rate authority must submit controls transmission in the same region
Stanley that sellers should have notice the indicative screens, or accept a as the seller’s generation facility; and no
of their status and related filing presumption of market power in indication of an ability to exercise
obligations. However, we believe the generation, and must submit a vertical vertical market power. Further, based on
criteria we adopt herein are sufficiently market power analysis. a review of past Commission orders, we
clear so that the vast majority of sellers 852. We reject FirstEnergy’s argument are aware of no entity that would have
can easily determine in which category that there should be no requirement for qualified as a Category 1 seller under
they fall. Accordingly, the Commission any seller to file an updated market this Final Rule but would nevertheless
will not initially compile and release a power analysis. Competitiveness of have failed our indicative screens
list of sellers in each category. Rather, markets is continuing to change and, necessitating a more thorough analysis.
we will require all sellers that believe therefore, we are reluctant to rely only Thus, the Commission has provided a
they fall into Category 1 to make a filing on initial market power analyses, reasoned basis to distinguish Category 1
with the Commission at the time that change in status filings, and section 206 sellers from Category 2 sellers.
updated market power analyses for the complaints in all cases. The burden on Moreover, the EQR reporting
seller’s relevant market would otherwise Category 2 sellers is small compared to requirements and change in status
be due (based on the regional schedule their market presence and activities, and
filings required for Category 2 market-
for updated market power analyses is outweighed by the fact that
based rate sellers will also apply to
adopted in this Final Rule). That filing submission of periodic updated market
power analyses enhances Commission Category 1 sellers. This will ensure
should explain why the seller meets the
oversight and public confidence in the adequate oversight of Category 1 sellers,
Category 1 criteria1000 and should
include a list of all generation assets regulatory process. Thus, we will even without regularly scheduled
(including nameplate or seasonal require the submittal of regularly updated market power analyses.
capacity amounts) owned or controlled scheduled updated market power Further, we will continue to reserve the
by the seller and its affiliates grouped by analyses by those sellers that have more right to require an updated market
balancing authority area.1001 The of a presence in the market and are more power analysis from any market-based
Commission will notice these filings likely to either fail one or more of the rate seller at any time, including for
and provide an opportunity for indicative screens or pass by a smaller those sellers that fall within Category 1.
comment. The Commission will then act margin than those that will qualify as 854. In this regard, we agree with
on the seller’s filing, either Category 1 sellers, or that may present PPM that the Commission retains the
acknowledging that the seller falls circumstances that could pose vertical tools necessary to ensure that all rates
within Category 1 or, if it finds that the market power issues, i.e., Category 2 are just and reasonable, including initial
seller does not qualify as a Category 1 sellers. Through regularly scheduled
market power evaluations, and ongoing
seller, directing the seller to file an updated market power analyses for
Category 2 sellers, the Commission is monitoring by the Commission. For
updated market power analysis. example, as noted above, all sellers with
Subsequently, all Category 1 sellers will better able to evaluate the ongoing
reasonableness of those sellers’ charges market-based rates must file
not be required to file regularly
and to provide for an ongoing electronically with the Commission an
scheduled updated market power
assessment of their ability to exercise EQR of transactions no later than 30
analyses.
850. With regard to sellers that fall market power. In the absence of days after the end of the reporting
into Category 2, these sellers will be regularly scheduled updated market quarter and must comply with the
required to file an updated market power analyses from the Category 2 change in status reporting requirement.
sellers, it would be more difficult for the We note that the reporting requirement
1000 These criteria, as modified in this Final Rule, Commission to fulfill its statutory duty relied upon by the court in Lockyer is
include wholesale power marketers and wholesale to ensure that market-based rates are the transaction-specific data found in
power producers that own or control 500 MW or just and reasonable and that market- EQRs, which we continue to require of
less of generation in aggregate per region; that do
not own, operate or control transmission facilities
based rate sellers continue to lack the all sellers, and not updated market
other than limited equipment necessary to connect potential to exercise market power so power analyses. Thus, exempting
individual generating facilities to the transmission that market forces are indeed Category 1 sellers from routinely filing
grid (or have been granted waiver of the determining the price.
requirements of Order No. 888); that are not
updated market power analyses does
853. Because Category 1 and 2 sellers not run counter to Lockyer.
affiliated with anyone that owns, operates or
controls transmission facilities in the same region occupy different postures in terms of
as the seller’s generation assets; that are not their presence in the market, it is not 855. With respect to EQR filings, the
Commission enhanced and updated the
affiliated with a franchised public utility in the unduly discriminatory to eliminate the
same region as the seller’s generation assets; and requirement to file a regularly post-transaction filing requirements
that do not raise other vertical market power issues. from what they were during the period
1001 In the section titled ‘‘Regional Review and scheduled updated market power
Schedule’’ we discuss further how we implement analysis for Category 1 sellers but not at issue in the Lockyer case, now
this approach. Category 2 sellers. Category 1 sellers requiring electronic reporting of, among
other things: 1002 (1) A summary of the necessary and appropriate, from the controls generation assets may qualify
contractual terms and conditions in date on which the tariff violation as a Category 1 seller for that region.
every effective service agreement for occurred. Such remedies could include 862. We do not adopt Constellation’s
market-based power sales; and (2) disgorgement of profits, civil penalties proposal that we carve out an
transaction information for effective or other remedies the Commission finds exemption for sellers affiliated with a
short-term (less than one year) and long- appropriate based on the specific facts franchised public utility without captive
term (one year or greater) market-based and circumstances. customers nor do we adopt the proposal
power sales during the most recent 857. We note that any new market- to exempt those that are affiliated with
calendar quarter. We also note that the based rate seller must conduct a transmission owners that have given
Commission has revoked the market- horizontal market power analysis for operational control of their transmission
based rate authority of sellers that have our review. Furthermore, we reiterate facilities to RTOs/ISOs.1007
failed to comply with the EQR filing that the Commission retains the ability Constellation has failed to adequately
requirements.1003 Further, the to require an updated market power demonstrate that sellers affiliated with a
Commission has utilized EQR data in analysis from any seller, Category 1 or franchised public utility without captive
determinations relating to market 2, at any time. customers and those that are affiliated
power. For example, the Commission 858. We also reject those arguments with transmission owners that have
relied in part on EQR data in reaching made by the California Commission, given operational control of their
its determination that an ‘‘alternative’’ NASUCA, and State AGs and Advocates transmission facilities to RTOs/ISOs
market power analysis submitted by that all sellers should continue to be necessarily lack market power in
Duke Power was unpersuasive.1004 required to file regularly scheduled generation.
856. With respect to notices of change updated market power analyses. For the 863. In addition, we will revise the
in status, in a related rulemaking reasons stated above, assertions that the definition of Category 1 sellers in the
proceeding in early 2005, the Commission will be unable to monitor regulations to include those that own,
Commission clarified and standardized market-based rate sellers without operate or control only transmission
market-based rate sellers’ reporting requiring all sellers to file regularly facilities that are ‘‘limited equipment
requirement for any change in status scheduled updated market power necessary to connect individual
that departs from the characteristics the analyses are unfounded. generating facilities to the transmission
Commission relied on in initially 859. In response to the comments of grid.’’ While the NOPR included this
authorizing sales at market-based NASUCA and Constellation, we make language in the preamble, conforming
rates.1005 In Order No. 652, the the following clarifications. We clarify language was inadvertently excluded
Commission required that, as a that, subject to other conditions from the definition of Category 1 sellers
condition of obtaining and retaining discussed below, Category 1 sellers in § 35.36(a)(2) of the proposed
market-based rate authority, sellers must include power marketers and power regulations.
file notices of such changes no later producers with 500 MW or less of
than 30 days after the change in status Threshold for Category 1
generation capacity owned or controlled
occurs.1006 These requirements are by the seller and its affiliates in 864. After considering all of the
codified in our regulations, and failure aggregate per region. Our use of the term comments regarding the proposed cutoff
of a market-based rate seller to timely ‘‘region’’ is intended to be as delineated between Categories 1 and 2, we believe
file a change in status report constitutes in the Regional Review and Schedule that 500 MW or less of generating
a tariff violation. If such a violation attached as Appendix D. capacity per region is an appropriate
occurs, the Commission has the tools 860. We further clarify that a seller threshold. We will use this value as a
available to impose remedies, as that owns, operates or controls, or is cutoff because, during our 15 years of
affiliated with an entity that owns, experience administering the market-
1002 Revised Public Utility Filing Requirements,
operates or controls, transmission based rate program, there have only
Order No. 2001, 67 FR 31043 (May 8, 2002), FERC rarely been allegations that sellers with
Stats. & Regs. ¶ 31,127 (2002). Required data sets for facilities in the same region as the
contractual and transaction information are seller’s generation assets does not capacity of 500 MW or less had market
described in Attachments B and C of Order No. qualify as a Category 1 seller in that power, and when those claims have
2001. The EQR must be submitted to the
region. This standard applies regardless been raised the Commission’s review
Commission using the EQR Submission System has either found no evidence of market
Software, which may be downloaded from the of whether the total generation capacity
Commission’s Web site at http://www.ferc.gov/docs- owned or controlled by the seller and its power or found that the market power
filing/eqr.asp. The exact dates for these reports are affiliates is below 500 MW in the region. identified was adequately mitigated by
prescribed in 18 CFR 35.10b. Failure to file an EQR
861. Regarding Constellation’s point Commission-enforced market power
(without an appropriate request for extension), or mitigation rules.1008 While some
failure to report an agreement in an EQR, may result that a company should be considered
in forfeiture of market-based rate authority, Category 1 so long as it is not affiliated commenters urge the Commission to
requiring filing of a new application for market- with a franchised public utility in the adopt either a higher or lower threshold,
based rate authority if the seller wishes to resume
same region (and meets the other the Commission believes that a 500 MW
making sales at market-based rates. threshold is both a reasonable balance
1003 See Electric Quarterly Reports, 115 FERC requirements for Category 1), we concur.
¶ 61,073 (2006); Electric Quarterly Reports, 114 Hence, a seller that is affiliated with a as well as conservative enough to ensure
FERC ¶ 61,171 (2006); Electric Quarterly Reports, 69 franchised public utility that is not in that those unlikely to possess market
FR 57679 (Sept. 27, 2004); Electric Quarterly the same region in which the seller power will be granted market-based rate
Reports, 105 FERC ¶ 61,219 (2003). authority. Moreover, as Newmont
1004 Duke Power, a Division of Duke Energy owns or controls generation assets may
qualify as a Category 1 seller for that asserts, 500 MW is a clear, bright line
Corporation, 111 FERC ¶ 61,506 at P 48, 55 (2005).
1005 Order No. 652 at P 47. region if it meets the other Category 1 that will be easy to administer.
1006 As discussed below in the Change in Status criteria. Likewise, a seller that does not
1007 We do, however, replace the term ‘‘public
section, the Commission is modifying its own, operate or control, and is not
regulations to provide that, in the case of power utility with a franchised service territory’’ with the
sales contracts with future delivery, such contracts
affiliated with an entity that owns, defined term ‘‘franchised public utility.’’
are reportable 30 days after the physical delivery operates or controls, transmission in the 1008 Moreover, as noted above, the Commission’s
has begun. same region in which the seller owns or indicative screens are set at conservative levels.
865. In addition and in response to means to minimize the burden of filing updated market power analysis at the
commenter requests, we clarify that the an updated market power analysis. same time the Commission examines
500 MW threshold is determined by 868. With respect to several other sellers in the relevant market and
adding all the generation capacity commenters’ desire for fact-specific region is an excellent idea because it
owned or controlled by the seller and its exemptions for sellers who otherwise provides a better picture to the
affiliates within the same region (as may qualify for Category 2, we note that Commission during its review. APPA/
delineated in the Regional Review and the Commission will determine on a TAPS state that the regional approach
Schedule attached as Appendix D). In case-by-case basis the category status of will lead to data consistency and
keeping with our conservative approach each seller with market-based rate availability, and will allow the
with regard to which entities qualify for authorization. In our attempt to keep the Commission to fulfill its obligations
Category 1, we find that aggregate Category 1 criteria as simple and more completely. Newmont believes
capacity in a given region best meets our straightforward as possible, we may that the Commission’s proposal
goal of ensuring that we do not create have swept under Category 2 particular appropriately balances the need to
regulatory barriers to small sellers sellers whose circumstances make it effectively monitor and mitigate market
seeking to compete in the market while unlikely that they could ever exercise power while avoiding unnecessary and
maintaining an ample degree of market power. As a result, we will unproductive regulatory
monitoring and oversight that such entertain and evaluate individual requirements.1010
sellers do not obtain market power. In requests for exemption from Category 2 871. Alternatively some commenters
this regard, we also clarify that although and make a finding on the category oppose the proposal entirely, or suggest
we will use aggregate capacity owned or status of each company. However, if a modifications. Reliant states that the
controlled in a region to determine seller wishes to request exemption from regional review and schedule would
which sellers are required to file Category 2, it must make a filing seeking significantly increase the administrative
regularly scheduled updated market such an exemption no later than 120 burdens of compliance rather than
power analyses, we will continue to days before its next updated market streamline them. According to Reliant,
evaluate the balancing authority area in power analysis is due. We also will companies that engage in business in
which the seller is located when consider any arguments from multiple regions of the United States
performing our indicative screens, intervenors that a particular seller that would have to file several times over the
absent evidence to the contrary.1009 contends that it qualifies for Category 1 three year schedule instead of once as
866. While we recognize the appeal of status based on our definition should is required currently.1011 Morgan
a test that takes into account the size of nevertheless be treated as a Category 2 Stanley and Financial Companies state
each geographic market, such as using a seller and thus be required to continue that the Commission should require
percentage of all capacity (as opposed to filing updated market power analyses. Category 2 sellers to file only once every
a stated MW) cutoff and the use of three years, either with the region where
2. Regional Review and Schedule they have a franchised service territory
uncommitted capacity rather than
installed capacity, these methodologies Commission Proposal or the region in which they own the
are inconsistent with a straightforward, greatest amount of generation. EEI and
869. To ensure greater consistency in EPSA maintain that a regional review
conservative means of screening sellers the data used to evaluate Category 2
and consequently would lead to will pose a great burden on utilities
sellers, the Commission proposed to operating in multiple markets and will
regulatory uncertainty. As markets and require ongoing updated market power lead to confusion over contradictory
market participants can fluctuate, a analyses to be filed for each seller’s information.1012
determination of the number of MWs relevant geographic market on a pre- 872. State AGs and Advocates warn
constituting a particular percentage of determined schedule. Such a process that the regional approach will result in
capacity in a regional market would would allow examination of the a too infrequent analysis of each area.
have to be constantly recalculated and individual seller at the same time that They and others state that, with the
the assumptions underlying a the Commission examines other sellers combined approach, each specific
determination could lead to potential in the relevant market and contiguous region will only be looked at completely
challenges. Such an approach would markets within a region from which every three years, which is less
run counter to our intention to provide power could be imported. The oversight than the Commission has
certainty to market participants and to Commission appended to the NOPR a currently.1013
streamline the administration of the proposed schedule for the regional 873. FirstEnergy notes that the
program. review process, rotating by geographic Commission has encouraged PJM and
867. The Commission rejects as region with three regions being Midwest ISO to eliminate ‘‘seams’’
unnecessary suggestions by AWEA and reviewed per year. For corporate between their respective regions and
PPM that we take into account the families that own or control generation comments that the proposal to schedule
differences among generation, including in multiple control areas and different submittal of updated market power
that classified as intermittent or non- regions, the Commission proposed that analyses for sellers in these two regions
dispatchable, when calculating the the corporate family would be required
generation capacity of a seller. We to file an update for each region in 1010 Newmont at 1.
believe that many sellers with wind and which members of the corporate family 1011 Similarly, Allegheny, Mirant, FP&L, EEI,
other non-thermal capacity will fall sell power during the time period FirstEnergy, MidAmerican, TXU, Morgan Stanley,
below the 500 MW threshold; those that Financial Companies, and EPSA argue that large
specified for that region. corporate families could find themselves in a
do not may take advantage of perpetual triennial review that would place a
simplifying assumptions and other Comments substantial regulatory burden and expense on them.
870. Several commenters, including 1012 EEI reply comments at 27–29, EPSA reply
1009 As we have stated above, where a generator ELCON, APPA/TAPS, NRECA, Suez/ comments at 11–14.
is interconnecting to a non-affiliate owned or 1013 See, e.g., State AGs and Advocates at 49–51,
controlled transmission system, there is only one

Chevron, and Newmont, support the Reliant at 9–11, Mirant at 2–6, EPSA at 39–40, EEI
relevant market (i.e., the balancing authority area in Commission’s proposal. ELCON states reply comments at 27–29, EPSA reply comments at
which the generator is located). that the requirement that a seller file its 11–14.
at different times is inconsistent with Similarly, Suez/Chevron suggests Commission clarify that those entities
the reasons underlying adoption of requiring RTOs and/or control area due to file their next updates before the
common filing dates. Mirant states that operators in each region to file certain scheduled regional reviews are due can
the limited number of consultants that information in advance of the filing forgo making any interim filings.
perform market power analyses use deadline so that sellers can rely on 880. APPA/TAPS ask the Commission
separate, proprietary databases and uniform baseline data.1017 EEI critiques to extend the period for commenting on
warns that the market data submitted on the proposals for sharing of data prior to the updated market power analyses
a regional basis will remain submission of triennial reviews, stating from the current 21-day comment
inconsistent. Further, Mirant asserts that that this would increase the complexity period to 60 days, at a minimum. They
there may be antitrust issues if a group of an already cumbersome process.1018 state that because numerous sellers will
of competing sellers jointly hires one 877. APPA/TAPS state that data file the updated market power analyses
consultant. sharing by companies should be contemporaneously, intervenors should
874. NRECA replies that any increase enhanced by regional reviews, not be given sufficient time to make
in the burden on sellers does not impaired, and that more robust data and meaningful use of the expanded body of
outweigh the substantial benefits of opportunities to reconcile conflicting information and to prepare multiple
greater data consistency and a complete submissions with a regional review will pleadings dealing with various sellers in
picture of each region under review.1014 lead to a better analysis by the the region. They add that the additional
APPA/TAPS assert that the Commission Commission.1019 time should improve the quality of the
should not sacrifice improvements to its 878. MidAmerican asserts that the analyses that the Commission receives
program for the interests of a few Commission should allow more time from intervenors.
companies and that any increased cost between the end of the qualification 881. Finally, regarding the
to companies associated with regional period and the filing of market power Commission’s proposal to require all
reviews is outweighed by the analyses. It states that these analyses updates (and all new applications) to
companies’ profits from market-based require Form 1 data that is not available include an appendix listing all
rate sales. They dismiss concerns until several months after the end of the generation assets owned or controlled
regarding a scarcity of consultants, calendar year and that control area loads by the corporate family, in-service dates
noting that the market should respond as filed in Form 714 are frequently not and capacity ratings by unit, Duke
to an increase in demand for consulting available until the third quarter agrees with the proposal that the
services, and that ‘‘competition will following the end of the calendar year, appendix should also reflect all electric
force efficiency gains to be passed along usually July. Additionally, it states that transmission and natural gas intrastate
to consultants’’ clients.’’ 1015 Further, generation and load data from Forms pipelines and/or gas storage facilities
with respect to a group of sellers jointly EIA–860 and EIA–861, respectively, are owned or controlled by the corporate
hiring a consultant to produce a market family. It states that having such a
likewise not available until late in the
analysis, they comment that antitrust standardized listing will be helpful both
following year. Accordingly, it suggests
counsel should be able to ensure joint to the Commission and to other market
that market analyses should not be due
representation does not result in participants.1025 Duke cautions,
until mid-October following the end of
improper information sharing.1016 however, that including the location of
the qualification period, allowing
875. PNM/Tucson state that the transmission and gas pipeline facilities
roughly 90 days between the availability
updated market power analyses in a in the appendix could conflict with CEII
of Form 714 and the deadline for
given region should be deliberately requirements, and requests clarification
filing.1020
staggered so that utilities are able to that sellers will have discretion with
879. Many commenters also argue that
build upon data sets already submitted locational descriptions.
the Commission should extend the time
in prior proceedings, instead of each
until the first regional reviews are due. Commission Determination
having to construct its own, which
Suggested beginning filing dates 882. The Commission adopts the
would result in varying, competing data
include: the first filing period for a NOPR proposal to conduct a regional
sets.
876. Mirant and FP&L add that with region that is no earlier than a review of updated market power
all the entities filing concurrently it will company’s next required updated analyses, with certain modifications. We
be difficult for some, such as non- analysis; 1021 the first filing period that agree with commenters such as APPA/
transmission owning entities, to acquire occurs no earlier than two years from TAPS that the regional approach will
the necessary data (i.e., simultaneous the latest filed updated analysis; 1022 the lead to data consistency and
import limit data). NRECA, Mirant and first filing period that is no earlier than availability. In this regard, both the
Powerex ask the Commission to have one year from the latest filed updated Commission and market participants
transmission-owning utilities file their analysis; 1023 or 180 days after the Final will benefit from greater data
updated market power analyses (or Rule is published in the Federal consistency that will result from
information necessary for others to Register.1024 Duke suggests that, rather regional examination of updated market
perform preliminary screens) at a than extending the first filing times, the power analyses and a methodical study
minimum 90 days prior to the regional 1017 The data Suez/Chevron refer to include the
of all sellers in the same region. This
due date; MidAmerican requests that information indicated in proposed Appendix C,
will give the Commission a more
the Commission require each Pivotal Supplier Analysis at Rows E through J, O, complete view of market forces in each
transmission provider to post to its P and Q and also proposed Appendix C, Wholesale region and the opportunity to reconcile
Market Share Analysis at Rows F through Q, and conflicting submissions, enhancing our
OASIS a simultaneous import study 60 the accompanying workpapers.
days before the filing deadline that 1018 EEI reply comments at 27–29.
ability to ensure that sellers’ rates
could be used by first-tier entities to 1019 APPA/TAPS reply comments at 19–21. remain just and reasonable.
develop their market power analyses. 1020 See MidAmerican at 33. 883. Although some commenters
1021 See Consumers at 2–4, Allegheny at 16–18. express concern that a regional review
1014 NRECA reply comments at 28–30. 1022 See MidAmerican at 30–33. approach will increase administrative
1015 APPA/TAPS reply comments at 20. 1023 See Constellation at 13.
1016 Id. at 19–21. 1024 See Allegheny at 16–18. 1025 Duke at 49.
burdens, particularly for sellers present in fewer regions and review timetable and take precautions to
operating in multiple regions, we administrative burdens for those sellers prevent improper information sharing.
believe that the Commission’s proposal accordingly will be reduced. In 889. We agree with commenters that
properly and fairly balances the need to addition, the decrease in the number of transmission-owning entities should file
effectively monitor and mitigate market regions will also extend the time period their updated market power analyses in
power in wholesale markets with the between filings. In the NOPR, the advance of others in each region. Thus,
desire to minimize any administrative Commission stated that three regions the Commission will modify the
burden associated with the filing and would be reviewed per year, with four schedule proposed in the NOPR to
review of updated market power months between each set of filings. Here better allow sellers to rely on the
analyses. While we recognize that some we adopt review of two regions per year, transmission-owning utilities’
sellers may have to file updates more with the filing periods six months apart. information, and we will adopt a
frequently than they do currently, we 886. Regarding FirstEnergy’s staggered filing approach for each region
have carefully balanced the interests of argument that PJM and Midwest ISO which will require different types of
all involved, and we believe that should be placed in the same region, we entities to file at different times. The
regional reviews of updated market continue to encourage PJM and the transmission-owning utilities, which
analyses is both needed and desirable Midwest ISO to address ‘‘seams’’ issues. have the information necessary to
and will enhance the Commission’s However, we find that placing them in perform SIL studies, will be required to
ability to continue to ensure that sellers different regions for the purpose of file their updated market power
either lack market power or have determining when an updated market analyses first. Six months later, all
adequately mitigated such market power analysis is submitted should in others in that region will be required to
power. no way affect or discourage efforts to file their updated market power
884. We note that sellers currently address seams between these two analyses.1028
must prepare a market power analysis regions. Other considerations (such as 890. Staggering the time periods
for all of their generation assets balancing RTO/ISO and non-RTO/ISO within which transmission-owning and
nationwide. Some sellers with assets in filings, and scheduling approximately non-transmission-owning utilities will
multiple regions have chosen to submit the same number of filings each year) be required to submit their updated
their individual updated market power outweigh FirstEnergy’s concerns. market power analyses will provide an
analyses when each is due (every three opportunity for those non-transmission
887. The Commission rejects the
years) rather than combining them into owning sellers that need simultaneous
arguments by some commenters that the
a single updated market power analysis. transmission import limits to perform
regional approach will result in too
Others file one updated market power the screens to rely on the SIL studies
infrequent an analysis of each area. As
analysis for the entire corporate family, performed by the transmission-owning
a practical matter, currently sellers are
with individual analyses of the different utilities rather than rely on a ‘‘proxy’’
required to file an updated market
markets in which their assets are for the import limits.
power analysis every three years. In the
located. Either way, the same analyses 891. Our experience is that sellers
intervening years between updated
must be filed under the status quo and located in RTOs/ISOs typically do not
market power analyses, most utilities
the approach adopted in this Final Rule. need to rely on a SIL study in
either enjoy the 18 CFR 35.27(a)
The timing may differ, but the increased performing the screens, and
exemption from filing a generation
burden is minimal.1026 transmission-owning utilities in RTOs/
885. Nevertheless, considering the market power analysis or rely on the
previously filed updated market power ISOs typically do not prepare or submit
comments received and upon further such studies. Accordingly, staggered
review of the Commission’s proposal, analysis. The regional approach will
provide the Commission with a filings for sellers in RTOs/ISOs may not
we believe that some of the proposed be necessary for purposes of data
regions should be consolidated. snapshot of sellers across a larger area
and will provide a more accurate view availability. Nevertheless, we will retain
Therefore, we will reduce the number of the staggered filing deadlines for all
regions from the proposed nine to six. of simultaneous import capability into
the relevant geographic markets under regions for consistency and to avoid any
In Appendix D we identify the six confusion in this regard. If a particular
regions (Northeast, Southeast, Central, review. Accordingly, contrary to claims
that the regional approach will result in seller that is located in an RTO/ISO
Southwest Power Pool, Southwest, and finds that it needs import data in order
Northwest), and will require Category 2 less Commission oversight, the regional
approach will enhance the to complete its market power analysis,
sellers that own or control generation we expect the RTO/ISO to assist such
assets in each region to file an updated Commission’s ability to analyze market
power using better data with less sellers if requested.
market power analysis for that region 892. In response to MidAmerican’s
every three years based on a rotating opportunity for conflicting claims of
suggestion that the Commission allow
schedule shown in the Appendix.1027 ownership or control of generation
adequate time between the date that all
We believe that, with fewer and larger assets.
data is available and the date that a
regions, some sellers will likely be 888. Regarding concerns about the
region’s analyses are due, we will
scarcity of consulting firms, we note
schedule the updates to be filed in
1026 In this regard, we note that preparation of that our proposal will not necessarily
December (12 months after the study
multiple market power analyses is likely less increase the number of market power
year), and June (18 months after the
burdensome and less expensive than what would analyses to be performed (indeed, by
otherwise be required under cost-based regulation study year). We note that studies due in
exempting all Category 1 sellers from
which can result in extended administrative
litigation to determine the just and reasonable rate. submitting updated market power 1028 If the Commission has not processed a
1027 Concerning power marketers that may not analyses, the number may be particular SIL study before six months have passed
own or control generation assets in any region, we decreased). We agree with APPA/TAPS and non-transmission owning entities must file
will require the submission of a filing explaining that any shortage of consultants their updated market power analyses, then those
why the seller meets the Category 1 criteria, as entities should rely on the filed SIL study. If the
discussed above. Power marketers must submit
performing market power analyses initial SIL study subsequently changes, the
such a filing with the first scheduled geographic should be temporary as firms adjust to Commission will make conforming adjustments as
region in which they make any sales. a new schedule reflecting the regional needed.
December and June may be filed authority area, and by geographic 899. The Commission stated that this
anytime during the applicable month. region, and provide the in-service date streamlining effort is not intended to
Such a schedule will allow adequate and nameplate and/or seasonal ratings reduce the flexibility of sellers and
time for the data to be available (at least by unit. As a general rule, any customers in negotiating the terms of
6 weeks after EIA Forms 860 and 861 generation assets included in a seller’s individual transactions. The
become public) and the analyses to be or a seller’s affiliate’s market study Commission noted that sellers would
completed. should be listed in the asset appendix. continue to negotiate the terms and
893. In response to commenters’ We find that the in-service date and conditions of sales entered into under
requests that the Commission extend the nameplate and/or seasonal ratings help their MBR tariff, and the terms and
time until the first analyses are due, we identify and provide the Commission conditions of those underlying
will commence the schedule in and market participants with critical agreements and the transaction data
December 2007. The Commission market information. In addition, the would be reflected in the quarterly
believes this will provide adequate appendix must reflect all electric EQRs. The Commission stated that if
notice and time to prepare the analyses. transmission and natural gas intrastate sellers wish to offer or require certain
In addition, we clarify that sellers that pipelines and/or gas storage facilities ‘‘generic’’ terms and conditions that in
otherwise would have been required to owned or controlled by the corporate the past were contained in their market-
file an updated market power analysis family and the location of such based rate tariff, they may place
before the effective date of this rule facilities. customers on notice of such
should submit their updated market 896. In response to Duke, we clarify requirements by including such
power analyses in accordance with past that CEII data is more detailed than information on a company Web site and
orders directing them to do so. Starting ‘‘simply [giving] the general location of include any related provisions in
with the effective date of this rule, the critical infrastructure.’’ 1030 As the individual transaction agreements. The
sellers should submit their updated Commission explained its desire that
location of the facilities listed in the
market power analyses in accordance the MBR tariff reflect, in a consistent
appendix need only include the
with the schedule set forth in Appendix manner, only those matters that are
balancing authority area and geographic
D. required to be on file.1031
region (see sample appendix attached as 900. Further, rather than each entity
894. We also agree with the
Appendix B) in which they are located, having its own MBR tariff, which can
suggestion of APPA/TAPS to extend the
we do not anticipate that any CEII will result in dozens of tariffs for each
period for intervenors to comment on
be disclosed. corporate family with potentially
the updates. We agree that extending the
comment period will allow intervenors F. MBR Tariff conflicting provisions, the Commission
a better opportunity to review and proposed that each corporate family
Commission Proposal have only one tariff, with all affiliates
comment on filings, especially
considering the large number of filings 897. In the NOPR, the Commission with market-based rate authority
that will be submitted at one time. For proposed to adopt a market-based rate separately identified in the tariff.1032
that reason, the Commission will tariff of general applicability (MBR The Commission stated that this would
establish a 60-day comment period for tariff), applicable to all sellers reduce the administrative burden and
updated market power analyses. authorized to sell electric energy, confusion that occurs when there are
Further, we adopt the NOPR proposal to capacity or ancillary services at multiple, and potentially conflicting,
require that with each new application wholesale at market-based rates, as a tariffs in a single corporate family, and
and updated market power analysis, the condition of market-based rate would allow the Commission and
seller must list in an appendix, among authority. The MBR tariff, as proposed, customers to know what sellers are in
other things, all affiliates that have would require each seller to comply each corporate family.
market-based rate authority and identify with the applicable provisions of the 1. Tariff of General Applicability
any generation assets owned or market-based rate regulations to be
controlled by the seller and any such Comments
codified at 18 CFR Part 35, Subpart H.
affiliate. In addition, we extend this The Commission proposed that each 901. Several commenters do not
obligation to relevant change in status seller would be required to list on the support the adoption of a tariff of
notifications.1029 We believe that MBR tariff the docket numbers and case general applicability. Allegheny argues
requiring the submission of such data citations, where applicable, of any that ‘‘the Commission is without legal
will provide the Commission with more proceedings where the seller received authority to impose a one-size-fits-all
accurate and up-to-date information authorization to make sales of energy market-based rate tariff.’’ 1033 It argues
about each corporate family and will between affiliates or where its market- that the Commission has made no
address some of our concerns regarding based rate authority was otherwise finding of undue discrimination and is
confusion that has occurred with restricted or limited. not proposing to act under FPA section
respect to corporate families and, in 206, and asserts that administrative
898. The Commission explained that
particular, what sellers are authorized to efficiency is an insufficient justification
not all of the provisions of the proposed
transact at market-based rates in each to impose a standardized tariff on
regulations may be applicable to all
corporate family. market-based rate sellers. Similarly,
sellers. For example, a seller may not
895. Accordingly, the appendix must FirstEnergy asserts that requiring a
wish to offer ancillary services under
list all generation assets owned (clearly uniform MBR tariff would impose
the tariff. The Commission sought undue administrative burdens on
identifying which affiliate owns which comments regarding whether a
asset) or controlled (clearly identifying sellers, as each would have to make a
placeholder should be reserved in the compliance filing modifying its
which affiliate controls which asset) by
MBR tariff for the seller to indicate currently effective tariff and would also
the corporate family by balancing those parts of the regulations that are
1029 Relevant change in status notifications would
not applicable to it. 1031 NOPR at P 163.
1032 Id.at P 164.
include, for example, the addition of new facilities,
but not a name change. 1030 18 CFR 388.113(c)(1)(iv). 1033 Allegheny at 20.
have to expand its compliance program that sellers maintain such a Web site publicly-available language in a tariff
to confirm that its tariff was in would have to be cross-referenced in the explaining the precise conditions on an
conformance with the uniform tariff. corporate tariff. entity’s market-based rate
902. Xcel states that the Commission 906. EEI states that companies with authority.’’ 1041 Indianapolis P&L further
has not made clear its basis for and operations in multiple markets may warns that ‘‘having restrictions on an
expected benefit from a pro forma tariff. need to tailor their market-based rate entity’s market-based rate authorization
Xcel suggests that, if it is adopted, then tariffs to reflect the particular contained in a tariff only through cross-
the Commission should describe any circumstances of each market. This will reference to a Commission order may
limitations on a seller’s market-based be true for RTO and ISO markets as well run afoul of the FPA requirement that
rate authority, in addition to identifying as non-RTO markets. In each of these rates be ‘on file’ with the
any docket numbers where they were cases, participants in the markets Commission.’’ 1042
imposed.1034 typically must agree to abide by specific 910. Constellation seeks clarification
903. Similarly, Avista Corporation market terms and conditions that may that a seller that has received waiver
believes that all of the terms and need to be reflected in the tariff. from the code of conduct need not
conditions of a tariff should be included Therefore, EEI encourages the report in its MBR tariff that the affiliate
in one easily accessible place. Requiring Commission to allow each company to restrictions in proposed § 35.39 do not
that certain terms and conditions be file multiple tariffs, as may be necessary apply to it. Alternatively, Constellation
posted on a company Web site, rather to reflect these market differences.1038 suggests that the Commission allow
than the tariff, is bound to cause 907. Regarding the timing of tariff sellers to list the appropriate docket
unnecessary confusion as to which implementation, MidAmerican numbers in which the Commission has
terms and conditions apply, and will comments that the Commission should granted waivers of the code of conduct
increase the burden on both the utilities apply the new tariff prospectively only or provide a place to indicate that the
to notify, and customers to remain to future transactions, and urges that provisions are not applicable.
apprised, of when those terms and existing tariffs should be unaffected Constellation notes that many market-
conditions change.1035 Additionally, until existing transactions expire. based rate sellers have included
FirstEnergy states that a process by MidAmerican observes that if existing provisions in their tariffs regarding
which a seller places customers on tariffs containing terms and conditions reassignment of transmission capacity
notice of such terms and conditions are replaced by the proposed generic and sale of firm transmission rights,
beyond the minimum by including such tariff, then neither the new tariff nor the congestion contracts, or fixed
information on a company Web site, and existing service agreements will reflect transmission rights (as a group,
including related provisions in the terms and conditions of ongoing ‘‘FTRs’’), and requests that the
individual transaction agreements, transactions. Commission either provide for inclusion
would be cumbersome at best, and 908. ELCON supports the proposed of such provisions in the MBR tariff or
would deprive sellers and customers of MBR tariff, believing that it will be more state affirmatively that they will not be
the benefit of having the ‘‘generic’’ customer-friendly. APPA/TAPS agree, required.
terms and conditions in one stating that a pro forma tariff will help
document.1036 by addressing variations in MBR tariffs Commission Determination
904. Commenters who responded to that increase transaction costs by 911. In the NOPR, the Commission
the question of whether a placeholder creating potential confusion about explained that it was acting pursuant to
should be reserved in the tariff to applicable terms and conditions.1039 A sections 205 and 206 of the FPA in
indicate parts of the regulations that are number of commenters find some merit proposing to amend its regulations to
not applicable to the seller, support the in the concept of the MBR tariff, but govern market-based rate authorizations
idea of a placeholder.1037 request clarifications or revisions.1040 for wholesale sales of electric energy,
905. Mirant notes that the sample Some of these entities comment that capacity and ancillary services by
MBR tariff attached to the NOPR did not companies with operations in multiple public utilities, ‘‘including modifying
provide for specific RTO/ISO ancillary markets may need to tailor their tariffs all existing market-based rate
service products and states that it is to reflect the particular circumstances of authorizations and tariffs so they will be
unclear how the Commission would each market, and state that participants expressly conditioned on or revised to
identify which seller under the in organized markets typically must reflect certain new requirements
corporate tariff is permitted to sell the agree to abide by specific terms that may proposed herein.’’ 1043 Section 205 of
specific ancillary services traded in each need to be reflected in their tariffs. the FPA requires that all rates for sales
region. Mirant asks whether the 909. Indianapolis P&L asserts that any subject to our jurisdiction, and all rules
Commission would require each seller restrictions on market-based rate and regulations pertaining to such rates,
of ancillary services to maintain an authority should be in a tariff, rather be just and reasonable. Section 206 of
ancillary services tariff on file with the than in Commission orders. It believes the FPA provides that, when the
Commission. Mirant further notes that that ‘‘converting concepts (e.g., all sales Commission finds that a rate or a rule,
some sellers not located in an RTO/ISO in a control area will be mitigated) into regulation or practice affecting a rate, is
have been granted authorization to sell precise contract-worthy terms and unjust or unreasonable, the Commission
ancillary services at market-based rates conditions can be very difficult’’ and shall determine the just and reasonable
if they post those services on their Web argues that the best way to prevent rate, rule or regulation and order it so.
sites and suggests that the requirement misunderstandings between parties is to 912. Based on careful consideration of
have ‘‘precise, transparent and, the comments received, the Commission
1034 Xcel at 17. agrees that complete uniformity of
1035 Avista at 10–12. 1038 EEI
at 49. market-based rate tariffs is not
1036 First Energy at 27–31. 1039 EEI

counters APPA/TAPS, asserting that each
1037 Avista at 10; MidAmerican at 33 (suggesting seller’s MBR tariff in a given market is fully
necessary. However, pursuant to our
that the placeholder could be included as an available to market participants, so there should be
1041 Indianapolis P&L at 15.
attachment to each seller’s tariff in order to preserve no confusion. EEI reply comments at 30–31.
1042 Id.
the generic nature of the tariff itself); Progress 1040 FirstEnergy at 27–29; Constellation at 27–29;
Energy at 19. Progress Energy at 19–23. 1043 NOPR at P 1.
authority under sections 205 and 206, 916. We also will require that the required to be included in a seller’s
we conclude that the lack of consistent seller include a provision identifying all market-based rate tariff, nor is it
tariff form and content has hampered limitations on its market-based rate appropriate to include transmission-
our ability to manage the market-based authority (including markets where the related services in the seller’s market-
rate program in an efficient manner and seller does not have market-based rate based rate tariff. Sellers seeking to
has introduced uncertainty for potential authority) and any exemptions from, or reassign transmission capacity should
customers. We find that continuing to waivers of, or blanket authorizations adhere to the provisions of Order No.
allow basic inconsistencies in the under the Commission’s regulations that 890 1046 and should revise their market-
market-based rate tariffs on file with the the seller has been granted (such as based rate tariffs to remove provisions
Commission is unjust and unreasonable. exemption from affiliate sales governing these services at the time they
Nevertheless, we find that we can restrictions; waiver of the accounting otherwise revise their tariffs to conform
achieve our goal without imposing a regulations; blanket authority under Part them to the standard provisions
uniform tariff requirement on all sellers 34 for the issuances of securities and discussed herein.
by, instead, requiring that all sellers liabilities, etc.), including cites to the 921. Regarding FTRs and,
revise their market-based rate tariffs to relevant Commission orders. incidentally, virtual trading,1047 we note
contain certain standard provisions, as 917. In addition to the required tariff that Commission-approved market rules
discussed below. provisions, we also will adopt a set of for RTOs/ISOs address resales of FTRs
913. We believe the approach we standard provisions (which we and virtual trading to ensure that no
adopt here addresses the concerns of reference herein as ‘‘applicable market power is exercised in such
commenters that the Commission not provisions’’) that must be included in a trades. In addition, sellers engaging in
impose a one-size-fits-all approach seller’s market-based rate tariff to the these activities sign a participation
while, at the same time, presenting a extent that they are applicable based on agreement with RTOs/ISOs which
uniform set of required provisions that the services provided by the seller. For require them to abide by those market
will provide adequate certainty and will example, if the seller’s sales under its rules. Hence, the approval of the market
be more customer friendly. In addition, market-based rate tariff are subject to rules in conjunction with approval of
we believe that allowing sellers to mitigation, it must include the standard the generic participation agreement by
include seller specific terms and provision governing mitigated sales. the Commission constitutes
conditions in their market-based rate Similarly, if the seller makes sales of authorization for public utilities to
tariffs will offer a greater degree of certain ancillary services in certain engage in the resale of FTRs and virtual
transparency and serve customers by RTOs/ISOs, or if it makes sales of transactions, and no separate
providing for the opportunity to have all ancillary services as a third-party authorization is required under the FPA.
terms and conditions identified and in provider, it must include the standard The Commission’s monitoring of the
one place. As Progress Energy asserts, ancillary services provisions, as effectiveness of the market rules and
‘‘[g]reater consistency of tariffs within applicable. oversight of participants engaging in
the industry * * * will not only reduce 918. Attached hereto as Appendix C FTR resales and virtual trading in the
customer confusion, it also will reduce is a listing of the standard required RTO/ISO markets provide sufficient
the administrative burden of those provisions and the standard applicable protections against the exercise of
responsible for the implementation and provisions. The Commission will post market power. Nevertheless, if the
administration of the tariff.’’ 1044 these provisions on its web site and will Commission concludes in the future
update them as appropriate. that a separate section 205 authorization
914. Accordingly, in this Final Rule,
919. In addition, as discussed more
we adopt two standard ‘‘required’’ would better enable us to ensure that
fully below, we will permit sellers to list
provisions that each seller must include FTR resales or virtual trading do not
in their market-based rate tariffs
in its market-based rate tariff: a result in unjust and unreasonable
additional seller-specific terms and
provision requiring compliance with the
conditions that go beyond the standard 1046 Id. at P 816.
Commission’s regulations and a
provisions set forth in Appendix C. 1047 Virtual trading involves sales or purchases in
provision identifying any limitations 920. As Constellation observes, the an RTO/ISO day-ahead market that do not go to
and exemptions regarding the seller’s uniform MBR tariff proposed in the physical delivery. For example, virtual bidding
market-based rate authority. NOPR did not provide for sellers to offer allows entities that do not serve load to make
915. In particular, with regard to reassignment of transmission capacity
purchases in the day-ahead market. Such purchases
compliance with the Commission’s are subsequently sold in the real-time spot market.
or FTRs. As revised in this Final Rule, Likewise, entities without physical generating
regulations, we will require each seller Appendix C does not contain a standard assets can make power sales in the day-ahead
to include the following provision in its provision for the reassignment of market that are subsequently purchased in the real-
market-based rate tariff: transmission capacity. The Commission
time market. By making virtual energy sales or
purchases in the day-ahead market and settling
Seller shall comply with the provisions of believes that, although these items have these positions in the real-time, any market
18 CFR Part 35, Subpart H, as applicable, and historically been offered in the context participant can arbitrage price differences between
with any conditions the Commission imposes of sales of electric energy and capacity, the two markets. For example, a participant can
in its orders concerning seller’s market-based make virtual purchases in the day-ahead if the
they are transmission-related rather than prices are lower than it expects in the real-time
rate authority, including orders in which the
generation services. Accordingly, the market, and then sell the purchased energy back
Commission authorizes seller to engage in
affiliate sales under this tariff or otherwise Commission has made provision for into the real-time market. The result of this
reassignment of transmission capacity transaction would be to raise the day-ahead price
restricts or limits the seller’s market-based slightly due to additional demand and, thus,
rate authority. Failure to comply with the in the revised OATT, as discussed in improve the convergence of the day-ahead and real-
applicable provisions of 18 CFR Part 35, Order No. 890.1045 Thus, we state time energy prices due to additional supply in the
Subpart H, and with any orders of the affirmatively here that provisions real-time. Virtual trading is not limited to entities
Commission concerning seller’s market-based concerning the reassignment or sale of without assets. For example, generators or loads
rate authority, will constitute a violation of that prefer to transact at the real-time price may use
transmission capacity or FTRs are not virtual trading to accomplish this without having to
this tariff.
under-schedule load or withhold generation from
1045 Order No. 890, FERC Stats. & Regs. ¶ 31,241 the day-ahead market by submitting matching
1044 Progress Energy at 19–20. at P 814–816 & n.496. virtual trades.
wholesale rates, the Commission may based rate tariffs to include the required to require changes to existing market-
change the filing requirements for standard provisions, as well as the based rate tariffs. However, Progress
engaging in these activities.1048 required applicable provisions, either at Energy agrees with the Commission that
922. To the extent that individual the time that they file any other commercial terms and conditions for
companies within a corporate family amendment to their current tariffs, sales under the MBR tariff should not be
need or desire a tariff separate from when they report a change in status, or filed for Commission review.
their affiliates, the Commission will when they file their updated market
allow this, as discussed below. power analysis, whichever occurs first.
Although EEI asserts that participants in However, regardless of the date on 927. As discussed above, we find
organized markets may need to meet the which sellers make their compliance consistency of standard market-based
requirements of various organized filing, the provision providing that rate tariff provisions to be essential, and
markets, EEI offers no specific examples failure to abide by the regulations will we modify the proposal in the NOPR by
in this regard. Nevertheless, we believe constitute a tariff violation will be adopting a set of standard tariff
that our action to replace the uniform considered part of each seller’s current provisions that we will require each
MBR tariff proposed in the NOPR with market-based rate tariff as of 60 days seller to include in its market-based rate
standard provisions that we will require after the date of publication of this Final tariff, but we do not adopt the NOPR
to be included in a seller’s market-based Rule in the Federal Register. proposal that all sellers adopt the
rate tariff and the allowance of seller uniform MBR tariff of general
2. Placement of Terms and Conditions applicability set forth in the NOPR.
specific terms and conditions in the
market-based rate tariff should meet the Comments After careful consideration of the
needs of all sellers with market-based 925. In the NOPR, the Commission comments, we also will not adopt the
rate authority. observed that the purpose of an MBR NOPR proposal that sellers offer other
923. We will require all market-based tariff of general applicability is not to generic terms and conditions as
rate sellers to make section 206 direct the terms and conditions of information on a company Web site. We
compliance filings to modify their particular sales but to ensure that the agree with commenters as to the benefits
existing tariffs to include the standard tariff on file reflects in a consistent to sellers and customers of having all
required provisions set forth in manner only those matters that are terms and conditions relevant to a
Appendix C as well as any of the required to be on file, namely, the seller’s market-based rate power sales
standard applicable provisions. These identity of the seller(s), the docket available in one document. Thus, we
compliance filings are to be made by number(s) of the market-based rate will permit sellers to list in their
each seller the next time the seller authorization, the seller’s requirement market-based rate tariffs additional
proposes a tariff change, makes a change to follow the conditions of market-based terms and conditions that go beyond the
in status filing, or submits an updated rate authorization contained in the standard provisions required in
market power analysis (or a proposed regulations, and that the rates, Appendix C (with the exception of
demonstration that Category 1 status is terms and conditions of any particular transmission-related services, as
appropriate) in accordance with the sale will be negotiated between the discussed above), as modified in this
schedule in Appendix D. seller and individual purchasers. The Final Rule. As has been our practice in
924. One of the required standard Commission stated that sellers could many instances, we will not evaluate
provisions (the compliance with offer other ‘‘generic’’ terms and the justness and reasonableness of such
Commission regulations provision) conditions as information on a company additional provisions, but will allow
states that failure to comply with the Web site. them to be included in the market-based
applicable provisions of the regulations 926. In response, several commenters rate tariff that is on file with the
adopted in this Final Rule or with any state that requiring companies to move Commission. Our reasoning is that such
Commission orders concerning a seller’s generic terms and conditions to a additional provisions are presumptively
market-based rate authority will company Web site, or to replicate them just and reasonable. A seller granted
constitute a violation of the seller’s in individual agreements or rely on market-based rate authority has been
tariff. As provided in this Final Rule, Commission orders, would be confusing found not to have, or to have adequately
the regulations at 18 CFR Part 35, and/or overly cumbersome.1049 Avista mitigated, market power; thus, if a
Subpart H will become effective 60 days and FirstEnergy believe that all of the customer is not satisfied with the terms
after publication of this Final Rule in terms and conditions of a tariff should and conditions offered by a seller, the
the Federal Register. Accordingly, this be in one easily accessible place; customer can choose to purchase from
provision will be considered part of otherwise, sellers and customers would a different supplier.
each seller’s market-based rate tariff be deprived of the benefit of having 3. Single Corporate Tariff
effective as of the effective date of this them in one document. According to
FirstEnergy, this ‘‘would be contrary to Comments
Final Rule. As noted above, all sellers
will be required to amend their market- the goal of establishing a ‘customer- 928. ELCON supports the NOPR
friendly tariff’ as contemplated in the proposal that each corporate family
1048 To the extent that this position departs from NOPR.’’ 1050 Further, FirstEnergy states have one tariff on file, stating that it will
our holding in California Independent System that the fact that the Commission may lead to better transparency regarding
Operator, Inc., 89 FERC ¶ 61,153 at 61,435–36 not review individualized commercial what each seller in a corporate family
(1999) (requiring, among other things, that all
public utility resellers of FTRs file a rate schedule
terms included in tariffs does not make owns or controls. APPA/TAPS agree,
for authorization to make resales) we note that that it unjust and unreasonable for sellers to commenting that a single corporate tariff
analysis rested on Order No. 888’s filing include such terms in their tariffs; thus, addresses recurring problems with
requirements for resales of transmission capacity. there is no basis for the Commission to determining exactly who is affiliated
As Order No. 890 has modified the filing

requirements with respect to reassignments of
exercise its authority under FPA § 206 with whom.1051 Sempra agrees in
transmission capacity (in addition to the reasons
1049 Avista at 10–12; Indianapolis P&L at 14–15;
cited above) we find it appropriate not to require 1051 EEI disagrees, contending that, since
a separate rate schedule for FTRs or virtual trading FirstEnergy at 27–31. companies already disclose affiliations in their
at this time. 1050 FirstEnergy at 29. Continued
general that the single tariff structure simplifying tariff administration, the vastly differing affiliates.’’ 1054 EPSA
should eliminate confusion that results Commission has not considered the contends that the Commission’s premise
when entities within the same corporate administrative and commercial for adopting the proposal, i.e., entities
family have tariffs with terms that differ. ramifications of mandating one tariff per within a corporate family can have
929. However, a number of family. For instance, Duke cites the conflicting tariff provisions, is mooted
commenters raise potential possibility that any seller under the by the adoption of a standardized tariff.
implementation issues and believe that corporate tariff could be sued for an In addition, EPSA echoes
having all entities in a corporate family affiliate’s alleged breach, and the implementation concerns raised by
selling under the same tariff should be complications of Company A selling other parties, in particular: (1) The
optional and not mandatory.1052 Several Subsidiary X to Company B and the situation where a seller is a member of
of these commenters state that the status of X’s sales under Company A’s two corporate families; and (2)
Commission has not demonstrated the tariff. Mirant questions how the sale of increased regulatory burden from
need for a single corporate tariff and a subsidiary’s MBR tariff to a non- frequent tariff amendments each time
believe that the added burden of affiliate would be handled, given that ownership changes and corporate
implementation would outweigh any the tariffs are assets that can be bought affiliations are terminated or created.
benefits.1053 and sold. In a related comment, Ameren 934. Indianapolis P&L argues that
930. Some of the problems with the asks for which company or companies affiliates should be permitted to
single corporate tariff proposal would the tariff be a jurisdictional maintain separate market-based rate
identified by commenters include the facility for purposes of FPA section 203. tariffs for many of the reasons already
following: EPSA and Sempra request clarification cited. In addition, it contends that
• The proposal does not make sense regarding how an enforcement action consolidation will increase the burden
for diversified energy companies with a would be affected by the presence of on many entities by requiring increased
variety of non-utility generator or power other members of a corporate family on regulatory and legal coordination
marketer affiliates because it would the same tariff, and Ameren seeks between affiliates. Whereas many
require increased regulatory and legal clarification on the effect of a revocation utilities presently separate their utility
coordination among affiliates; of market-based rate authority of only and non-utility operations in part to
• The burden of replacing multiple some companies in a corporate family. comply with Commission regulations,
market-based rate tariffs with one MidAmerican suggests that, since Indianapolis P&L asserts that mandating
umbrella tariff would be significant, different affiliates within a corporate a single tariff per corporate family
requiring amendment and re-execution family may have authority to offer would necessarily require utility and
of many documents with many trading different services, a service schedule to non-utility affiliates to operate in closer
counterparties, as well as extensive the tariff should specify the products coordination. FirstEnergy agrees, stating
changes to the existing quarterly that each affiliate is authorized to offer that ‘‘[t]he Commission should not
reporting process; and any restrictions or limitations on a expect franchised public utilities with
• A single tariff listing all affiliates seller’s market-based rate authorization. captive customers to market power
could create confusion regarding which Morgan Stanley notes that, in many totally independently of their affiliates
affiliates may be bound by certain cases, the ‘‘parent’’ is not a where they are all required to sell power
executed service agreements, or which jurisdictional entity or is a holding to wholesale purchasers under the same
terms and conditions apply to certain company, and recommends requiring tariff.’’ 1055
affiliates; each corporate family to designate a 935. Finally, some commenters state
• Confusion would result when trying lead company that will submit its filing that the Commission’s concerns can be
to create a single tariff per corporate and those of its affiliates, rather than satisfied through means other than a
family when sellers can have multiple specifically appointing the ‘‘parent single tariff per corporate family. Duke
corporate families; listing the same corporation’’ as the filing entity. Duke recommends allowing affiliated utilities
seller on the MBR tariffs of multiple urges the Commission to consider what to operate with separate but uniform
corporate groups would not improve legal means would be required to ensure tariffs while posting on their corporate
transparency; and that the tariff is legally a separate and Web sites a centralized list of each of
• Given that some sellers’ upstream severable tariff for each member of a the affiliates’ market-based rate tariffs.
ownership can include multiple family. Similarly, Progress Energy suggests
investors, passive investors, and limited 932. Further, commenters state that requiring sellers to use the standardized
partners, the proposal could impose a there are transitional issues that the tariff but having them include a section
filing requirement on entities that have Commission should consider, such as identifying all affiliates with market-
only a passive role and may not whether existing tariffs will be based rate authority and any restrictions
otherwise be engaged in the energy superseded or cancelled and all existing on that authority.
business. service agreements migrated to the joint
931. Several commenters assert that, tariff; which corporate entity would be Commission Determination
while they support the objective of required to file and maintain the MBR 936. We will modify the NOPR
tariff; and the extent to which affiliates proposal and allow sellers to elect
individual market-based rate filings and are may have to file separate quarterly whether to transact under a single
separately subject to the Commission’s affiliate reports due to the fact that the market-based rate tariff for an entire
transactions rules, any confusion about affiliations responsible employees are not shared
does not justify a single tariff requirement. EEI reply
corporate family or under separate
comments at 30–31. (e.g., regulated versus unregulated tariffs. The benefits that the Commission
1052 See, e.g., EPSA at 41; Duke at 45–48; merchant employees). hoped to realize by requiring all
MidAmerican at 33–35; FirstEnergy at 27–31; 933. In reply comments, EPSA corporate families to consolidate their
Constellation at 27–29; Progress Energy at 19–23; reiterates its opposition to a mandatory operations under one tariff will be
EEI at 49. Cogentrix also expresses reservations single corporate tariff, urging the
about requiring a single corporate tariff. See achievable by other means, namely, by
Cogentrix/Goldman at 6–8. Commission to abandon the proposal
1053 See, e.g., Mirant at 6–10; FirstEnergy at 27– because it ‘‘poses major practical 1054 EPSA reply comments at 3–4.
31. obstacles for corporate parents that own 1055 FirstEnergy at 30.
having each individual seller revise its its apparent endorsement of market- enumerate the ‘‘myriad of approval,
existing market-based rate tariff to based rates that did not consider the reporting and other obligations’’ 1067
include the standard tariff provisions statutory filing issues found crucial in that constitute the Commission’s
we require in this Final Rule and by MCI. NASUCA also notes that, in oversight and point out that ISOs and
maintaining up-to-date information on another case the Commission relied on, RTOs provide another layer of market
sellers’ affiliates through the submission Mobil Oil Exploration v. United monitoring and mitigation. They state
of asset appendices.1056 Distribution Co.,1062 the Supreme Court that it is preferable to shape market
937. For the benefit of those sellers cited to FPC v. Texaco, where it held power remedies addressing specific
that choose a single corporate tariff, we that just and reasonable rates cannot be circumstances than to revoke market-
clarify that each seller should continue determined solely by reference to based rate tariffs for all sellers.
to report its own transactions using the market prices.1063
docket number under which it initially 940. Some commenters argue that a Commission Determination
received market-based rate authority. finding that competitive markets exist is 943. The Commission rejects
a prerequisite to relying upon market- arguments that it has no authority to
G. Legal Authority
based rate authority to satisfy the adopt market-based rates or that the
1. Whether Market-Based Rates Can mandates of the FPA.1064 Industrial market-based rate program it is adopting
Satisfy the Just and Reasonable Customers contend that the Commission in this rule does not comply with the
Standard Under the FPA may rely on market-based rate authority FPA. The Supreme Court has held that
Comments to produce just and reasonable rates if ‘‘[f]ar from binding the Commission, the
it finds that a competitive market exists FPA’s just and reasonable requirement
938. A number of commenters and the seller lacks or has adequately accords it broad ratemaking
challenge the Commission’s authority to mitigated market power. They submit authority.* * * The Court has
adopt a market-based rate regime.1057 that the duty to determine that a repeatedly held that the just and
State AGs and Advocates contend that competitive market exists is separate reasonable standard does not compel
the courts have never actually reviewed and independent of the determination the Commission to use any single
the Commission’s market-based rate that a seller lacks, or has adequately pricing formula in general. * * *’’ 1068
program and found that it satisfies the mitigated, market power. It is settled law that market-based rates
FPA. They contend that the Commission State AGs and Advocates contend that can satisfy the just and reasonable
in the NOPR cited dictum in Louisiana the market-based rate program offers no standard of the FPA, as most recently
Energy and Power Authority v. way to monitor whether existing reaffirmed by the Ninth Circuit in
FERC,1058 noting that the petitioner in competition results in just and Lockyer and Snohomish,1069 and the
that case did not challenge the reasonable rates, nor a way to check court in Lockyer expressly denied a
Commission’s general policy of rates if it does not.1065 ‘‘facial challenge to the market-based
permitting market-based rates in the 941. In reply, PNM/Tucson argues [rate] tariffs,’’ as discussed below.
absence of market power. They further that the Commission need not entertain 944. In the Lockyer court’s analysis of
argue that the D.C. Circuit in attacks on the existence of competitive the Commission’s market-based rate
Elizabethtown Gas Company v. power markets and the legality of authority, the Ninth Circuit cited the
FERC,1059 relied on dictum in a prior market-based rates under the FPA, as Supreme Court’s determination in Mobil
gas case to the effect that, where markets they constitute collateral attacks on Oil Exploration. It also noted that the
are competitive, it is ‘‘rational’’ to recent Commission decisions and the use of market-based rate tariffs was first
assume that a seller will make ‘‘only a Lockyer opinion, and because a approved (by the courts) as to sellers of
normal return on its investment.’’ State theoretical debate on the subject is natural gas in Elizabethtown Gas, then
AGs and Advocates then criticize the beyond the scope of this rulemaking as to wholesale sellers of electricity in
D.C. Circuit’s opinion, arguing that ‘‘this proceeding. PNM/Tucson asserts that LEPA.
sort of judicial economic theorizing those cases found that market-based 945. Commenters have also argued
does not constitute either the substantial rates are permissible by law and urges that the proposed rule impermissibly
evidence required to support orders of the Commission to reject any attacks on relies solely on the market to determine
this Commission under the [FPA], or the market-based rates generally.1066 just and reasonable rates, as was the
‘empirical proof’ required by the courts 942. Financial Companies respond to
case in Texaco. We reject these
when an agency attempts to substitute State AGs and Advocates’ assertion that
arguments as well.
competition for statutorily required the Commission should suspend or
regulation.’’ 1060 946. In Texaco, the Supreme Court
revoke all market-based rates and return
939. NASUCA similarly questions the found that the Natural Gas Act (NGA)
to cost-of-service ratemaking by
Commission’s reliance on Elizabethtown permits the indirect regulation of small-
commenting that the complaining
Gas as the legal foundation for its producer rates.1070 The Supreme Court
parties mischaracterize the state of the
market-based rate regime. NASUCA wholesale market. Financial Companies 1067 Financial Companies reply comments at 10.
suggests that the Supreme Court’s 1068 See Mobil Oil Exploration v. United
decision in MCI v. AT&T,1061 casts 1062 498
U.S. 211 (1991). Distribution Co., 498 U.S. 211, 224 (1991) (Mobil
considerable doubt on the vitality of 1063 417
U.S. 380, 397 (1974). Oil Exploration), citing FPC v. Hope Natural Gas
1064 Industrial Customers at 3–12; NRECA at 6– Co., 320 U.S. 591, 602 (1944); FPC v. Natural Gas
Elizabethtown Gas and cases that follow
10; State AGs and Advocates reply comments at 17– Pipeline Co., 315 U.S. 575, 586 (1942); Permian
1056 The asset appendix is discussed above in
22. Basin Area Rate Cases, 390 U.S. 747, 776–77 (1968)
1065 State AGs and Advocates reply comments at (Permian); Texaco; Mobil Oil Corp. v. FPC, 417 U.S.
Implementation Process. 283, 308 (1974).
1057 E.g., State AGs and Advocates at 3–13, 18–
18–19, citing Farmers Union (finding reliance on
existing competition, with no monitoring or 1069 Public Utility District No. 1 of Snohomish
28, 38–40; NASUCA at 33–37.
mitigation, unacceptable). County, Washington v. FERC, 471 F.3d 1053 (9th

1058 141 F.3d 364, 365 (D.C. Cir. 1998) (LEPA).
1066 PNM/Tucson reply comments at 3–4 (citing Cir. 2006) (Snohomish).
1059 10 F.3d 866, 870 (D.C. Cir. 1993)
Lockyer and the underlying Commission orders, 1070 Cases under the NGA and the FPA are
(Elizabethtown Gas). State of California, ex rel. Bill Lockyer v. British typically read in pari materia. See, e.g., FPC v.
1060 State AGs and Advocates at 8–9.
Columbia Power Exchange Corp., 99 FERC ¶ Sierra Pacific Power Company, 350 U.S. 348, 353
1061 512 U.S. 218 (1994) (MCI). 61,247, order on reh’g, 100 FERC ¶ 61,295 (2002)). Continued
explained that ‘‘[t]he Act directs that all would be cost-of-service based. In 951. Likewise in LEPA, the D.C.
producer rates be just and reasonable approving the settlement, the Circuit affirmed the Commission’s
but it does not specify the means by Commission had ‘‘determined that approval of an application by Central
which that regulatory prescription is to Transco’s markets are sufficiently Louisiana Electric Company (CLECO) to
be attained. That every rate of every competitive to preclude the pipeline sell electric energy at market-based
natural gas company must be just and from exercising significant market rates. The D.C. Circuit found reasonable
reasonable does not require that the cost power in its merchant function and to the Commission’s conclusion that there
of each company be ascertained and its assure that gas prices are ‘just and are no market power considerations that
rates fixed with respect to its own reasonable’ within the meaning of the should bar CLECO’s application to sell
costs.’’ 1071 The Supreme Court noted NGA section 4.’’ 1077 The Commission at market-based rates. It also found
that it had sustained rate regulation also ‘‘authorized Transco in advance ‘to reasonable the Commission’s conclusion
based on setting area rates that were establish and to change’ individually that even if CLECO had participated in
based on composite cost considerations, negotiated rates free of customer oligopolistic behavior in the past, the
citing its decision in FPC v. Hope challenge under section 4 of the NGA; Commission’s new open access
Natural Gas Co. 1072 The Supreme Court the ‘only further regulatory action’ transmission rules had transformed the
further explained, with respect to the possible under the settlement is the competitive environment. The D.C.
prior area rate cases, ‘‘we recognized Commission’s review of Transco’s Circuit noted that ‘‘competitors outside
that encouraging the exploration for and prices under section 5 of the Act, upon the current, alleged oligopoly will now
development of new sources of natural the Commission’s own motion or upon be able to transmit power into CLECO’s
gas was one of the aims of the Act and the complaint of a customer that is not territory on nondiscriminatory
one of the functions of the Commission. a party to the settlement.’’ 1078 terms.’’ 1082 Thus, according to the D.C.
The performance of this role obviously 949. In Elizabethtown Gas, the D.C. Circuit, the Commission reasonably
involved the rate structure and implied Circuit upheld the Commission’s predicted that it was ‘‘unlikely that
a broad discretion for the approval of market-based pricing, ‘energy suppliers will decline to
Commission.’’ 1073 Quoting Permian holding that ‘‘nothing in FPC v. Texaco participate in the emerging competitive
Basin, the Supreme Court added that precludes the FERC from relying upon markets.’ ’’ 1083 Finally, the D.C. Circuit
‘‘[i]t follows that ratemaking agencies market-based pricing.’’ 1079 The D.C. viewed favorably the Commission’s
are not bound to the service of any Circuit explained that in Texaco, the provision of a safeguard in the event
single regulatory formula; they are Commission had failed to even mention that its predictions are wrong:
permitted, unless their statutory the ‘‘just and reasonable’’ standard and FERC notes that should the Commission’s
authority otherwise plainly indicates, appeared to apply only the ‘‘standard of sanguine predictions about market conduct
‘to make the pragmatic adjustments the marketplace’’ in reviewing the turn out to be incorrect, LEPA can file a new
which may be called for by particular reasonableness of the rate (which the complaint for any abuses of market power
circumstances.’ ’’ 1074 Supreme Court had found to be that do occur. While this escape hatch might
947. The Texaco Court further stated be insufficient if LEPA had shown a
unacceptable). Thus, the D.C. Circuit substantial likelihood that FERC’s
that ‘‘the prevailing price in the explained with approval, ‘‘the FERC has
marketplace cannot be the final measure predictions would prove incorrect, it
made it clear that it will exercise its provides an appropriate safeguard against the
of ‘just and reasonable’ rates mandated section 5 authority (upon its own uncertainties of FERC’s prognostications
by the Act.’’ 1075 But, ‘‘[t]his does not motion or upon that of a complainant) where there has been no such showing.[1084]
mean that the market price of gas would to assure that a market (i.e., negotiated)
never, in an individual case, coincide 952. In the market-based rate program
rate is just and reasonable.’’ 1080 adopted in this rule and through other
with just and reasonable rates or not be
a relevant consideration in the setting of 950. The D.C. Circuit noted that the Commission actions, unlike the
area rates.’’ 1076 Commission had specifically found that situation in Texaco, the Commission is
948. In Elizabethtown Gas, a decision Transco’s markets are sufficiently not relying solely on the market,
relying on Texaco, the D.C. Circuit competitive to preclude it from without adequate regulatory oversight,
addressed a Commission order exercising significant market power. It to set rates. Rather, it has adopted filing
approving a restructuring settlement further noted that the Commission had requirements (EQRs and change in
under which Transcontinental Gas explained that Transco would be status filings for all market-based rate
Pipeline Corporation (Transco) would providing comparable transportation for sellers, regularly scheduled updated
no longer sell gas bundled with all gas supplies and that ‘‘adequate market power analyses for all Category
transportation, but would sell gas at the divertible gas supplies exist’’ to assure 2 market-based rate sellers, 1085), new
wellhead or pipeline receipt point, to be that Transco would have to sell at
transported as the buyer sees fit. The competitive prices. Thus, the D.C. 1082 141 F.3d at 370.
sales would be market-based Circuit concluded that Transco would 1083 Id. (quoting Commission order).
1084 Id. at 370–71 (footnotes and citations
(negotiated) and the rates for not be able to raise its price above the
omitted).
transportation on Transco’s system competitive level without losing 1085 In this Final Rule, the Commission creates
substantial business. ‘‘Such market two categories of sellers. Category 1 sellers
(1956); Arkansas-Louisiana Gas Company v. Hall, discipline provides strong reason to (wholesale power marketers and wholesale power
453 U.S. 571, 578 n.7 (1981). believe that Transco will be able to producers that own or control 500 MW or less of
1071 417 U.S. at 387. charge only a price that is ‘just and generation in aggregate per region; that do not own,
operate or control transmission facilities other than
1072 320 U.S. at 602 (‘‘Under the statutory
reasonable’ within the meaning of limited equipment necessary to connect individual
standard of ‘just and reasonable’ it is the result section 4 of the NGA.’’ 1081 generation facilities to the transmission grid (or
reached not the method employed which is
have been granted waiver of the requirements of
controlling.’’).
1077 10 Order No. 888); that are not affiliated with anyone
1073 Id. at 388. F.3d at 869.
1078 Id.
that owns, operates or controls transmission
1074 Id. at 389, citing Permian, 390 U.S. at 776–
facilities in the same region as the seller’s
777. 1079 Id. at 870. generation assets; that are not affiliated with a
1075 Id. 1080 Id.
franchised public utility in the same region as the
1076 Id. 1081 Id. at 871. seller’s generation assets; and that do not raise other
market manipulation rules, and a than those reviewed by the Lockyer Consistency of Market-Based Rate
significantly enhanced market oversight court. Program With FPA Filing Requirements
and enforcement division to help 954. Accordingly, the Commission Comments
oversee potential market manipulation. rejects the position of commenters
In addition, for sellers in RTO/ISO 956. State AGs and Advocates
arguing that the Commission lacks contend that the Commission’s market-
organized markets, Commission-
authority to continue to permit market- based rate program fails to comply with
approved tariffs contain specific market
rules designed to prevent or mitigate based rates for wholesale sales of the FPA in several ways: (1) It ignores
exercises of market power. electricity. The courts have sustained the FPA mandate that all rates and
953. In Lockyer, the Ninth Circuit the Commission’s finding that market- contracts, as well as all changes in rates
cited with approval the Commission’s based rates are one method of setting and contracts, must be filed in advance
dual requirement of an ex ante finding just and reasonable rates under the FPA. and made open to the public for prior
of the absence of market power and As supplemented by this Final Rule, the review, and instead allows a seller to
sufficient post-approval reporting Commission finds that the market-based simply report rates after-the-fact or, in
requirements and found that the rate program complies with the some cases, not at all; (2) it eliminates
Commission did not rely on market statutory and judicial standards for the statutory mandate that all rate
forces alone in approving market-based acceptable market-based rates. We will increases must be noticed by filing 60
rate tariffs. The Ninth Circuit held that retain our policy of granting market- days in advance so that they can be
this dual requirement was ‘‘the crucial based rate authority to sellers without reviewed and, if warranted, suspended
difference’’ between the Commission’s for up to five months, set for hearing
market power under the terms and
regulatory scheme and the FCC’s with the burden of proof on the seller,
conditions set forth in this Final Rule
regulatory scheme, remanded in MCI, and made subject to refund pending the
and the Commission’s regulations. outcome of the hearing; (3) it provides
which had relied on market forces alone
in approving market-based rate 955. Further, we will retain our no objective or independent standard
tariffs.1086 The Ninth Circuit thus held approach to determining whether a for determining whether ‘‘competitive’’
that ‘‘California’s facial challenge to seller should receive authorization to market-based rates are in fact ‘‘just and
market-based tariffs fails’’ and ‘‘agree[d] charge market-based rates, as modified reasonable;’’1090 (4) it provides no
with FERC that both the Congressionally by the Final Rule, by analyzing seller- standard for determining whether
enacted statutory scheme, and the specific market power. The Commission market rates are unduly preferential or
pertinent case law, indicate that market- has a long-established approach when a discriminatory; and (5) it provides no
based tariffs do not per se violate the seller applies for market-based rate way for consumers in most cases to
FPA.’’ 1087 The Ninth Circuit authority of focusing on whether the know what the ‘‘just and reasonable’’
determined that initial grant of market- seller lacks market power.1089 This rate will be in advance.1091 They also
based rate authority, together with approach, combined with our filing contend that the legal presumptions that
ongoing oversight and timely follow from the Commission’s market
requirements (EQRs, change of status
reconsideration of market-based rate power screens would unduly shift the
filings, and regularly scheduled updated
authorization under section 206 of the burden of demonstrating the existence
market power analyses for Category 2 of market power to intervenors and
FPA, enables the Commission to meet sellers) and ongoing monitoring through
its statutory duty to ensure that all rates away from the Commission. They argue
our enforcement office and complaints that, until an appropriate methodology
are just and reasonable.1088 While the
filed pursuant to FPA section 206, for predicting and checking market
court in Lockyer found that the
Commission’s market-based rate allows us to ensure that market-based power is in place, the Commission must
reporting requirements were not rates remain just and reasonable. suspend its market-based rate regime
followed in that particular case, it did Moreover, for sellers in RTO/ISO and return to cost-of-service rates for all
not find those reporting requirements organized markets, the Commission has wholesale sales of electric power.
invalid and, in fact, upheld the in place market rules to help mitigate 957. NASUCA objects that the
Commission’s market program as the exercise of market power, price caps proposed rules would prohibit utilities
complying with the FPA. The market- where appropriate, and RTO/ISO market from filing new wholesale energy
based rate requirements and oversight monitors to help oversee market contracts,1092 an apparent reference to
adopted in this rule are more rigorous behavior and conditions. As explained the Commission’s policy, since the
in our earlier discussion, we believe that issuance of Order No. 2001,1093 that
vertical market power issues) would not be required the market-based rate program fully long-term affiliate sales contracts under
to file a regularly scheduled updated market power
complies with judicial precedent. a seller’s market-based rate tariff are not
analysis, but would be subject to the change in to be filed.1094 According to NASUCA,
status requirement. Category 2 sellers consist of all
sellers that do not qualify as Category 1 sellers. 1089 See, e.g., Heartland Energy Services, Inc., 68 by not requiring sellers to file long-term
1086 Id. at 1013.
FERC ¶ 61,223, at 62,060–61 (1994); Louisville Gas market-based rate sales contracts, the
1087 Id. at 1013 & n.5; id. at 1014 (‘‘The structure
and Electric Co., 62 FERC ¶ 61,016, at 61,143 n.16 Commission effectively precludes the
of the tariff complied with the FPA, so long as it (1993) (and the cases cited therein); Citizens Power
was coupled with enforceable post-approval & Light Corp., 48 FERC ¶ 61,210, at 61,776 & n.11 1090 State AGs and Advocates express doubt that
reporting that would enable FERC to determine (1989); Pacific Gas and Electric Co. (Turlock), 42 the rate of return for power sold from a highly
whether the rates were ‘just and reasonable’ and FERC ¶ 61,406, at 62,194–98, order on reh’g, 43 depreciated coal plant in an auction process at a
whether market forces were truly determining the
FERC ¶ 61,403 (1988); Pacific Gas and Electric Co. market price equal to the marginal cost of a new,
price.’’).
1088 See Snohomish, 471 F.3d at 1080 (in which
(Modesto), 44 FERC ¶ 61,010, at 61,048–49, order gas-fired plant could be within a zone of
on reh’g, 45 FERC ¶ 61,061 (1988). See also, e.g., reasonableness. State AGs and Advocates at 25–26.
the Ninth Circuit discusses its decision in Lockyer). 1091 Id. at 19–20.
In Snohomish, the Ninth Circuit explained, ‘‘As in LEPA, 141 F.3d at 365; Consumers Energy Co., 367
Lockyer, we do not dispute that FERC may adopt F.3d 915 at 922–23 (D.C. Cir. 2004) (upholding 1092 NASUCA at 32–33.
a regulatory regime that differs from the historical Commission orders granting market-based rate 1093 Revised Public Utility Filing Requirements,
cost-based regime of the energy market, or that authority, noting that the Commission’s Order No. 2001, 67 FR 31043 (May 8, 2002), FERC
market-based rate authorization may be a tenable longstanding approach is to assess whether Stats. & Regs., Regs. Preambles 2001–2005 ¶ 31,127
choice if sufficient safeguards are taken to provide applicants for market-based rate authority do not (2002). See 18 CFR 35.10b.
for sufficient oversight.’’ Id. at 1086. have, or have adequately mitigated, market power). 1094 NASUCA at 27–29.
public and others from objecting before of those filings to the Commission’s opportunity for a hearing, with the
the rates take effect. Additionally, discretion. Public utilities must file burden of proof on the seller to show
NASUCA states that there is no ‘‘schedules showing all rates and that it lacks, or has adequately
statutory basis for a Commission rule charges’’ under ‘‘such rules and mitigated, market power, and for the
directing sellers not to file their rates regulations as the Commission may imposition of a refund obligation. In
when the statute says exactly the prescribe,’’ and ‘‘within such time and addition, if a seller is granted market-
opposite.1095 AARP similarly comments in such form as the Commission may based rate authority, it must comply
that the Commission’s policy of designate.’’1102 with post-approval reporting
monitoring long-term market-based 960. We note that the courts have requirements, including the quarterly
sales through quarterly reports is too recognized the Commission’s discretion filing of transaction-specific data in
little oversight too late to ensure that in establishing its procedures to carry EQRs,1105 change of status filings for all
such rates are just and reasonable. out its statutory functions. For example, sellers, and regularly-scheduled
AARP argues that the Commission the Ninth Circuit, in denying a updated market power analyses for
should reconsider its policy on affiliate California Commission request to order Category 2 sellers.
transactions and asserts that all affiliate the Commission to adopt different 963. In addition, we disagree with
contracts should be filed and reviewed market-based rate tariff reporting State AGs and Advocates’ arguments
under section 205 to comply with the requirements, observed: that the Commission failed to show how
express requirements under the Congress specified that filings be made competitive market-based rates are just
FPA.1096 ‘‘within such time and with such form’’ and and reasonable and not unduly
958. NASUCA also argues that the under ‘‘such rules and regulations as the discriminatory or preferential. The
proposed rule allows sellers with cost- Commission may prescribe.’’ 16 U.S.C. standard for judging undue
based rates to declare their own rates § 824d(c). Thus, so long as FERC has discrimination or preference remains
without filing them, subject to approved a tariff within the scope of its FPA what it has always been: Disparate rates
authority, it has broad discretion to establish or service for similarly situated
Commission review when the sales are effective reporting requirements for
for less than one year. It contends that administration of the tariff.[1103]
customers.1106 As the Commission has
the burden of proof, under Farmers 961. The market-based rate tariff, with held in prior cases, and as the courts
Union Central Exchange, Inc. v. its appurtenant conditions and have upheld, rates that are established
FERC 1097 and Texaco,1098 is on the requirement for filing transaction- in a competitive market can be just,
Commission to demonstrate empirical specific data in EQRs, is the filed rate. reasonable and not unduly
proof that consumers are provided the As the Commission has held, if every discriminatory.1107 Rates do not have to
‘‘complete, effective and permanent service agreement under a previously- be set by reference to an accounting cost
bond of protection from excessive rates’’ granted market-based rate authorization of service to be just, reasonable and not
that the statute anticipates.1099 had to be filed for prior approval, then unduly discriminatory. When the
the original market-based rate Commission determines that a seller
Commission Determination lacks market power, it is therefore
authorization would be a pointless
959. We reject State AGs and exercise.1104 making a determination that the
Advocates’ arguments that the 962. We also disagree with State AGs resulting rates will be established
Commission’s market-based rate and Advocates’ argument that the through competition, not the exercise of
program fails to comply with the FPA. market-based rate program eliminates market power. Furthermore, the
Contrary to State AGs and Advocates’ the statutory mandate that all rate Commission’s market-based rate
contention that the Commission’s increases be noticed by filing 60 days in program includes many ongoing
market-based rate program ‘‘ignores the advance and, if warranted, suspended regulatory protections designed to
FPA mandate that all rates and for up to five months, set for hearing ensure that rates are just and reasonable
contracts, as well as all changes in rates with the burden of proof on the seller, and not unduly discriminatory or
and contracts, must be filed in advance and made subject to refund pending the preferential. The filing and reporting
and made open to the public for prior outcome of the hearing. The requirements incorporated into the
review’’ and instead ‘‘allows sellers to Commission has developed a thorough market-based rate program (EQRs,
simply ‘report’ rates after-the-fact, or in process to evaluate the sellers that it change in status filings, regularly-
some cases, not at all,’’1100 as the courts authorizes to enter into transactions at scheduled updated market power
have found, the Commission’s market- market-based rates. Under the market- analyses) help the Commission to
based rate program does not violate the based rate program, the rate change is prevent, to discover and to remedy
FPA’s filing requirements. The FPA initiated when a seller applies for exercises of market power and unduly
requires that every public utility file authorization of market-based rate discriminatory rates. In addition, the
with the Commission ‘‘schedules pricing. All applications are publicly adoption of pro forma transmission
showing all rates and charges for any noticed, entitling parties to challenge a tariff provisions that apply industry-
transmission or sale subject to the seller’s claims. At that time, there is an
1105 The Ninth Circuit found the pre-EQR
jurisdiction of the Commission,’’1101 but quarterly reporting requirements to be ‘‘integral to
it explicitly leaves the timing and form 1102 Id.
the [market-based rate] tariff’’ and that they,
1103 Lockyer, 383 F.3d at 1013. See also Wabash
together with the Commission’s initial approval of
1095 Id.at 28. Valley Power Association v. FERC, 268 F.3d 1105, market-based rate authority, comply with the FPA’s
1096 AARP at 12. 1115 (citing with approval the Commission’s requirements. Lockyer, 383 F.3d at 1016. As
1097 734 F.2d 1486 (D.C. Cir. 1984), cert. denied
authority to fix just and reasonable rates under discussed elsewhere in this Final Rule, through the
section 206 as a condition of its market-based rate EQRs, the Commission has enhanced and updated
sub nom. Williams Pipe Line Company v. Farmers authorization); Environmental Action v. FERC, 996 the post-transaction quarterly reporting filing
Union Central Exchange, Inc., 469 U.S. 1034 (1984) F.2d 401, 407–08 (D.C. Cir. 1993) (in which the D.C. requirements that were in place during the period
(Farmers Union).
Circuit recognized ‘‘the Commission’s at issue in Lockyer.

1098 417 U.S. 380 (1974).
determination to streamline its regulatory process to 1106 See, e.g., Southwestern Electric Cooperative,
1099 NASUCA cites Atlantic Ref. Co. v. Pub. Serv.
keep pace with advances in information technology. Inc. v. FERC, 347 F.3d 975, 981 (D.C. Cir. 2003).
Comm’n of State of N.Y., 360 U.S. 378, 388 (1959). Ratemaking is a time-consuming process.’’). 1107 See, e.g., Lockyer, 383 F.3d at 1012–13; Tejas
1100 State AGs and Advocates at 19. 1104 GWF Energy LLC, 98 FERC ¶ 61,330, at 62,390 Power Corp. v. FERC, 980 F.2d 998, 1004 (D.C. Cir.
1101 16 U.S.C. 824d(c). (2002). 1990).
wide ensures that potential customers Under the Commission’s current filing discretion to determine the procedures
are treated similarly in obtaining requirements in 18 C.F.R. Part 35, individual to carry out our statutory duties, our
transmission access to energy providers. service agreement filings associated with market-based rate program fully
approved tariffs require a significant amount complies with the requirements of the
Moreover, Commission-approved RTOs
of time, effort, and expense on the part of
and ISOs run real-time energy markets public utilities to prepare and serve on their FPA.1112
under Commission-approved tariffs.1108 customers and the Commission. These 968. Although State AGs and
These single price auction markets set individual filings also require a significant Advocates also argue that the legal
clearing prices on economic dispatch amount of staff time and effort associated presumptions that follow from the
principles, to which various safeguards with docketing, noticing, loading the Commission’s market power screens
have been added to protect against information onto RIMS, and other processing would unduly shift the burden of
anomalous bidding. tasks. Further, the information contained in demonstrating the existence of market
964. Thus, the Commission, through such filings that is most relevant to power to intervenors, the Commission
customers and the Commission could also be previously addressed and rejected this
its ongoing oversight of market-based provided in an alternative, streamlined form,
rate authorizations and market argument. On rehearing of the April 14
thus continuing to satisfy the requirements of
conditions, may take steps to address FPA section 205(c), but in a more efficient
Order, the Commission explained that
seller market power or modify rates manner. Accordingly, we propose to replace nothing in that order shifts the burden
should those steps be necessary. For the filing of individual service agreements of proof that section 205 imposes on the
example, based on its review of updated and Quarterly Transaction Reports with the filing utility. Passing both screens or
market power updates, its review of filing of an electronic Index of Customers. failing one merely establishes a
EQR filings made by market-based rate This format will greatly increase the rebuttable presumption. To challenge a
sellers, and its review of required accessibility and usefulness of the relevant seller who passes both screens, the
data, which will confer greater benefits to the intervenor need not conclusively prove
notices of change in status, the public.1110
Commission may institute a section 206 that the seller possesses market power.
proceeding to revoke a seller’s market- 966. The Commission implemented Rather, the intervenor need only meet a
based rate authorization if it determines the revised filing requirements in Order burden of going forward with evidence
that the seller may have gained market No. 2001. In so doing, it further that rebuts the results of the screens. At
power since its original market-based explained that: that point, the burden of going forward
rate authorization. The Commission The revised filing public utility would revert back to the seller to prove
may also, based on its review of EQR requirements adopted in this Final Rule that it lacks market power.1113
filings or daily market price create a level playing field vis-à-vis the filing Ultimately, the burden of proof under
information, investigate a specific utility requirements applicable to traditional section 205 belongs to the seller.
or anomalous market circumstances to utilities and power marketers. While the data 969. With respect to NASUCA’s and
to be reported in the data sets reduces public AARP’s concern about long-term
determine whether there has been any utilities’ overall reporting burden as affiliate sales contracts not being filed,
conduct in violation of RTO/ISO market compared to existing requirements, it is we note that since 2002, the
rules or Commission orders or tariffs, or hoped that the Electric Quarterly Reports’ Commission’s regulations have
any prohibited market manipulation, more accessible format will make the provided that long-term market-based
and take steps to remedy any violations. information more useful to the public and the
rate power sales service agreements,
These steps could include, among other Commission will better fulfill the public
utilities’ responsibility under FPA section with affiliates or otherwise, are not to be
things, disgorgement of profits and
205(c) to have rates on file in a convenient filed with the Commission.1114
refunds to customers if a seller is found
form and place. The data should provide Although commenters acknowledge that
to have violated Commission orders,
greater price transparency, promote the Commission first considers in a
tariffs or rules, or a civil penalty paid to competition, enhance confidence in the separate proceeding whether to
the United States Treasury if a seller is fairness of markets, and provide a better authorize affiliate transactions, they
found to have engaged in prohibited means to detect and discourage believe that the Commission should
market manipulation or to have violated discriminatory practices.1111 nevertheless review the resulting rates
Commission orders, tariffs or rules. 967. Thus, we find that the multiple in a proceeding under FPA section 205
965. In the NOPR that preceded Order layers of filing and reporting before they go into effect.
No. 2001, the Commission noted that it requirements incorporated into the 970. NASUCA and AARP have not
needed to make changes to keep abreast market-based rate program meet the convinced us that this practice needs to
of developments in the industry, e.g., it filing requirements of the FPA and, in be modified as a legal or policy matter.
had approved umbrella tariffs for conjunction with our enhanced market Our market-based rate program
market-based rates by public utilities oversight and enforcement functions incorporates numerous protections
and there had been a significant within the Commission, as well as the against excessive rates, regardless of the
increase in the number of section 205 ability of the public to file section 206 identities of the parties to a transaction,
filings after the Commission’s open complaints, provide adequate protection and commenters do not provide any
access initiatives in Order Nos. 888 and from excessive rates. Given our broad compelling reason why affiliate
889.1109 The Commission explained: transactions should be treated any
62 FR 12484 (1997), FERC Stats. & Regs., Regs. differently. To the extent that a
1108 Inresponse to State AGs and Advocates’ Preambles ¶ 31,049 (1997), reh’g denied, Order No.
argument about the rate of return for a seller 889–B, 81 FERC ¶ 61,253 (1997), aff’d in part and
1112 Moreover, the decision to eliminate the filing
receiving a market clearing price for power sold in rev’d in part sub nom Transmission Access Policy
Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), of market-based rate contracts was made almost five
an auction process, the issue does not concern
aff’d sub nom. New York v. FERC, 535 U.S. 1 years ago in a generic rulemaking proceeding that
whether a particular seller should have market-
(2002). was open to participation by all interested parties.
based rate authority, and it is more appropriately
Commenters’ failure to raise this concern in that
addressed in the context of an RTO/ISO proceeding 1110 Revised Public Utility Filing Requirements,
proceeding precludes them from attacking the

rather than in this rulemaking proceeding. Notice of Proposed Rulemaking, FERC Stats. & Commission’s well-settled practice here.
1109 Open Access Same-Time Information System
Regs., Proposed Regulations 1999–2003, ¶ 32,554 at 1113 July 8 Order, 108 FERC ¶ 61,026 at P 29.
34,062 (2001).
and Standards of Conduct, Order No. 889, 61 FR 1114 See 18 CFR 35.1(g) (‘‘[A]ny market-based rate
21737 (1996), FERC Stats. & Regs., Regs. Preambles 1111 Order No. 2001, FERC Stats. & Regs., Regs. agreement pursuant to a tariff shall not be filed with
¶ 31,037 (1996), order on reh’g, Order No. 889–A, Preambles 2001–2005 ¶ 31,127 at P 31. the Commission’’).
particular affiliate relationship presents under section 206. Even if section 206 power marketer or power producer, is
issues of concern, they will be were read to require the establishment not a franchised public utility.
considered in the context of our of a refund effective date in rulemakings 976. In the NOPR, the Commission
determination whether to authorize any initiated under section 206, rather than noted that, as the development of
affiliate sales. Accordingly, we will only in case-specific section 206 competitive wholesale power markets
continue to direct sellers not to file investigations initiated by complaints or
continues, independent and affiliated
long-term market-based rate sales sua sponte by the Commission,1116 we
power marketers and power producers
contracts, unless otherwise permitted by have broad discretion to adopt generic
Commission rule or order. policy or make generic findings through are playing more significant roles in the
971. Regarding NASUCA’s assertion either a rulemaking or adjudication, and electric power industry. In light of the
that our proposals would allow sellers we have discretion whether to order evolving nature of the electric power
with cost-based rates to declare their refunds.1117 This proceeding is not an industry, the Commission sought
own rates without filing them, we adjudicatory investigation of public comment on the extent to which these
emphasize that all mitigation proposals, utilities’ existing market-based rate entities with market-based rate authority
whether based on the default cost-based tariffs for which refunds will be should be required to follow the USofA;
rates or some other cost-based rates, required. Rather, we are modifying what financial information, if any,
must be filed with the Commission for existing market-based rate tariffs should be reported by these entities;
review. As we make clear above in the prospectively only through this how frequently it should be reported;
Mitigation section of this Final Rule, rulemaking.1118 Accordingly, the and whether the Part 34 blanket
any such filings are noticed, and establishment of a refund effective date authorizations continue to be
interested parties are given an in this rulemaking would be appropriate.
opportunity to intervene, comment on, meaningless. 977. The Commission noted that some
or protest the submittal.
H. Miscellaneous sellers have had their market-based rate
2. Whether Existing Tariffs Must Be authority revoked, or have elected to
Found To Be Unjust and Unreasonable, 1. Waivers
relinquish their market-based rate
and Whether the Commission Must Commission Proposal authority after a presumption of market
Establish a Refund Effective Date 975. The Commission has granted power, and have begun or resumed
Comments certain entities with market-based rate selling power at cost-based rates. As
authority, such as power marketers and discussed in the April 14 Order, any
972. NASUCA states that the
independent or affiliated power waivers previously granted in
Commission invokes sections 205 and
producers, waiver of the Commission’s connection with those sellers’ market-
206 of the FPA as authority for the
Uniform System of Accounts (USofA) based rate authority are no longer
proposed action, including modifying
all existing market-based rate requirements, specifically waiver of applicable. Thus, the Commission
authorizations and tariffs so they will be Parts 41, 101, and 141 of the currently rescinds any accounting and
expressly conditioned on or revised to Commission’s regulations.1119 The reporting 1120 waivers for mitigated
reflect certain new requirements. Commission has also granted blanket sellers in the mitigated control area.
NASUCA submits that any action taken approval under Part 34 of the Similarly, the Commission stated in the
under section 206 must be prefaced by Commission’s regulations for future April 14 Order that it would rescind any
a Commission finding that existing rates issuances of securities and assumptions blanket authorizations under Part 34 for
are unjust and unreasonable and the of liability where the entity seeking the mitigated seller and its affiliates. In
fixing of a refund effective date. It market-based rate authority, such as a the NOPR, the Commission proposed
argues that the Commission has failed to that, in the case of any affiliates, this
1116 The Congressional intent of the Regulatory
make express findings necessary to would entail rescission of blanket
Fairness Act of 1988 (RFA), which added the refund
support its proposal to modify all effective date provision to section 206, was to authorizations in all geographic areas,
existing market-based rate tariffs under expedite the resolution of complaint proceedings. not just the mitigated control area.
section 206 or to explain how it can Congress believed that, pre-RFA, public utilities
had little incentive to settle meritorious section 206 978. The Commission proposed in the
modify the existing tariffs without complaints since any relief was prospective only, NOPR that any repeal of previously
finding that they are not just and and the public utilities kept any revenues collected granted waivers become effective 60
reasonable and establishing a refund during the pendency of a section 206 proceeding.
days from the date of an order repealing
effective date.1115 The purpose of the legislation was to ‘‘correct this
problem by giving FERC the authority to order such waivers in order to provide the
Commission Determination refunds, subject to certain limitations.’’ S. Rep. No. affected utility with time to make the
491, 100th Cong., 2d Sess. 3 (1988), reprinted in necessary filings with the Commission
973. As discussed above in the MBR 1988 U.S.C.C.A.N. 2684, 2685. In so doing,
Tariff section, in requiring all sellers to Congress left it to the Commission’s discretion to and to allow for an orderly transition
revise their existing market-based rate determine when the public interest would be served from selling under market-based rates to
by requiring refunds under section 206, stating cost-based rates. The Commission
tariffs to include certain standard ‘‘Because the potential range of these situations
provisions, the Final Rule finds that cannot be fully anticipated, no attempt has been
sought comment on that proposal. The
continuing to allow basic made to enumerate them here.’’ S. Rep. No. 491, Commission also sought input regarding
inconsistencies in the market-based rate 100th Cong., 2d Sess. 6, reprinted in 1988 any difficulties sellers may have when
U.S.C.C.A.N. 2688. Nowhere in the Senate Report transitioning to cost-based rates and
tariffs on file with the Commission is does Congress mention setting refund effective
unjust and unreasonable. Thus, dates in rulemakings. whether a prior waiver of the
NASUCA’s concern in that regard is 1117 See, e.g., Lockyer, 383 F.3d at 1016. accounting regulations would leave
addressed. 1118 E.g., Wisconsin Gas Co. v. FERC, 770 F.2d them without adequate data to come
974. We disagree with NASUCA that 1144, 1166 (D.C. Cir. 1985); SEC v. Chenery, 332 into conformance with the accounting
U.S. 194, 202–03, reh’g denied, 332 U.S. 747 (1947).
we must establish a refund effective 1119 Part 41 pertains to adjustments of accounts
rules.
date because we are establishing rules and reports; Part 101 contains the Uniform System
of Accounts for public utilities and licensees; Part 1120 See 18 CFR 41.10–41.12, 141.1, 141.2 and
1115 NASUCA at 32. 141 describes required forms and reports. 141.400.
a. Accounting Waivers and the Commission’s regulations requiring power marketers and power
promulgated thereunder.1124 producers, who do not otherwise have
Comments 982. APPA/TAPS suggest that the a cost-based rate on file with the
979. The majority of commenters who Commission provide waivers to Commission, to comply with the USofA
comment on this topic urge the Category 1 sellers, but not for Category outweigh the added oversight the
Commission to retain existing waivers 2 sellers.1125 In response to the Commission might gain in this regard.
of the accounting regulations.1121 They Commission’s question about the 985. As we have done in the past,
orderly transition from market-based to previously granted waivers of the
submit that the Commission’s
cost-based rates and the role that accounting requirements will continue
accounting requirements are only
waivers may play in making that to be rescinded where a seller is found
relevant when the utility or marketer
transition more difficult, APPA/TAPS to have market power (or where the
that is being regulated charges cost- suggest that Category 2 sellers are more seller accepts a presumption of market
based rates. EPSA states that where a likely than Category 1 sellers to lose power) and the seller proposes cost-
market-based rate seller neither has market-based rate authority and find based rate mitigation or the Commission
cost-of-service rates nor captive themselves subject to cost-based rates; imposes cost-based rate mitigation.
customers from which to recover cost- accordingly, not providing the waivers Although the Commission stated in the
of-service rates, requiring such entities for Category 2 sellers should address NOPR that it would also revoke the
to comply with the USofA would be these transition concerns. accounting waivers for any of the
burdensomely expensive and would mitigated seller’s affiliates with market-
serve no purpose. The commenters Commission Determination
based rates in the mitigated balancing
explain that there has been no change in 983. We will continue the authority area, we clarify that we will
the industry that warrants a departure Commission’s historical practice of not require revocation of the accounting
from the Commission’s precedent. granting waiver of Parts 41, 101, and and reporting waivers for a power
Commenters state that a change in 141 of the Commission’s regulations to marketer affiliated with a mitigated
policy would serve no public benefit, certain entities with market-based rate seller where such power marketer has
and the costs that such market-based authority. We agree with EPSA that no assets, no cost-based rate on file, and
rate sellers would have to incur in order little purpose would be served to its applicable tariff prohibits sales in the
to collect and report such data would require compliance with accounting mitigated balancing authority area.1128
substantially outweigh the benefit of regulations for entities that do not sell 986. With regard to APPA/TAPS’s
collecting and reporting it. at cost-based rates and do not have suggestion that the Commission provide
captive customers. Such entities waivers to sellers that qualify for
980. Financial Companies state that typically include power marketers and Category 1 and not to sellers that qualify
there is no reason for the Commission independent and affiliated power for Category 2, we decline to adopt such
to run the risk of discouraging producers that are not franchised public an approach. While APPA/TAPS may be
participation in the energy markets and utilities.1126 correct that Category 2 sellers are more
chilling investment by requiring power 984. We conclude that the costs of likely than Category 1 sellers to possess
marketers and power producers who complying with the Commission’s market power, we do not grant such
currently lack market power to comply USofA requirements and, specifically accounting waivers based on the size of
with the USofA absent concrete Parts 41, 101, and 141 of the the seller (which is, to a great extent, the
evidence that the wholesale power Commission’s regulations, outweigh any critical factor in determining in which
markets are being harmed by the incremental benefits of such compliance category the seller is placed). Rather, as
Commission’s current practice of where the seller only transacts at discussed above, the waivers are granted
granting waivers or blanket market-based rates.1127 Further, the risk on the basis of whether the seller is a
authority.1122 of discouraging participation in the franchised public utility or otherwise is
981. Absent special circumstances, energy markets and the potential selling at cost-based rates.
Sempra supports the current waivers chilling effect on investment caused by 987. Finally, we note that all sellers,
and explains that the electric quarterly irrespective of accounting or other
transaction reports submitted pursuant
1124 Sempra at 8–9, citing Public Utility Holding
waivers, must file EQRs regarding their
Company Act of 2005, Pub. L. No. 109–58 1261 et transactions. In addition, we agree with
to Order No. 2001 1123 provide detailed seq., 119 Stat. 594 (2005) (PUHCA 2005).
information regarding transactions 1125 However, any such waivers should not APPA/TAPS that any waivers in this
exempt a holding company or service company rule do not exempt a holding company
entered into by entities authorized to
from applicable reporting requirements under the or service company from applicable
make market-based rate sales. Sempra Commission’s PUHCA 2005 regulations. APPA/ reporting requirements under the
also notes that the retention of these TAPS at 29–30.
Commission’s PUHCA 2005 regulations.
waivers for market-based rate entities is 1126 Likewise, we will continue to grant waiver of
also consistent with the treatment of Subparts B and C of Part 35 of the Commission’s b. Timing
regulations requiring the filing of cost-of-service
power marketers and exempt wholesale information, except for 18 CFR 35.12(a), 35.13(b), Comments
generators (EWGs) under the Public 35.15 and 35.16. We note that this waiver would
Utility Holding Company Act of 2005 not be granted to an entity that makes sales at cost- 988. Regarding the proposal that
based rates. rescission of accounting and reporting
1121 See, e.g., Ameren at 23–24; EPSA at 33–36;
1127 We have previously stated that Parts 41, 101
waivers become effective 60 days from
and 141 prescribe certain accounting and reporting the date of an order rescinding such
Constellation at 23–27; EEI at 49–52; Morgan requirements that focus on the assets that a utility
Stanley at 9–10; Ormet at 15–17; PPM at 6–7. owns, and waiver of these requirements is waivers, several commenters state that
1122 Financial Companies at 18.
appropriate where the utility ‘‘will not own any 60 days may not be enough time for
1123 Revised Public Utility Filing Requirements, such assets, its jurisdictional facilities will be only sellers who have their market-based rate
Order No. 2001, 67 FR 31043 (May 8, 2002), FERC corporate and documentary, its costs will be authority revoked, or have elected to
Stats. & Regs. ¶ 31,127 (2002); reh’g denied, Order determined by utilities that sell power to it, and its
2001–A, 100 FERC ¶ 61,074 (2002); reconsideration earnings will not be defined and regulated in terms relinquish their market-based rate
and clarification denied, Order No. 2001–B, 100 of an authorized return on invested capital.’’
FERC ¶ 61,342 (2002); further order, Order No. Citizens Power & Light Corp., 48 FERC ¶ 61,210 at 1128 See, e.g., APS Energy Services Company, Inc.,
2001–C, 101 FERC ¶ 61,314 (2002). 61,780 (1989). 117 FERC ¶ 61,158 (2006).
authority after a presumption of market regulations granted in connection with the year in which the rescission of the
power and have begun or resumed a seller’s market-based rate authority accounting and reporting waivers
selling power at cost-based rates, to will become effective 60 days from the becomes effective.1138 For example, if
conform to the Commission’s date of an order revoking such waivers. the effective date of rescission occurs on
accounting requirements.1129 We believe that this strikes a reasonable May 15, the seller must make the 3–Q
989. EEI supports providing such balance between the need to have filing for the second quarter (April–
companies at least six months post adequate financial information on file June) at its regularly scheduled time
revocation to comply with USofA with the Commission and the desire to even though it has not previously filed
recordkeeping requirements.1130 EEI provide sellers adequate time to comply. a Form 1.1139 If a particular seller is
states that the Commission should allow 992. In our consideration of the unable to meet the applicable filing
the companies to begin keeping records transition period for complying with the dates, it may petition the Commission
under the USofA starting at the accounting and reporting requirements, for an extension. We will consider such
beginning of the next calendar year, or the Commission finds that commenters requests on a case-by-case basis.
the companies’ fiscal year, if different, have not sufficiently supported their
and to report the information the c. Part 34 Waivers Blanket
request for a transition period of six
following year.1131 argues that to put Authorizations
months or more. EEI’s arguments with
USofA in place and begin complying respect to the time and money required Comments
with the Commission’s reporting to train staff and modify and test 994. In response to the Commission’s
requirements such as the annual FERC accounting software do not outweigh inquiry regarding whether Part 34
Form 1 and quarterly FERC Form No. the need for the Commission to obtain blanket authorizations (pertaining to
3–Q takes substantial company time and financial information with regard to issuances of securities or assumptions of
resources. EEI explains that companies mitigated sellers so that we can meet liabilities) continue to be appropriate,
must put the necessary accounts and our obligation under the FPA to ensure all commenters addressing the issue
reporting formats in place within their that rates remain just and reasonable urge the Commission to retain its
accounting systems. This involves and not unduly discriminatory or current policy.1140 They submit that
substantial training of staff, preferential. We note that our Commission oversight of securities
modification of accounting software, experience has shown that a 60-day issuances and assumptions of liabilities
testing to ensure proper internal transition period is sufficient time for a is only relevant for franchised public
controls under the Sarbanes Oxley Act mitigated seller to comply with the utilities and that prior authorization
of 2002,1132 and review by company accounting requirements.1134 under section 204 is not necessary for
management and internal and external 993. In response to Constellation’s market-based rate sellers that do not
auditors to ensure accuracy under the request for clarification, we clarify that intend to ‘‘become a public service
securities laws and the Sarbanes Oxley a seller losing or relinquishing its franchised providing electricity to
Act. EEI submits that these measures market-based rate authority will be consumers dependent upon [their]
can be quite costly—in the millions of required to maintain its accounts in services.’’ 1141 Financial Companies
dollars for larger companies—and they accordance with the Commission’s state that there is no reason for the
take time to implement. USofA 1135 and will be subject to Commission to risk adversely affecting
990. Constellation supports the 60- quarterly and annual reporting energy markets by requiring entities that
day transition period as reasonable but requirements (FERC Form Nos. 3–Q, 1,
seeks clarification that under this currently lack market power to secure
or 1–F) 1136 as of the effective date of the agency approval each time they want to
approach the entity would be required rescission of such waivers, i.e., 60 days
to (1) Maintain its accounts in issue securities or assume liabilities.
from the date of the order rescinding the 995. With regard to the statement in
accordance with the Commission’s waivers. In this regard, such sellers will the NOPR that the Commission will
USofA only for periods beginning at the be required to comply with our rescind blanket authorizations for the
end of such transition period, and (2) accounting regulations (Part 101) mitigated seller and its affiliates in all
obtain specific authorization for beginning with the effective date of the geographic areas, not just the mitigated
securities to be issued, or liabilities to rescission of such waiver. For quarterly
be assumed, subsequent to the end of control area, Duke strongly opposes
reporting in FERC Form No. 3–Q, the rescission of blanket section 204
such transition period.1133 seller will be required to submit FERC authorizations for all affiliates of the
Commission Determination Form No. 3–Q beginning with the mitigated seller in all markets. Duke
991. We adopt the NOPR proposal quarter in which the rescission of the
that rescission of waivers of Parts 41, accounting and reporting waivers 1138 The first annual filing of FERC Form No. 1
101 and 141 of the Commission’s becomes effective.1137 The seller will or 1–F will include information beginning with the
also be required to submit a FERC Form effective date of the rescission through the end of
the calendar year. Additionally, there is a
1129 See Ameren at 24; EEI at 48–49; Mirant at 15–
No. 1 or 1–F, as applicable, beginning in requirement that goes along with these forms that
16. requires the submission of a CPA Certification
1130 Mirant 1134 See Entergy Services, Inc, 115 ¶ FERC 61,260 Statement (18 CFR 41.10–41.12).
also supports providing six months to
comply with the reporting requirements and states (2006) (revoking waivers and authorizations 1139 In this example, the seller’s 3–Q for the
that, in addition, the Commission should grant previously granted to certain Entergy Affiliates). second quarter must reflect our accounting
extensions to that deadline based upon a Accounting systems were in place within 60-days regulations as of May 15, the effective date of
demonstration that the entity is working in good from the effective date of the order rescinding the rescission of such waivers.
faith to comply with the deadline but, due to factors waivers and the company was granted an additional 1140 See, e.g., Cogentrix at 3–6; PPL at 25–27; TXU
beyond the entity’s control, the deadline needs to 30-day extension to file the upcoming quarterly at 5–7; AWEA at 4–5; Duke supplemental
be extended. Mirant at 15–16. report. See Entergy Services, Inc., Docket No. AC06– comments at 1–8; Powerex at 26–28.
1131 EEI at 48–49. 257–000 (Nov. 21, 2006) (unpublished letter order). 1141 See Cogentrix at 5, citing Citizens Energy
1132 Sarbanes Oxley Act of 2002, Pub. L. 107–204, 1135 18 CFR Part 101.
Corp., 35 FERC ¶ 61,336 at 61,455 (1986). Cogentrix
116 Stat. 745. 1136 See 18 CFR 141.1, 141.2, 141.400.
notes that entities with such blanket authorizations
1133 Constellation at 33. See also PPL at 26–27 1137 The first quarterly filing made by the seller do not provide the service that franchised utilities
(supports proposal to keep waivers effective for 60 will include information from the effective date of are obligated to offer to their captive customers and
days from date of order revoking market-based rate the rescission through the end of the calendar that FPA section 204 and 18 CFR Part 34 are
authority). quarter. intended to protect.
urges the Commission to limit such to obtain (or retain) blanket section 204 clarify that the effective date for
rescission only to those market-based authorizations. rescinding blanket authorization under
rate sellers making sales to captive Part 34 will be commensurate with the
customers in areas where there is a date on which a mitigated seller begins
finding of market power.1142 Duke states 998. We will continue to grant blanket to sell power at cost-based rates.
that the purpose of section 204 is to approval under Part 34 for future Further, sellers losing their market-
ensure the financial viability of issuances of securities and assumptions based rate authority must file with the
franchised public utilities. As a result, of liability where the entity seeking Commission to obtain specific
prior authorization is appropriate for market-based rate authority, such as a authorization for securities to be issued,
independent and affiliated power power marketer or power producer, is or liabilities to be assumed, prior to the
marketers with market-based rate not a franchised public utility or does date the seller first sells at cost-based
authority who do not intend to assume not otherwise provide requirements rates.
public service franchise obligations. service at cost-based rates.1143 The
996. Duke argues that the Commission Commission traditionally has granted 2. Sellers Affiliated With a Foreign
has not explained how issuance of a blanket authorization for the issuance of Utility
security or assumption of a liability by securities and assumptions of liability to Commission Proposal
an affiliated marketer or merchant power sellers not subject to cost-based
generator could be contrary to the rate regulation, i.e., power sellers that 1000. Under existing policy, a seller
public interest merely because an have market-based rate authority.1144 As affiliated with a foreign utility selling in
affiliate is deemed to have market power the Commission has explained in the United States (and each of its
in power sales markets in a particular previous cases involving market-based affiliates) must not have, or must have
geographic area. Duke asserts that there rate authority in which the sellers mitigated, market power in generation
is no evidence presented in the NOPR sought blanket authorization of and transmission and not control other
that would support the presumed issuances of securities or assumptions of barriers to entry. In addition, the
linkage between a determination of a liability, the purpose of section 204 of Commission considers whether there is
seller’s market power in a particular the FPA, which Part 34 implements, is evidence of affiliate abuse or reciprocal
geographic market and the ability of that to ensure the financial viability of dealing. However, for sellers affiliated
seller’s affiliates to leverage such market public utilities obligated to serve with a foreign utility, the Commission
power in other geographic markets consumers of electricity.1145 has allowed a modified approach to the
through their issuances of securities or Accordingly, where the seller is not a current four prongs.
debt. Duke says that this is especially franchised public utility providing
1001. With regard to generation
true in the case of entities such as the electric service to customers under cost-
market power, should any of the seller’s
Duke affiliates, which have amended based regulation and has market-based
first-tier markets include a United States
their tariffs to preclude market-based rate authority, the Commission’s
market, the seller performs the market
rate sales in the Duke Power control practice is to grant the blanket
power screens in that control area(s).
area, the only geographic market where authorization, subject to consideration
With regard to transmission market
the company was determined to have of objections by an interested party.
power, the Commission requires the
market power. Given that no market- 999. We do not adopt the NOPR
seller affiliated with a foreign utility
based rate sales will be made by the proposal concerning the rescission of
seeking market-based rate authority to
affiliates in the only geographic area blanket authorizations for affiliates of
demonstrate that its transmission-
where there was even an issue of market mitigated sellers. After careful
owning affiliate offers non-
power, Duke states that there is no consideration of the comments received,
discriminatory access to its transmission
possible nexus between securities we will limit such rescission to the
system that can be used by its
issuances by these entities and mitigated seller and its affiliates making
competitors to reach United States
protecting the franchised customers of sales within the mitigated balancing
markets. The Commission does not
Duke’s traditional utility affiliates. authority area. Our decision here takes
consider transmission and generation
997. Duke concludes that the into account Duke’s and PPL’s
facilities that are located exclusively
Commission should determine that arguments against rescission of blanket
outside of the United States and that are
blanket authorizations under section authorization for all affiliates in all
not directly interconnected to the
204 for market-based rate sellers should markets. We conclude that it is not
United States. However, the
not be affected by a finding that a utility necessary to rescind such blanket
Commission would consider
affiliate can exercise market power in its authorizations in the case of affiliates
transmission facilities that are
control area or other geographic that make sales outside of the mitigated
exclusively outside the United States
markets. In the alternative, Duke asks balancing authority area because the
but nevertheless interconnected to an
the Commission to determine that, in seller retains its market-based rate
affiliate’s transmission system that is
cases where sellers cannot sell power at authority in unmitigated markets. We
directly interconnected to the United
market-based rates in the geographic 1143 See, e.g., Golden Spread Electric Coop., Inc., States. A seller affiliated with a foreign
market(s) where an affiliated traditional 97 FERC ¶ 61,025 at 61,070 (2001) (‘‘While Golden utility must inform the Commission of
utility is found to have market power, Spread has been granted market-based rate any potential barriers to entry that can
there can be no anti-competitive effects authority, it also makes requirements sales under be exercised by either it or its affiliates
or need to protect franchise customers, Commission-accepted, cost-based rates. Since
Golden Spread sells power at cost-based rates and
in the same manner as a seller located
and thus affiliated sellers should be able not solely at market-based rates, it fails to qualify within the United States. Regarding
for blanket approval to issue securities.’’). affiliate abuse, the requirement that a
1142 Duke supplemental comments at 1–8. See 1144 Merrill Lynch Commodities, Inc., 108 FERC
power marketer with market-based rate
also PPL at 26 (loss of any waiver should apply only ¶ 61,233 at P 16 (2004). authority file for approval under section
to the seller or affiliates that make wholesale sales 1145 Id. (citing Citizens Energy Corp., 35 FERC
in the control area where market-based rate ¶ 61,198 at p. 61,455 (1986); Howell Gas
205 of the FPA before selling power to
authority is lost, but not to affiliates that do not Management Co., 40 FERC ¶ 61,336 at p. 62,026 a utility affiliate does not apply to
conduct business in that control area). (1987)). situations involving sales of power to a
foreign utility outside of the suggestion that the Commission no foreign transmitting utilities are
Commission’s jurisdiction. longer should require market-based rate providing comparable and not unduly
1002. The Commission proposed in sellers to affirmatively demonstrate that discriminatory or preferential
the NOPR to retain its current policy non-discriminatory access is offered on transmission service unless this
when reviewing the application for transmission facilities that they or their presumption is rebutted. The
market-based rate authorization by a affiliates own, control, or operate Commission did not propose to
seller affiliated with a foreign utility, outside of the United States. NL Hydro implement section 211A of the FPA in
and sought comment regarding whether argues that the comparability standard Order No. 890 and section 211A is not
the current policy is adequate to grant of FPA section 211A does not govern relevant to the Commission’s analysis
market-based rate authorization to such the Commission’s market-based rate for purposes of granting or denying
sellers. No comments were submitted on analysis of transmission market market-based rate authority.1153
the broad question of whether our power.1150 It states that the Commission 1007. We will codify in § 35.37(d) of
current policy, in general, is adequate. has not suggested, in either this the Commission’s regulations the
However, Powerex and NL Hydro 1146 proceeding or the OATT rulemaking, requirement that a market-based rate
raise specific issues that are addressed that the comparability standard in FPA seller affiliated with a foreign utility, or
below. As discussed below, we section 211A should create a its affiliate, that owns, controls, or
conclude that our current approach presumption that any market-based rate operates transmission facilities outside
needs no modification. Accordingly, we seller (domestic or affiliated with a of the United States and is
will adopt the NOPR proposal to retain foreign utility) should be presumed to interconnected with the United States
our current policy when reviewing an have passed the transmission market must demonstrate that comparable, non-
application for market-based rate power test.1151 discriminatory access is offered on those
authority by a seller affiliated with a 1005. NL Hydro supports the facilities so that competitors of the seller
foreign utility. Commission’s proposal to retain its may reach United States markets.
existing requirements with respect to
Comments 3. Change in Status
the mitigation of transmission market
1003. Powerex notes that power when reviewing the market-based Commission Proposal
comparability for non-jurisdictional rate applications of sellers affiliated 1008. In early 2005, the Commission
United States-based transmission with a foreign utility. According to NL clarified and standardized market-based
providers (‘‘unregulated transmitting Hydro, these requirements establish a rate sellers’ reporting requirements for
utilities’’ under the FPA) is now defined reasonable balance among important any change in status that departed from
by statute to mean service ‘‘at rates that regulatory objectives by: (1) Requiring the characteristics the Commission
are comparable to those that the non-discriminatory access to foreign relied on in initially authorizing sales at
unregulated transmitting utility charges transmission facilities for access to market-based rates. In Order No.
itself’’ and ‘‘on terms and conditions United States markets as a condition of 652,1154 the Commission required, as a
that are comparable to those under market-based rate authority; (2) condition of obtaining and retaining
which the unregulated transmitting complying with the national treatment market-base rate authority, that sellers
utility provides transmission services to requirements of NAFTA; and (3) file notices of such changes no later
itself and that are not unduly applying principles of comity to the than 30 days after the change in status
discriminatory or preferential.’’ 1147 jurisdiction of foreign regulatory occurs. In the NOPR, the Commission
Powerex notes that, in the OATT authorities with direct regulatory sought comment on a number of issues
Reform NOPR, the Commission jurisdiction over foreign transmission that the Commission identified in Order
proposed to apply the comparability entities.1152 Accordingly, NL Hydro No. 652 as issues that could be pursued
requirement of FPA section 211A on a believes that the Commission should in this proceeding. The Commission
case-by-case basis, i.e., by codify in its regulations the requirement solicited comment on whether
complaint.1148 Powerex states that, that a market-based rate seller, or its ownership of any new inputs to electric
under principles of national treatment affiliate, that owns, controls, or operates power production, including fuel
as set out in the North American Free transmission facilities outside of the supplies, should be reportable. To the
Trade Agreement (NAFTA), the United States must demonstrate that extent that any such information is
Commission should impose no more non-discriminatory access is offered on deemed reportable, the Commission
stringent a burden on similarly non- those facilities so that competitors of the proposed to align this reporting
jurisdictional Canadian and Mexican seller may reach United States markets. requirement to reflect the consideration
transmission-owning utilities. For that of other barriers to entry as part of the
reason, Powerex urges the Commission vertical market power analysis.
to clarify that it will presume that 1006. We will continue to require a 1009. The Commission proposed,
Canadian and Mexican transmitting seller seeking market-based rate consistent with Order No. 652, not to
utilities are providing comparable and authority that is a foreign utility or is require the reporting of transmission
not unduly discriminatory or affiliated with a foreign utility to outages per se as a change in status.
preferential transmission service unless affirmatively demonstrate that any However, to the extent a transmission
this presumption is otherwise rebutted owned or affiliated transmission is outage affects on a long-term basis
by third party or Commission-instituted offered on a non-discriminatory basis whether the seller satisfies the
complaint.1149 that can be used by competitors of the Commission’s concerns regarding
1004. NL Hydro urges the seller or its affiliate to reach United horizontal or vertical market power, a
Commission to reject Powerex’s States markets. Accordingly, we reject change of status filing would be
Powerex’s suggestion that the required. The Commission sought
1146 NL Hydro is a Crown Corporation owned by Commission should presume that comment on this proposal.
the Government of Newfoundland and Labrador.
1147 16 U.S.C. 824j–1(b). 1150 NL Hydro reply comments at 3. 1153 Order No. 890, FERC Stats. & Regs. ¶ 31,241
1148 OATT NOPR at P 111. 1151 Id.
at 5. at P 192.
1149 Powerex at 32. 1152 NL Hydro at 13. 1154 Order No. 652 at P 47.
The Commission declined in Order alternative sources.1158 They argue that requirement to include the reporting of
No. 652 to narrow or delineate the while entry from new storage or a change in ownership or control of
definition of control. The Commission transportation facilities/transporters is natural gas and oil supplies, or
concluded that it is not possible to possible, such entry involves sufficient affiliation with an entity that owns or
predict every contractual agreement that siting difficulties and capital controls such fuel supplies. However,
could result in a change of control of an requirements that it cannot be assumed we will require the reporting of a change
asset; however, the Commission to be timely, likely or sufficient to in status with regard to the ownership
indicated that to the extent that parties remove competitive concerns. or control of, or affiliation with, any
wish to propose specific definitions or 1012. Constellation suggests that the entity not disclosed in the application
clarifications to the Commission’s Commission should clearly distinguish for market-based rate authority that
historical definition of control, they may between fuel supplies (including the owns, or controls ‘‘inputs to electric
do so in the course of the instant capacity to produce and process them) power production,’’ where that term is
rulemaking.1155 and physical facilities used to transport defined as ‘‘intrastate natural gas
1010. As proposed in the NOPR or distribute fuel supplies. Constellation transportation, intrastate natural gas
(§ 35.43 of the proposed regulations), believes that ownership of fuel supply storage or distribution facilities; sites for
events that constitute a change in status does not contribute to market power new generation capacity development;
include the following: First, ownership because of the availability of alternative sources of coal supplies and the
or control of generation capacity that suppliers. Constellation states that, transportation of coal supplies such as
results in net increases of 100 MW or while ownership or control of physical barges and railcars.’’ The Commission
more, or of transmission facilities, or of facilities to transport or distribute fuel adopts this approach to align the change
inputs to electric power production has the potential to contribute to market in status reporting requirement to reflect
other than fuel supplies; or, second, power in some cases, such potential the other barriers to entry part of the
affiliation with any entity not disclosed generally is blunted by regulation or by vertical market power analysis.
in an application for market-based rate the availability of substitutes. 1015. We will adopt the current
authority that owns, operates, or Constellation asserts that ownership of change in status requirement with the
controls generation or transmission facilities for the production or following modifications.1161 We will
facilities or inputs to electric power processing of coal or other fuels should delete the phrase ‘‘other than fuel
production, or affiliation with any entity not be reportable because alternative supplies’’ from proposed § 35.43(a)(1)
that has a franchised service area.1156 sources of supply can substitute for the (now § 35.42(a)(1)). We originally
coal or other fuels that can be produced proposed that events that constitute a
The Commission invited comment
or processed by such facilities. change in status include ‘‘[o]wnership
generally on whether the Commission
Constellation states that in specific or control of generation capacity that
should expand the triggering events for
instances, if any intervenor believes that results in net increases of 100 MW or
a change in status filing beyond what
fuel supplies (or fuel production or more, or transmission facilities or inputs
was adopted in Order No. 652. In Order
processing facilities) are not available to electric power production other than
No. 652, we concluded that the
from alternative suppliers for delivery fuel supplies.’’ In light of the definition
reporting obligation should extend only
in the relevant geographic region, the of ‘‘inputs to electric power production’’
to changes in circumstances within the
party could provide appropriate that we adopt in this Final Rule, there
knowledge and control of the seller.
information in an attempt to rebut a is no longer a need in § 35.42(a)(1) for
a. Fuel Supplies the phrase ‘‘other than fuel supplies.’’
market-based rate seller’s statement that
As noted above in the discussion on
Comments it cannot erect barriers to entry in
vertical market power, in this Final Rule
relevant markets.1159
1011. Some commenters in general we modify the definition of ‘‘inputs to
1013. Constellation believes that the
support the idea that ownership of fuel electric power production’’ to mean
purchase of natural gas transportation or
supplies should not be a factor in the ‘‘intrastate natural gas transportation,
storage on intrastate or interstate
vertical market power analysis and intrastate natural gas storage or
pipelines should not trigger any change
should not trigger a requirement to file distribution facilities; sites for new
in status reporting requirement. It states
a notice of change in status.1157 APPA/ generation capacity development;
that these transactions do not involve
TAPS support the reporting of the sources of coal supplies and the
ownership or control of physical
acquisition of the means of production transportation of coal supplies such as
facilities for the transportation or
or transportation of fuel but not the barges and railcars.’’ The definition of
storage of natural gas. Moreover,
reporting of the acquisition of fuel itself. ‘‘inputs to electric power production’’
because capacity is available from the
APPA/TAPS explain that acquisition or includes ‘‘sources of coal supplies,’’ and
natural gas transportation and storage
control over companies that produce or therefore, including the phrase ‘‘other
providers themselves, and through
deliver fuel and acquisitions of, or than fuel supplies’’ would be
capacity release programs from other
affiliations (including through joint inaccurate. However, we note that the
customers of such providers,
ventures) with, production or ownership or control of certain other
Constellation believes that the purchase
transportation resources (including LNG fuel supplies (i.e., gas and oil supplies)
of such capacity does not contribute to
facilities) are inputs into electric power will not require a notice of change in
the seller’s vertical market power.1160
production that can raise significant status.
competitive concerns. APPA/TAPS Commission Determination 1016. Next, we are modifying the
submit that, unlike fuel, the means of change in status provisions to be
1014. The Commission will not
production or transportation of fuel are consistent with the horizontal and
expand the change in status reporting
not so readily obtainable from vertical market power provisions which
1158 APPA/TAPS at 90–91, citing San Diego Gas we are adopting. Section 35.42, as
1155 Id.
at P 47. & Elec. Co., 83 FERC ¶ 61,199 (1998) (gas/electric adopted herein, differs from the NOPR
1156 NOPR at P 179–182. merger).
1157 APPA/TAPS at 90–91; EEI at 21; 1159 Constellation at 24–25. 1161 Another change to 18 CFR 35.42 is described
Constellation at 23. 1160 Id. at 25. above in the implementation section.
proposal in that we will require change is no compelling reason to begin doing are likely to increase competitive
in status notifications for changes in so. concerns if they go out of service.
ownership or control of inputs to Because of the increased potential for
b. Transmission Outages
electric power production. Additionally, market power harm associated with the
change in status notifications will be Comments outage of these facilities, APPA/TAPS
required for changes in operation, in 1019. Numerous commenters support suggest that the Commission could
addition to ownership and control, of the Commission’s current policy and require a market-based rate seller under
transmission facilities. Similarly, we proposal not to require the reporting of the terms of its market-based rate
will require a change in status transmission outages per se as a change authorization to report publicly as a
notification for affiliation with any in status.1162 change in status outages of these
entity not disclosed in the application 1020. Some commenters support the specified facilities.1168
for market-based rate authority that proposal not to require the reporting of 1023. Powerex believes that
owns or controls generation facilities or all transmission outages per se because additional clarification is necessary to
inputs to electric power production and they believe that requiring sellers to determine what the Commission means
any entity not disclosed in the report all transmission outages as by ‘‘long-term outages’’ that may affect
application for market-based rate changes in status would prove an a seller’s market power analysis.
authority that owns, operates or controls overwhelming administrative burden Powerex also requests that the
transmission facilities. with no market benefits.1163 Commission consider whether
1017. In response to APPA/TAPS, we Indianapolis P&L states that this transmission outages on a non-
clarify that the Commission’s change in approach balances the need for the jurisdictional or foreign affiliate’s
status requirements are intended to Commission to have updated transmission system should be
track the requirements embedded in the information with the need for sellers to considered a change in status that is
horizontal and vertical analysis as well focus on their business, rather than reportable under Order No. 652, given
as the affiliate abuse representations. As administrative filings.1164 EEI supports the limits of the Commission’s
clarified in the other barriers to entry the current policy that only long-term jurisdictional interests.
part of the vertical market power transmission outages that could affect Commission Determination
analysis described in this Final Rule, the Commission’s analysis of vertical
and horizontal market power should be 1024. We adopt the NOPR proposal
the Commission will not require an not to require the reporting of
analysis or affirmative statement with reportable.1165
1021. APPA/TAPS state that at least transmission outages per se as a change
regard to ownership or control of, or in status. We agree that the reporting of
affiliation with, an entity that owns or some transmission outage information is
(or should be) publicly available on all transmission outages, including the
controls natural gas and oil supplies, the most routine, would be an excessive
interstate transportation of natural gas, OASIS sites, suggesting less of a need to
impose a separate reporting requirement burden on sellers with no apparent
or the transportation of oil. In contrast, countervailing benefit. However,
we will require a seller to provide a for such outages.1166 However, APPA/
TAPS urge that certain outages be consistent with Order No. 652, we
description of its ownership or control reiterate that to the extent a long-term
of, or affiliation with, an entity that reported to the Commission’s Office of
Enforcement on a non-public basis and transmission outage affects one or more
owns or controls intrastate natural gas of the factors of the Commission’s
transportation; intrastate natural gas that the Commission reserve its
authority to require change of status market-based rate analysis (e.g., if it
storage or distribution facilities; sites for reduces imports of capacity by
generation capacity development; and reports for other, significant outages.1167
We note, however, that APPA/TAPS fail competitors that, if reflected in the
sources of coal supplies and the generation market power screens, would
transportation of coal supplies (defined to provide examples of the types of
outages that they believe should be change the results of the screens from a
as ‘‘inputs to electric power production’’ ‘‘pass’’ to a ‘‘fail’’), a change of status
reportable.
in the regulations); however, we adopt filing is required.1169
1022. APPA/TAPS also suggest that
a rebuttable presumption that sellers 1025. We reject APPA/TAPS’s
the Commission identify for specific
cannot erect barriers to entry with market-based rate sellers generation and suggestion that the Commission should
regard to inputs to electric power transmission facilities that, if there is an require the automatic reporting of some
production. Thus, while a seller is extended or repeated outage, could transmission outages to the Office of
required to describe in a change in produce significant transmission Enforcement. APPA/TAPS fails to
status filing any ownership of, control of constraints or reductions in the amount adequately explain why we should
or affiliation with entities that own or of available generation in that seller’s assume certain transmission outages are,
control inputs to electric power market(s). They suggest that the as a matter of routine, an enforcement
production (just as it must do in an Commission, in conjunction with an matter to be investigated for
initial application for market-based rate RTO/ISO market monitor (where one wrongdoing.
authority and an updated market power exists), could identify and designate in 1026. We also reject APPA/TAPS’
analysis), we will rebuttably presume that seller’s market-based rate suggestion that the Commission identify
that such ownership, control or authorization the key transmission certain generation and transmission
affiliation does not allow a seller to raise facilities and/or generation units that facilities that could produce significant
entry barriers. We will, however, allow transmission constraints or reductions
intervenors to demonstrate otherwise. 1162 APPA/TAPS at 87–89; Indianapolis P&L at in the amount of generation available in
1018. Further, in response to 15; EEI at 21; MidAmerican at 35–36; and Powerex
Constellation, we note that we presently at 34. 1168 APPA/TAPS at 88–89.
1163 MidAmerican at 36; Indianapolis P&L at 15;
do not require the reporting of capacity EEI at 21.

1169 In response to Powerex’s request for
contracted for, but for which control is 1164 Indianapolis P&L at 15.
clarification on what the Commission means by
‘‘long-term outages’’ that may affect a seller’s
not transferred, with regard to interstate 1165 EEI at 21.
market power analysis, we clarify that the
or intrastate natural gas pipeline or 1166 APPA/TAPS at 88.
Commission uses the term ‘‘long-term’’ to mean one
storage capacity and we agree that there 1167 Id. at 87–88. year or longer.
that market-based rate seller’s market(s). not transfer control. EEI and SoCal in control to the extent the seller
Public identification of such generation Edison argue that such contracts or acquires a net 100 MW or more
and transmission facilities could cause liquidated damages call option contracts generation capacity through contract.
CEII and security concerns. In addition, do not transfer control because, at their Our determination of what constitutes
outages that could affect a seller’s core, they are financial transactions control is discussed above in the
market-based rate analysis will change used to mitigate the buyer’s price horizontal market power analysis
over time. The burden remains on the risk.1171 According to commenters, the section and we adopt that discussion for
market-based rate seller to identify the option holder does not actually control purposes of the change in status
outages that should be reported as a any particular capacity that might be requirement. That is, the Commission
change in status. We also remind used to meet the contract needs. The concludes that the determination of
commenters that entities may file a energy could come from the seller, from control is appropriately based on a
complaint or call the Office of the market through the seller, or directly review of the totality of circumstances
Enforcement hotline if they are from the market to the buyer if the seller on a fact specific basis. No single factor
concerned that an outage provides the opts to pay liquidated damages. They or factors necessarily results in control.
opportunity for a seller to exercise submit that if such a contract were If a seller has control over certain
market power. Regarding Powerex’s deemed to transfer ‘‘control,’’ execution capacity such that the seller can affect
request that the Commission consider of such routine contracts would trigger the ability of the capacity to reach the
whether transmission outages on a non- a change in status filing for each relevant market, then that capacity
jurisdictional or foreign affiliate’s incremental 100 MW purchased should be attributed to the seller for
transmission system should be thereby, which is most likely not what purposes of complying with the change
considered reportable under Order No. the Commission intended. in status requirement.
652, given the limits of the 1028. APPA/TAPS support a 1031. Further, as the Commission has
Commission’s jurisdictional interests, reporting obligation for all of the types previously clarified, sellers making a
we clarify that, consistent with our of contractual arrangements that could change in status filing to report an
change in status reporting requirement confer control, as consistent with the energy management agreement are
in general, to the extent that a discussion in the horizontal market required to make an affirmative
transmission outage reflects a change in power section of the NOPR. They argue statement in their filing as to whether
the characteristics that the Commission that these arrangements could provide a the agreement at issue transfers control
relied on (e.g., if it reduces imports of market-based seller with the means to of any assets and whether the agreement
capacity by competitors that, if reflected determine whether capacity is offered results in any material effect on the
in the generation market power screens into a market and whether a competitor conditions that the Commission relied
for U.S. markets, would change the can or will enter a market. They state upon for the grant of market-based rate
results of the screens from a ‘‘pass’’ to that these arrangements also create authority. On some occasions, and at the
a ‘‘fail’’), a change of status filing would opportunities for sellers to coordinate Commission’s discretion, the
be required. The change in status their behavior with other competitors. If Commission may request the seller to
requirement is an important element of the contracts do not raise competitive submit a copy of the agreement and
the Commission’s market power concerns, the seller could explain the provide supporting documentation.1174
oversight. If a seller affiliated with a factors supporting that conclusion in its 1032. We reiterate here that a seller
foreign utility wishes to retain market- report.1172 making a change in status filing is
based rate authority in the United 1029. SoCal Edison urges the required to state whether it has made a
States, such seller must comply with the Commission to consider whether, and to filing pursuant to section 203 of the
notice of change in status requirements, clarify how, the emerging, non- FPA.1175 To the extent the seller has
including the reporting of transmission traditional capacity and electrical made a section 203 filing that it submits
outages that may change the results of energy products that are routinely is being made out of an abundance of
the screens from a ‘‘pass’’ to a ‘‘fail.’’ transacted in hybrid electricity markets caution without conceding that the
The Commission finds no reason to today would fit within its construction Commission has section 203
exempt a seller affiliated with a foreign of its test for control (‘‘ * * * affecting jurisdiction, the seller will be required
utility from this requirement. ability of the capacity to reach the to incorporate this same assumption in
relevant market’’). It warns that buyers its market-based rate change in status
c. Control
may be hesitant to routinely purchase filing (e.g., if the seller assumes that it
Comments products that require continual change will control a jurisdictional facility in a
1027. Several commenters note that in status filings.1173 section 203 filing, it should make that
increased precision in the Commission’s same assumption in its market-based
Commission Determination rate change in status filing and, on that
definition of control would be
particularly helpful to sellers, especially 1030. Pursuant to the change in status basis, inform the Commission as to
in light of the increased emphasis on reporting requirement, a market-based whether there is any material effect on
reporting accuracy and completeness rate seller is required to report a change its market-based rate authority).1176
and the Commission’s general practice d. Triggering Events
1171 EEI offers an example of a firm energy call
of accepting change in status filings in
letter orders, without providing much option that, in response to a day-ahead call by the Comments
buyer, gives the seller the option of delivering
detailed analysis or explanation as to energy from its own facilities or buying energy from 1033. In the NOPR, the Commission
whether the filings were required in the the competitive market, with the obligation to pay invited comments on whether it should
first place.1170 These commenters seek liquidated damages equal to the difference in price expand the triggering events for a
between the pre-agreed price and the cost to the
clarification that energy contracts that change in status filing beyond
buyer of buying replacement power from another

are not associated with a specific source for failure to deliver. EEI argues such
resource (do not specify a ‘‘source’’) do contract should not be deemed to transfer ‘‘control’’ 1174 Calpine Energy Services, L.P., 113 FERC ¶
and therefore should not be reportable. 61,158 at P 13 (2005) (Calpine).

1170 EEI at 21–22; SoCal Edison at 10–14; 1172 APPA/TAPS at 89. 1175 16 U.S.C. 824b.
Williams at 1; and Powerex at 33. 1173 SoCal Edison at 14–16. 1176 Calpine, 113 FERC ¶61,158 at P 14.
ownership or control of facilities or 1036. CAISO supports the current relied upon in granting market-based
inputs and affiliation with entities that requirement that entities with market- rate authority. It would be difficult for
own or control facilities or inputs or based rate authority must report changes the Commission to accurately evaluate
that have a franchised service territory, of status no later than 30 days after the whether or not, for example, a forward
as set forth in Order No. 652. No change has occurred. CAISO proposes contract with delivery months or years
commenters suggest additional that any change in status be reported not in the future will affect the conditions
triggering events, and several only to the Commission but also to the the Commission relied upon for the
commenters oppose any general relevant market monitor where the market-based rate authorization.
expansion of categories.1177 Several facilities are located. CAISO states that Accordingly, we will modify § 35.42(b)
commenters specifically oppose any this minimal additional burden on the (formerly § 35.43(b)) to provide that, in
requirement to report actions taken by supplier will ensure that RTO and ISO the case of power sales contracts with
competitors or natural events as a staff are operating with the latest future delivery, such contracts are
change in status. They argue that, in possible information.1180 reportable 30 days after the physical
many cases, the seller may be unaware 1037. SoCal Edison recommends that delivery has begun.
of actions taken by a competitor, making the Commission revise the change in 1039. We reject CAISO’s proposal that
compliance virtually impossible.1178 status reporting requirement to focus any change in status also be reported to
upon the actual acquisition of the the relevant market monitor where the
Commission Determination facilities are located. We find that
resources in question—for power sales
1034. We will not expand the events contracts, the date of physical power informing the Commission of changes in
that trigger a change in status filing. delivery. SoCal Edison states that the status is sufficient. Change in status
Further, we will not expand triggering Commission’s current policies make it filings are noticed and therefore
events to include actions taken by a virtually impossible for a seller to interested entities will have notice of
competitor (such as a decision to retire provide a meaningful evaluation of any such filing.
a generation unit or take transmission whether or not a forward contract with
capacity out of service) or natural events f. Sellers Affiliated With a Foreign
delivery months or years in the future Utility
(such as hydro-year level, higher wind creates a departure from the
generation, or load disruptions due to characteristics the Commission relied 1040. The change in status
adverse weather conditions) beyond upon in granting market-based rate requirement is applicable to all market-
those adopted in Order No. 652. As we authority as much as three years based rate sellers regardless whether
describe above in the vertical market previously. SoCal Edison notes that, as they are domestic or affiliated with a
power analysis discussion, with regard foreign utility.
currently written, the policy requires
to barriers to entry erected or controlled reporting of procurement activities Comments
by other than the seller, we find that it potentially years in advance of any
is not reasonable to routinely require 1041. Powerex notes that the
power delivery because the effective Commission stated in the NOPR that it
sellers to make a showing regarding date of the contract—usually the
potential barriers to entry that others ‘‘does not consider transmission and
execution date—may significantly generation facilities that are located
might erect and that are beyond the precede the date of physical delivery—
seller’s control. However, we will exclusively out of the United States and
that is, the actual transfer of control over that are not directly interconnected to
entertain on a case-by-case basis claims
generation resources.1181 the United States [but] would consider
that the existence of barriers to entry
beyond the seller’s control may affect Commission Determination transmission facilities that are
the seller’s ability to exercise market exclusively outside the United States
1038. We provide clarification
power. For similar reasons we will not but nevertheless interconnected to an
regarding when a change in status filing
expand the events that trigger a change affiliate’s transmission system that is
should be filed. In Order No. 652, we
in status filing to include actions taken directly interconnected to the United
determined that reports of changes in
by a competitor or natural events. States.’’ 1183 Powerex submits that the
status must be filed no later than 30
However, we will entertain on a case- NOPR fails to clarify the Commission’s
days after the legal or effective date of
by-case basis claims that such actions proposed treatment of foreign-sited
the change in status, including a change
may affect the seller’s ability to exercise generation facilities interconnected to
in ownership or control, whichever is
market power. an affiliated transmission system that, in
earlier.1182 However, it was not the
turn, is directly interconnected to the
e. Timing of Reporting Commission’s intention, as SoCal
United States transmission grid.
Comments Edison notes, to require reporting of
Powerex argues that, based on the
procurement activities potentially years
1035. At present, the Commission nature of the Commission’s concerns
in advance of any power delivery. We
requires the reporting of changes in with respect to facilities outside the
agree with SoCal Edison that the current
status to be ‘‘filed no later than 30 days United States, the details concerning
policy may be unclear and may cause an
after the legal or effective date of the such generation capacity should not be
entity to file a notice of change in status
change in status, including a change in relevant to the Commission’s
years in advance of the actual
ownership or control, whichever is determination in circumstances where
transaction, i.e., change in ownership or
earlier.’’ 1179 The proposed regulatory the affiliated uncommitted capacity
transfer of control. The Commission
text maintains this requirement. exceeds the transmission limits of the
requires a meaningful evaluation of
intertie(s) directly interconnecting the
whether a change creates a departure
1177 MidAmerican at 36; Powerex at 34. affiliated foreign transmission system to
from the characteristics the Commission
1178 MidAmerican at 36–37; Powerex at 34. the United States grid. Powerex states
1179 Order No. 652 at P 106. The Commission

commence physical delivery.’’ Order No. 652–A at
that foreign sellers with foreign
clarified that for power sales contracts, ‘‘it is generating facilities can make that
irrelevant for the purposes of compliance with the P 31.
reporting obligation if the effective date on which
1180 CAISO at 15. generation available to United States
1181 SoCal Edison at 17–19.
control is transferred occurs prior to the date on
which the purchaser is contractually bound to 1182 Order No. 652 at 106. 1183 NOPR at P 175.
markets only to the extent that transmission limits of the intertie(s) of the sellers’ facilities; (3) establish
transmission capacity is available on the directly interconnecting the seller to the market shares for all suppliers of the
interties crossing the international United States grid, only changes in the ancillary services in the relevant
boundaries. In such instances, Powerex TTC of the intertie would be considered geographic markets; and (4) examine
argues that the seller’s participation in a change in status subject to a reporting other barriers to entry. The Commission
United States jurisdictional markets is requirement. also noted that it would entertain
constrained by the total transfer 1045. Further, if a foreign utility alternative explanations and
capability (TTC) of the transmission believes that release of specific approaches.
system of the intertie (a measurement of information is inconsistent with the 1048. The Commission adopted in
the level of imports that can access a policies of a foreign utility regulatory Avista Corporation 1191 a general policy
market from a particular location). agency, the foreign utility should stating that third-party ancillary service
Powerex asserts that those intertie limits specifically inform the Commission of providers that could not perform a
represent the foreign seller’s maximum this, and the Commission will take the market power study would be allowed
uncommitted foreign capacity available matter under advisement when to sell ancillary services at market-based
to United States markets.1184 Thus, considering whether to grant a request rates, but only in conjunction with a
according to Powerex, only changes in for special treatment. requirement that such third parties
the TTC of the intertie itself should be establish an Internet-based OASIS-like
4. Third-Party Providers of Ancillary
considered a change in the site for providing information about and
Services
circumstances upon which the original transacting ancillary services. The
market-based rate authorization was Commission Proposal authorization in Avista extended only to
based, for purposes of Order No. 652 1046. In Order No. 888, the the following four ancillary services:
filings.1185 Commission required transmission Regulation Service, Energy Imbalance
1042. Powerex also argues that providers to offer certain ancillary Service, Spinning Reserves, and
complying with the change in status services at cost-based rates as part of Supplemental Reserves. The
requirements of Order No. 652 would their open access commitment but also Commission based its Avista policy on
require foreign sellers to demand contemplated that third parties (parties the expectation that, as entry into
routine updates of potentially non- other than the transmission provider in ancillary service markets occurs, prices
public information from their foreign a particular transaction) could provide will decrease from the level established
generation-owning affiliates; it contends certain ancillary services.1188 The by the transmission provider’s cost-
that Order No. 652 imposes a Commission also left open the door for based rate. Under these circumstances,
continuous updating requirement any ancillary services to be provided on customers will pay prices for ancillary
time an affiliate acquires additional other than a cost-of-service basis. In services that are no higher than and will
generation assets, re-rates an existing Order No. 888, the Commission stated very likely be lower than the
facility, or enters into third-party that it would entertain requests for transmission provider’s cost-based rate.
contracts that confer some degree of market-based pricing related to ancillary The Commission explained that the
control.1186 Powerex states that in services on a case-by-case basis if ancillary services customer is protected
certain circumstances, release of supported by analyses that demonstrate in part by the availability of the same
information could be inconsistent with that the seller lacks market power in ancillary services at cost-based rates
the standards and policies of the foreign these discrete services.1189 from the transmission provider. The
utility regulatory agency regulating the 1047. In Ocean Vista Power backstop of cost-based ancillary services
foreign generation owner.1187 Powerex Generation, L.L.C.,1190 the Commission from the transmission provider
argues that concerns related to these explained that, as a general matter, a provides, in effect, a limit on the price
types of frequently non-public changes study of ancillary service markets at which customers are willing to buy
to an affiliate’s generation profile are should address the nature and ancillary services.1192
appropriately limited to United States characteristics of each ancillary service, 1049. To further monitor market
assets located in United States markets. as well as the nature and characteristics entry, the Commission required third-
of generation capable of supplying each party suppliers to file with the
Commission Determination Commission one year after their
service, and that the study should
1043. The Commission treats foreign- develop market shares for each service. Internet-based site was operational (and
sited generation facilities In particular, the Commission stated at least every three years thereafter) a
interconnected to an affiliated that an individual seller’s market power report detailing their activities in the
transmission system that, in turn, is analysis for ancillary services markets ancillary services market.1193
directly interconnected to the United should: (1) Define the relevant product 1050. The Commission stated that it
States transmission grid in the same market for each ancillary service; (2) would apply this policy only to sellers
way that it treats the first-tier generation identify the relevant geographic market, that are authorized to sell power and
facilities of non-foreign sellers. For the which could include all potential sellers energy at market-based rates. In
purpose of determining total of the product from whom the buyer addition, the Commission stated that it
uncommitted capacity, the affiliates’ could obtain the service, taking into 1191 87 FERC ¶ 61,223, order on reh’g, 89 FERC
capacity is combined. account relevant factors which may ¶ 61,136 (1999) (Avista).
1044. In response to Powerex, we include the other sellers’ locations, the 1192 We note that the Commission has authorized
agree that if the Commission’s grant of physical capability of the delivery several utilities to use market index pricing for
market-based rate authority was based system and the cost of such delivery, energy imbalance service. See, e.g., PacifiCorp, 95
on the seller’s, including its affiliate’s, and important technical characteristics FERC ¶ 61,145 (2001), order on reh’g, 95 FERC ¶
uncommitted capacity exceeding the 61,467 (2001). In such a case, customers are
protected by the transmission provider’s obligation

1188 See Order No. 888, FERC Stats. & Regs. ¶
to offer the service at rates the Commission
1184 Powerex at 29–30. 31,036 at 31,720–21. determines are just and reasonable and consistent
1185 Id.
at 30. 1189 Id.; Order No. 888–A, FERC Stats. & Regs. ¶ with our Avista policy.
1186 Id.
at 31. 31,048 at 30,237–38. 1193 The Commission subsequently established an
1187 Powerex at 31. 1190 82 FERC ¶ 61,114 at 61,406–07 (Ocean Vista). EQR requirement for all market-based rate sellers.
would not apply this approach to sales sufficient information for the the geographic scope of potential
of ancillary services by a third-party Commission to monitor ancillary ancillary service suppliers, and that
supplier in the following situations: (1) services markets for market power. They capacity on automatic generation
Sales to an RTO or an ISO, i.e., where argue that abandoning the Internet control cannot easily sell regulation
that entity has no ability to self-supply posting and reporting conditions would service in its home market today and
ancillary services but instead depends contribute to the development of more switch to sales in an adjoining market
on third parties; 1194 (2) to address robust reserves markets. Similarly, tomorrow. Further, they state that
affiliate abuse concerns, sales to a Cogentrix and Powerex maintain that customers cannot shop for such
traditional, franchised public utility those requirements are burdensome and services. According to APPA/TAPS,
affiliated with the third-party supplier, hard to implement, especially for limitations of transmission and
or sales where the underlying independent sellers that are not technology counsel against adopting
transmission service is on the system of transmission owners and do not have short-cuts for assessing the
the public utility affiliated with the the responsibility to maintain an OASIS. appropriateness of market-based pricing
third-party supplier; and (3) sales to a Instead of safeguarding against possible of ancillary services.1197
public utility that is purchasing abuses of market power, these 1056. Morgan Stanley supports efforts
ancillary services to satisfy its own open commenters state that the posting and to establish market-based ancillary
access transmission tariff requirements reporting requirements have probably service markets both inside and outside
to offer ancillary services to its own hindered the development of robust of ISOs and RTOs. Morgan Stanley
customers.1195 markets for ancillary services. recommends that the Commission
1051. In the NOPR, the Commission 1053. Puget states that virtually all investigate what is necessary to
proposed to retain the Avista policy but ancillary services outside of RTO/ISO establish local ancillary services
sought comment on whether to modify markets are provided at cost-based rates markets on a nationwide basis. Morgan
or revise that current approach and, if by the host transmission provider. Puget Stanley supports eliminating barriers to
so, how. The Commission also sought states that it conducted a review of the entry in the ancillary services market
comment on whether its current reports filed in dockets in which the and states that to further this goal, the
conditions, such as the requirement to Commission has granted market-based Commission should allow market
establish an Internet-based site, rate authority to sell ancillary services participants to negotiate over-the-
continue to be necessary. under the Avista provisions, which counter (OTC) ancillary services
revealed that only a handful of ancillary contracts outside of established ISOs
a. Internet Postings and Reporting services sales have been made. Based on and RTOs. Morgan Stanley mentions
Requirements the small number of market-based that this option should be open to all
Comments ancillary services sales that Puget found sellers with market-based rates and that
1052. A number of commenters in its review of existing dockets, it the posting requirement should remain
support modifications to the concludes that companies have mandatory for mitigated entities.
determined that the potential
Commission’s current approach to third- Commission Determination
commercial gains from entering this
party sales of ancillary services on the 1057. We will modify our current
market do not justify the cost and risks
basis that they believe the current policy approach for third-party sellers of
associated with the special posting and
has not succeeded in engendering ancillary services at market-based rates
reporting requirements.
robust markets for ancillary services. 1054. Avista and Powerex state that, as announced in Avista. We appreciate
Avista, Puget, Cogentrix and Powerex to the extent that the Commission is the concerns raised by a number of
state that the existing Internet posting concerned about market power, commenters that the posting and
and reporting policy is unnecessary.1196 purchasers of ancillary services are reporting requirements imposed in
Avista and Puget note that the current protected from the exercise of market Avista may be hindering the
EQR requirement, which did not exist power because they may purchase these development of ancillary services
when the Commission first adopted the services from the transmission provider markets particularly by third-party
Internet posting requirement, provides at cost pursuant to the OATT. Powerex providers. As noted above, some
maintains that the Commission can commenters have indicated that the
1194 With the formation of RTOs and ISOs, several
monitor these transactions via the EQRs costs and responsibilities associated
RTOs/ISOs performed market analyses to
demonstrate whether various ancillary services are and can encourage purchasers to file with establishing and maintaining an
competitive. The result has been as follows: complaints under FPA section 206 internet-based site may outweigh the
California Independent System Operator: should they believe a seller has benefits that third-party sellers could
Regulation, Spinning Reserve, and Non-Spinning exercised market power when making derive from the sale of the additional
Reserve. ISO New England: Regulation and
Frequency (Automatic Generation Control), such sales. products. We conclude that our EQR
Operating Reserve—Ten-Minute Spinning, 1055. In contrast, APPA/TAPS urge filing requirement provides an adequate
Operating Reserve—Ten-Minute Non-Spinning, and the Commission not to relax standards means to monitor ancillary services
Operating Reserve—Thirty Minute. New York for market-based pricing of ancillary sales by third parties such that the
Independent System Operator: Regulation and
Frequency Response Service, Operating Reserve
services. They support continuation of posting and reporting requirements
Service (including Spinning Reserve, 10-Minute the Commission’s current approach for established in Avista are no longer
Non-Synchronized Reserves and 30-Minute pricing ancillary services, including the necessary. Through their EQR filings,
Reserves). PJM Independent System Operator: requirement for a cost-based backstop third-party providers of ancillary
Regulation and Frequency Response, Energy
Imbalance, Operating Reserve—Spinning, and
for ancillary services provided by a services provide information regarding
Operating Reserve—Supplemental. Thus, in transmission provider. They argue that their ancillary services transactions for
markets where the demonstration has been made, ancillary services markets remain very the quarter, including the ancillary
sellers are afforded the opportunity to sell at much dependent upon control area service provided, the price, and the
market-based rates subject to any other conditions
in those markets.
operation and are closely connected to purchaser. As a result, we will no longer
1195 Avista, 87 FERC at 61,883, n.12. the operations of the transmission require third-party providers of
1196 Avista at 7–8; Puget at 1, 4–8; Cogentrix at system. APPA/TAPS state that
8–10; Powerex at 35–38; Morgan Stanley at 11–12. locational reserves requirements limit 1197 APPA/TAPS at 91.
ancillary services to establish and power. We find Morgan Stanley’s Ameren submits that the Commission
maintain an internet-based OASIS-like suggestion that the Commission allow has recognized the need for opportunity
site for providing information about market participants to negotiate OTC cost recovery in other circumstances,
their ancillary services transactions. ancillary services contracts outside of and should consider an opportunity cost
1058. In addition, we will no longer established RTO/ISO markets component in the future.1204
require third-party suppliers to file with unsupported and lacking in detail.1201 1063. CAISO states that it agrees with
the Commission one year after their the Commission’s decision to
internet-based site is operational (and at b. Pricing for Ancillary Services in
RTOs/ISOs distinguish sales within an RTO or ISO
least every three years thereafter) a from those not within an RTO or
report detailing their activities in the Comments ISO.1205 It agrees that the Commission
ancillary services market. We note that 1062. As noted above, the can rely on the market monitoring unit
the Commission retains the ability to Commission stated in Order No. 888 of the RTO or ISO to assess
require such a report by a third-party that it would entertain requests for competitiveness in the RTO or ISO’s
supplier of ancillary services at any market-based pricing related to ancillary ancillary service markets.1206
time. services on a case-by-case basis if
1059. All sellers that seek authority to 1064. However, CAISO also notes that
supported by analyses which the size of the ancillary service market
sell ancillary services at market-based demonstrate that the seller lacks market
rates pursuant to Avista 1198 must make is subject to change based on system
power in these discrete services.1202 To conditions and the need to meet
a filing with the Commission to request date, the Commission has permitted
that authority and must include applicable reliability criteria. It says that
market-based rate pricing for certain at times the CAISO may be able to
language in their market-based rate ancillary services in a number of RTOs
tariffs identifying the ancillary services procure ancillary services on a system-
and ISOs.1203 Although Ameren wide basis, whereas at other times
that they offer.1199 supports retaining the Commission’s
1060. Moreover, we will retain our factors such as the proportionate mix of
current approach, Ameren urges the hydro and thermal resources,
current policy of not allowing sales of Commission to address what it
ancillary services by a third-party transmission path operating transfer
describes as a critical market design capability limits or deratings, forecasted
supplier in the following situations: (1) flaw regarding pricing for ancillary
Sales to an RTO or an ISO, i.e., where path flows, anticipated load and
services in RTO/ISO markets with Day weather conditions, and generator
that entity has no ability to self-supply 2 energy markets but no market for
ancillary services but instead depends outages may require the CAISO to
ancillary services, such as the Midwest procure ancillary services on a zonal or
on third parties; (2) sales to a ISO. Ameren explains that providing
traditional, franchised public utility even more location-specific basis.
regulation service and spinning reserves CAISO also states that because not every
affiliated with the third-party supplier, in the Midwest ISO market at traditional
or sales where the underlying facility has the capability to provide
cost-based rates is uneconomic at every ancillary service, the market
transmission service is on the system of present because owners of ancillary
the public utility affiliated with the power analysis for the energy market
services capacity generally find it more does not automatically ensure that
third-party supplier; and (3) sales to a profitable to sell energy from the
public utility that is purchasing market power cannot be exercised with
capacity at market-based rates rather respect to sales of ancillary services.
ancillary services to satisfy its own open than to offer the capacity as reserves at
access transmission tariff requirements Accordingly, CAISO states that there
cost-based rates. Ameren recommends may be the need for more targeted
to offer ancillary services to its own that the Commission ensure that its
customers.1200 These standard market power mitigation procedures
approach to sales of ancillary services
applicable tariff provisions appear in specifically applicable to sales of
provides flexibility by allowing sellers
Appendix C to this Final Rule. As we ancillary services.
for cost-based rates for regulation
stated in Avista, we are open to service and spinning reserves in the 1065. NYISO supports the
considering requests for market-based Midwest ISO footprint to propose a Commission’s proposed approach to the
rate authorization to make such sales on component for recovery of lost extent it is predicated on all eligible
a case-by-case basis. opportunity costs where such costs are sellers being able to benefit from the
1061. At this time, the Commission shown to be legitimate and verifiable. Commission’s authorization of the
will not adopt Morgan Stanley’s NYISO to purchase ancillary services for
recommendation to investigate what is 1201 Morgan Stanley’s comments provide an loads at market-based rates.1207 It states
necessary to establish local ancillary insufficient basis for us to determine whether such that all eligible sellers should receive
services markets on a nationwide basis. OTC ancillary services contracts would be the market-clearing prices for ancillary
jurisdictional. The Commission has previously
We believe that the elimination of stated that it is not concerned with management
services that are supplied on a market
certain reporting requirements for third transactions (such as swaps, options, and futures basis and that the final regulations
party providers of ancillary services contracts) designed to assist buyers and sellers of should not impose burdensome and
adopted herein will adequately balance electricity in hedging against adverse price changes duplicative market data requirements on
which are settled in cash and where parties do not
the need to encourage the development take actual delivery of the electricity. Morgan a potential seller of ancillary services,
of ancillary services markets and the Stanley Capital Group, Inc., 69 FERC ¶ 61,175 either directly or through data demands
Commission’s responsibility to provide (1994). to an ISO if the ISO has already received
1202 Order No. 888, FERC Stats. & Regs. ¶ 31,036
oversight and protection from market
at 31,656–57; Order No. 888–A, FERC Stats. & Regs. 1204 Ameren at 24–25, citing San Diego Gas &
¶ 31,048 at 30,230.
1198 As noted above, the Avista policy applies to 1203 AES Redondo Beach, L.L.C., et al., 85 FERC Elec. Co., 95 FERC ¶ 61,115 at 61,363–64 & n.47
the following four ancillary services: Regulation (2001).
¶ 61,123 (1998), order on reh’g, 87 FERC ¶ 61,208
Service, Energy Imbalance Service, Spinning (1999), order on reh’g and clarification, 90 FERC
1205 CAISO at 16–18.
Reserves, and Supplemental Reserves. ¶ 61,036 (2000); New England Power Pool, 85 FERC 1206 CAISO recommends that the Final Rule
1199 Sellers that have been granted authority to emphasize the importance of appropriate RTO or
¶ 61,379 (1998), reh’g denied, 95 FERC ¶ 61,074
provide third-party ancillary services need not (2001); Central Hudson Gas & Electric Corporation, ISO market power mitigation tariff provisions for
reapply because their authority continues. et al., 86 FERC ¶ 61,062, order on reh’g, 88 FERC sales involving ancillary services.
1200 Avista, 87 FERC at 61,883, n. 12. ¶ 61,138 (1999). 1207 NYISO at 10.
Commission authorization for market- 1069. Ameren’s request that the a. Reactive Power
based ancillary services. Commission address what Ameren Comments
1066. APPA/TAPS urge caution for considers to be a critical market design
market-based pricing of ancillary flaw regarding pricing for ancillary 1073. Cogentrix asks the Commission
services in RTO/ISO areas. Even if the services in the Midwest ISO is beyond to reconsider the existing requirements
Commission finds that conditions exist the scope of this rulemaking proceeding. for the sale of reactive power by
to permit market-based pricing of some Ameren’s concerns are more independent generators. It notes that
ancillary services in some RTO/ISO- appropriately addressed upon an currently generators can sell reactive
administered markets, APPA/TAPS appropriate record in the context of power only upon the submission to the
state that such pricing would not be proceedings involving the Midwest ISO Commission of separate cost filings.
appropriate where vertically integrated market. Cogentrix submits that the requirement
utilities are also control area operators, 1070. With regard to APPA/TAPS’ of cost justification of reactive power
such as in Midwest ISO and SPP, concern that market-based pricing of rates should be eliminated. Cogentrix
because the locational, control-area ancillary services would not be states that this requirement is
dependent nature of ancillary services appropriate where vertically integrated unnecessary because generators with
increases the risk that control area utilities are also balancing authority market-based rate authority are found to
operators will have market power.1208 area operators, such as in Midwest ISO lack market power and are subject to the
1067. Powerex recognizes that in and SPP, we note that the Commission EQR and change in status reporting
some control areas, there are locational carefully analyzes ancillary service requirements, which ensure that they
reserve requirements that can be met by markets in ISOs and RTOs before continue to lack market power and,
a limited number of resources and authorizing market-based rate pricing, therefore, that they cannot dictate the
therefore limit the geographic scope of ensuring that protections, such as pricing of reactive power services.
potential suppliers.1209 Powerex market monitors, are established to Cogentrix submits that because reactive
believes, however, that this situation reduce the risk that market power can power is a service that purchasers
can be mitigated on a case-specific be exercised. APPA/TAPS has had the require generators to provide, it should
basis, and therefore that it should not be opportunity to intervene and participate be left to the parties to negotiate the
the basis for generally rejecting the in such proceedings, including in
proper rate under the interconnection
benefits of competitive supply of proceedings involving Midwest ISO and
agreement or the power purchase
ancillary services. Powerex believes that SPP.
1071. The Commission also imposes agreement, without requiring the
it is the combination of the
mitigation where necessary. For generator to submit additional cost
Commission’s existing regulatory
example, the Commission in its PJM filings.1212
framework and administrative barriers
raised by transmission providers that West/South Regulation Zone order Commission Determination
has effectively stifled the incentives for permitted sellers that lack market power
third-party suppliers to participate in in PJM to submit market-based rate bids 1074. We reject Cogentrix’s proposal
ancillary services markets.1210 In in the market for regulation service, that the Commission reconsider in this
support, Powerex states that experience while mitigating bids submitted by proceeding existing requirements for the
with the California organized markets American Electric Power Company and sale of reactive power by independent
demonstrates that a third-party provider Virginia Electric and Power Company, generators and eliminate the
can sell operating reserves and because PJM has not sufficiently requirement that generators submit
regulation service services to an demonstrated that they lack the separate cost filings supporting reactive
adjoining market and that these services potential to exercise market power in power sales. Consistent with our
can be provided from resources located this market.1211 precedent,1213 we will continue to
two markets and more than a thousand analyze reactive power sales on a case-
5. Reactive Power and Real Power by-case basis.
transmission miles away. Losses
Commission Determination b. Real Power Losses
Commission Proposal
1068. We will continue our current 1072. In the NOPR, the Commission Comments
approach regarding market-based did not provide a proposal with regard
pricing for certain ancillary services in 1075. Powerex requests that the
to the treatment of reactive power and Commission explicitly permit sellers to
RTOs and ISOs. Where an RTO or ISO real power losses. However, several
performs a market analysis offer third-party loss compensation
commenters submitted comments about services 1214 on non-affiliated
demonstrating a lack of market power these services.
for certain ancillary services, the transmission systems under their
Commission has approved the sale of 1211 PJM Interconnection, L.L.C., 111 FERC
general market-based rate authority.1215
those ancillary services at market-based ¶ 61,134 (2005) (PJM West/South Regulation Zone).
Powerex states that it believes that third
rates. As reflected in the NOPR, the Similarly, the Commission in New York parties currently are making real power
Commission has approved the sale of
Independent System Operator, Inc., 91 FERC losses sales pursuant to their market-
¶ 61,218 at 61,798–802(2000), suspended market-
certain ancillary services at market- based pricing in the non-spinning reserve market 1212 Cogentrix at 10.
based rates in CAISO, ISO New for a temporary period. The Commission imposed
1213 See,
bidding restrictions on 10 minute non-spinning e.g., Calpine Oneta Power, L.P, 119 FERC
England, NYISO, and PJM. Moreover, ¶ 61,177 (2007), and cases cited therein.
operating reserves suppliers and a mandatory bid
the Commission considers on a case-by- requirement which required that all available 1214 Although Powerex does not directly define
case basis market power mitigation capacity held by eastern suppliers of 10 minute loss compensation energy, we interpret it to be
measures for sales involving ancillary non-spinning reserves, and that is not subject to a equivalent to real power losses associated with all
bona fide outage or conflicting contractual transmission service. The Commission’s pro forma
services in these markets. OATT in Order No. 890, sections 15.7 and 28.5,
obligation, be bid into the market. The Commission
indicated that the mandatory bid requirement was refer to real power losses. For purposes of this Final
1208 APPA/TAPS at 92. necessary to protect against the physical Rule, we will refer to loss compensation service or
1209 See,
e.g., APPA/TAPS at 90–92. energy as real power losses.
withholding of capacity for the 10 minute non-
1210 Powerex reply comments at 1–3. spinning reserve market. 1215 Powerex initial comments at 38–40.
based rate authority.1216 Powerex 2. Section 35.36 Generally public utilities with a franchised service
believes that the provision of real power 1079. This section defines certain obligation under State law. The
losses is no different than the provision terms specific to Subpart H and explains Commission modifies the definition as
of other energy. It notes that in some the applicability of Subpart H. Some of proposed in the NOPR so that the term
control areas, the provision of such these terms were put in place when the ‘‘franchised public utility’’ does not
services comes with other attendant Commission codified certain market include only utilities with captive
duties such as acting as the scheduling behavior rules in Order No. 674.1218 customers. Instead, throughout the final
party for the losses. 1080. The NOPR proposed to define regulations, references to franchised
‘‘Seller’’ in paragraph (a)(1) as a public public utilities with captive customers
utility with authority to, or seeking are explicitly identified, where
1076. We agree with Powerex that the authority to, engage in sales for resale of applicable.
provision of real power losses is no electric energy at market-based rates in 1085. New paragraph (a)(6) provides a
different than the provision of other order to make clear that Subpart H deals definition of captive customers, the
energy. We clarify that we permit sellers exclusively with market-based rate genesis of which is discussed above in
to offer third-party real power losses on power sales. NASUCA comments that the Affiliate Abuse section.
non-affiliated transmission systems the explanation for the definition of 1086. Paragraph (a)(7) (which was
under their market-based rate authority. ‘‘Seller’’ does not mention any language proposed as § 35.36(a)(6) in the NOPR)
V. Section-by-Section Analysis of in FPA section 205 regarding ‘‘market- provides a definition for market-
Regulations based rates,’’ and further, that there is regulated affiliated entities.
no reference to market-based rates in 1087. New paragraph (a)(8) provides a
1. Section 35.27 Authority of State that section of the Act. Thus, NASUCA definition of market information.
Commissions contends that ‘‘the reference in the 1088. Paragraph (b) is a basic
1077. In the NOPR, we explained that definition of ‘‘seller’’ to ‘‘market-based description of the applicability of
the first two paragraphs of this section rates under section 205 of the Federal Subpart H.
were added by Order No. 888, while Power Act’’ is a non sequitur, lacks
support in the statutory language, and 3. Section 35.37 Market Power
Order No. 652 later added subsection (c) Analysis Required
to implement the change in status should be deleted.’’ 1219
reporting requirement. The Commission 1081. We do not agree that the 1089. This section describes the
proposed to move or delete subsections limiting language should be deleted. We market power analysis the Commission
(a) and (c), leaving only (b), which believe that it is essential that the employs, as discussed in the preamble,
clarifies that nothing in this part should regulations in subpart H apply only to and when sellers must file one. It is
be construed as preempting or affecting the specific sales that we are regulating intended to identify the key aspects of
the authority of State commissions. The herein (i.e., market-based rates for the analysis.
NOPR did not propose to revise the wholesale sales of electric energy, 1090. The Final Rule adds paragraph
language of subsection (b) in any way, capacity and ancillary services by (a)(2), which codifies the requirement
and proposed only to amend the public utilities) and not to any sales mentioned in the NOPR for each seller
heading from ‘‘Power Sales at Market- made at cost-based rates or under any to include an appendix identifying
Based Rates’’ to ‘‘Authority of State other authority; the definition should specified assets with each market power
Commissions.’’ NASUCA filed make this scope clear. To the extent that analysis filed. The paragraph also
comments in support of ‘‘assuring that NASUCA is challenging the directs readers to Appendix B for a
there will be no preemption of State Commission’s ability to authorize sample asset appendix.
prerogatives under the proposed new market-based rates at all, the 1091. New language in paragaphs
regulations * * *.’’ 1217 Commission addresses NASUCA’s (c)(2) and (c)(3) clarifies that both sellers
1078. We reiterate that the arguments in that regard in the legal and intervenors may file alternative
Commission is not proposing to add or authority section of this Final Rule. evidence to support or rebut the
1082. In the NOPR, the Commission indicative screens, and addresses the
revise this provision at this time. It
proposed definitions for Category 1 use of the Delivered Price Test and its
remains unchanged from when the
Sellers and Category 2 Sellers to assist role in the analysis of market power,
Commission adopted it in Order No.
in understanding the parameters of the respectively. Further, at paragraph
888. The fact that it is renumbered in
updated market power analysis filing (c)(4), the regulations codify the
this proceeding will not have any
requirement. The definition of Category requirement that each seller use a
impact, positive or negative, on the
1 Sellers is being clarified, consistent standard format for the indicative
prerogatives of State commissions.
with the discussion above in screens, the use of which was proposed
1216 Powerex cites to a filing in which Ameren
Implementation Process. in the NOPR.
1083. Paragraph (a)(4) defines inputs 1092. Paragraph (d) specifies the
stated its understanding that it ‘‘may sell the energy
that will be used by customers that choose to self- to electric power production in order to requirement that a seller with
supply energy to meet their transmission losses to simplify § 35.37(e) regarding other transmission facilities must have on file
such customers under its general market-based barriers to entry. The Final Rule revises an Open Access Transmission Tariff.
power sales authority. [Ameren] will merely be the definition consistent with the
selling the power the customer will use to meet its The Final Rule adds a description of
losses and obligations and, from [Ameren’s] discussion in the vertical market power how this requirement applies to sellers
standpoint, this will be no different than any other section. affiliated with foreign utilities.
power sale. Such sales are also consistent with the 1084. Paragraph (a)(5) indicates that 1093. Paragraph (e) describes the
Commission’s decision to treat the provision of where the term franchised public utility
losses as a service that can be provided by multiple information that must be provided to
is used, it is meant to include only those
entities, rather than one that the transmission demonstrate a lack of vertical market
provider is uniquely situated to provide.’’ Powerex power. The text is revised in several
at 39, citing Letter Transmitting Compliance Filing, 1218 Conditions for Public Utility Market-Based
Ameren Energy Marketing Co., Docket No. ER01– Rate Authorization Holders, Order No. 674, FERC respects reflecting the discussion in the
1945, at n.3 (July 27, 2001). Stats. & Regs. ¶ 31,208, 114 FERC ¶ 61,163 (2006). section of the Final Rule on vertical
1217 NASUCA at 3–4. 1219 NASUCA at 32. market power.
1094. The Final Rule adds a new discussed in greater detail in the 8. Section 35.42 Change in Status
paragraph (f) to address concerns that affiliate abuse section of this Final Rule. Reporting Requirement
CEII claims in market-based rate filings 1098. As discussed above in Affiliate 1101. This section incorporates the
have been overbroad. The subsection Abuse, the Commission is adding provision previously found at paragraph
provides a process for intervenors to several provisions concerning 35.27(c), which was codified by Order
gain access to data for which the filer separation of functions and information No. 652. The final regulatory text
has claimed privileged treatment under sharing to more closely model the clarifies distinctions between generation
18 CFR 388.112. Commission’s standards of conduct, as facilities and transmission facilities, and
4. Section 35.38 Mitigation appropriate. In addition, the final incorporates minor revisions as
regulations include a new paragraph (g) discussed above in the section on
1095. The regulatory text proposed in with a general prohibition on using Changes in Status.
the NOPR did not propose specific anyone as a conduit to circumvent any 1102. The Final Rule adds paragraph
changes to the current approach to (c), which codifies the requirement that
of the affiliate restrictions, and a new
mitigation, and intended to capture the each seller include an appendix
paragraph (h) explaining that, if
Commission’s existing requirements. identifying specified assets with each
necessary, affiliate restrictions involving
The Final Rule does not depart from this pertinent change in status notification
two or more franchised public utilities,
approach, and adopts the same filed. The paragraph also directs readers
one or more of whom has captive
regulatory text regarding mitigation as to Appendix B for a sample asset
customers and one or more of whom
proposed in the NOPR, with the appendix.
does not, will be imposed on a case-by-
addition of a clarification that
case basis. 9. Miscellaneous
mitigation will apply only to the market
or markets in which a seller is found, or 6. Section 35.40 Ancillary Services 1103. The final regulations add the
presumed, to have market power. phrase ‘‘unless otherwise permitted by
1099. This provision restricts sales of
5. Section 35.39 Affiliate Restrictions ancillary services to those specific Commission rule or order’’ in several
geographic markets for which the places throughout the regulations to
1096. This section governs affiliate make clear that these general provisions
transactions and affiliate relationships Commission has authorized market-
based rate sales of such services. In the are not meant to override approvals
and establishes certain conditions that a granted in particular circumstances in
seller must satisfy as a condition of its Final Rule, we delete proposed
paragraph (b), which reflected the other orders or rules.
market-based rate authority. New 1104. In this Final Rule, the
paragraph (a) explains that, as a Internet posting and reporting
Commission has deleted proposed
condition of obtaining and retaining requirements found in Avista
§ 35.42, MBR Tariff, which required
market-based rate authority, the Corporation,1220 and which we find are
sellers to have on file the MBR tariff of
provisions set forth in the entire section, no longer necessary, as discussed above general applicability. That requirement
including the restriction on affiliate in the section on Ancillary Services. We has been modified, as explained above
sales of electric energy and the affiliate also delete proposed subsection (c), in the section on the MBR tariff;
restrictions, must be satisfied on an which described limitations on sales of accordingly the regulation will not be
ongoing basis. Paragraph (b) expressly ancillary services by third-party adopted.
prohibits sales between a franchised providers; we believe that the standard
public utility with captive customers applicable tariff provision, which will VI. Information Collection Statement
and any of its market-regulated power be available on the Commission’s Web 1105. The Office of Management and
sales affiliates without first receiving site as it may be revised from time to Budget (OMB) regulations require
authorization for the transaction under time, will adequately apprise sellers of approval of certain information
section 205 of the FPA. This paragraph the current policy concerning third- collection and data retention
requires that, where the Commission party providers. requirements imposed by agency
grants a seller authority to engage in rules.1221 Upon approval of a collection
7. Section 35.41 Market Behavior
affiliate sales under its MBR tariff, any of information and data retention, OMB
Rules
and all such authorizations must be will assign an OMB control number and
listed in the seller’s tariff. The language 1100. In Order No. 674, the an expiration date. Respondents subject
varies from that proposed in the NOPR Commission rescinded two of its market to the filing requirements of this rule
to reflect changes to the definition of behavior rules and codified the will not be penalized for failing to
‘‘franchised public utility.’’ remainder in § 35.37 of new Subpart H. respond to these collections of
1097. Paragraphs (c)–(f) contain The NOPR proposed to move these information unless the collections of
provisions governing the relationship market behavior rules, unchanged, from information display a valid OMB
between a franchised public utility with § 35.37 to § 35.41. NASUCA submitted a control number. As discussed herein,
captive customers and its market- number of substantive comments on the Commission is amending its
regulated power sales affiliates these provisions. Because we did not regulations to codify its requirements
(formerly, code of conduct). The propose any revisions to these rules, for obtaining and retaining market-based
provisions of these paragraphs apply to and we are not revising them rate authorization, implementing a
all franchised public utilities with substantively in this Final Rule, market-based rate tariff, and
captive customers. These paragraphs NASUCA’s comments are beyond the incorporating the change in status
include provisions governing the scope of this proceeding. We are, reporting requirement for sellers seeking
separation of employees, the sharing of however, taking this opportunity to market-based rate authority.
market information, sales of non-power make several minor corrections and
Initial Market Power Analysis
goods or services, and power brokering. stylistic edits to the market behavior
The language varies from that proposed rules. 1106. The Commission has previously
in the NOPR to reflect changes to the required utilities seeking market-based
definition of ‘‘franchised public utility’’ 1220 Avista Corporation, 87 FERC ¶ 61,223, order
and a number of other changes on reh’g, 89 FERC ¶ 61,136 (1999). 1221 5 CFR 1320.11.
rate authority to file a market power Final Rule. Instead, sellers that believe Regional Review and Schedule
analysis with the Commission; the they fall into Category 1 will be required 1113. In the NOPR, the Commission
Commission now codifies that to submit a filing with the Commission proposed to require each seller to file an
requirement in the Commission’s at the time that updated market power updated market power analysis for its
regulations. This Final Rule reflects the analyses for the seller’s relevant market relevant geographic market(s) on a
Commission’s existing practice would otherwise be due (based on the schedule that will allow examination of
developed over the years through regional schedule for updated market the individual seller at the same time
individual cases and will not impose power analyses adopted in this Final the Commission examines other sellers
any additional burden, with the Rule) explaining why the seller meets in these relevant markets and
following exception. the Category 1 criteria, including a list contiguous markets within a region from
1107. Section 35.27(a) of the of all generation assets (including which power could be imported. The
Commission’s regulations 1222 currently nameplate or seasonal capacity regional reviews would rotate by
provides that any public utility seeking amounts) owned or controlled by the geographic region.
market-based rate authority shall not be seller and its affiliates grouped by 1114. Some commenters expressed
required to submit a generation market balancing authority area. Once the concern that regional review would
power analysis with respect to sales Commission agrees that a seller meets increase the burden associated with
from capacity for which construction the Category 1 criteria, that seller will filing updated market power analyses.
commenced on or after July 9, 1996. not have to file regularly scheduled Reliant, for example, states that
Under current procedures, if all the updated market power analyses. companies which engage in business in
generation owned or controlled by an Category 2 sellers will retain their multiple regions of the United States
applicant for market-based rate existing obligation to file a regularly would have to file several times over the
authority and its affiliates in the scheduled updated market power three year schedule instead of once as
relevant balancing authority area is analysis. Thus, Category 2 sellers will is required currently.1223 Other
post-July 9, 1996 generation, such seller not face a greater burden to provide the commenters support the regional review
is not required to submit a generation Commission with the information proposal. For example, NRECA
market power analysis. In this Final required for an updated market power maintains that the proposed regional
Rule, the Commission eliminates the analysis. approach will not impose an undue
express exemption provided in 1110. In addition, the elimination of compliance burden on sellers. It notes
§ 35.27(a). This change means that all § 35.27(a) also means that existing that the regional review approach will
new sellers seeking market-based rate Category 2 sellers filing updated market ensure greater consistency in the data
authority on or after the effective date of power analyses on or after the effective used to evaluate Category 2 sellers,
the Final Rule issued in this proceeding, date of the Final Rule issued in this citing the Commission’s statement in
whether or not all of their and their proceeding, whether or not all of their the NOPR that the Commission ‘‘will
affiliates’ generation was built or and their affiliates’ generation was built have before it a complete picture of the
acquired after July 9, 1996, must or acquired after July 9, 1996, must uncommitted capacity and
provide a market power analysis of their provide a market power analysis of their simultaneous import capability into the
generation to support their application generation to support their continued relevant geographic markets under
for market-based rate authority. market-based rate authority. review.’’ 1224 NRECA states that any
1108. Because the Commission allows 1111. Mirant argues that, with the increase in the burden on sellers hardly
a seller to make simplifying elimination of the § 35.27(a) exemption, outweighs these substantial benefits.
assumptions, where appropriate, and its cost of compliance will increase NRECA submits that the Commission
therefore to submit a streamlined because it will have to prepare four has proposed a reasonable procedure to
analysis, the Commission believes that updated market power analyses, each better ensure that market-based rate
any burden of document preparation costing $20,000 to prepare and file, for authority is granted only in appropriate
occasioned by the elimination of companies that would have qualified for circumstances. When compared with
§ 35.27(a) should be minimal. To the the § 35.27(a) exemption. Mirant states the burden, cost and time required by a
extent that there are greater costs for that only one of its subsidiaries would cost-of-service rate regime, NRECA
some sellers, the benefit of ensuring that qualify as a Category 1 seller and Mirant asserts that the burden of complying
markets do not become less competitive still would have to make four updated with the regional review approach will
over time outweighs any additional market power analysis filings. On the be minimal. APPA/TAPS describe the
costs. other hand, other commenters state that regional review proposed in the NOPR
the benefits of eliminating the § 35.27(a) as a sensible proposal to conduct
Updated Market Power Analyses exemption outweigh any added updated market power analyses on a
1109. To retain market-based rate burdens. rotating, regional basis to improve the
authority, the Commission currently 1112. Because the Commission allows
quality and quantity of the data relied
requires that sellers file an updated a seller to make simplifying
upon for market-based rate
market power analysis every three years. assumptions and rely on previously
determinations and to provide the
In this Final Rule, the Commission filed analyses by other market
Commission with a more
codifies the requirement that certain participants, where appropriate, and
comprehensive picture of competitive
sellers with market-based rate authority therefore to submit a streamlined
conditions in regional markets. They
file an updated analysis with the analysis, the Commission believes that
assert that the Commission should not
Commission to retain that authority. any burden of document preparation
However, Category 1 sellers will be occasioned by the elimination of 1223 Similarly, Allegheny, Mirant, FP&L, EEI,
relieved of their existing obligation to § 35.27(a) should be minimal. To the FirstEnergy, MidAmerican, TXU, Morgan Stanley,
file regularly scheduled updated market extent that there are greater costs for Financial Companies, and EPSA argue that large
power analyses, as explained in the some sellers, the benefit of ensuring that corporate families could find themselves in a
perpetual triennial review that would place a
Implementation Process section of this markets do not become less competitive substantial regulatory burden and expense on them.
over time outweighs any additional 1224 NRECA reply comments at 28, citing NOPR
1222 18 CFR 35.27(a). costs. at P 154.
sacrifice improvements to its market- but stated that long-term benefits would Commission solicited comments on the
based rate program to the interests of a be realized for market participants as Commission’s need for this information,
few companies and that any increased well as the Commission. whether the information will have
financial cost to companies associated 1118. In this Final Rule, we do not practical utility, the accuracy of
with regional reviews is outweighed by adopt the NOPR proposal to require all provided burden estimates, ways to
the companies’ profits from market- sellers to adopt a tariff of general enhance the quality, utility, and clarity
based rate sales. applicability. Instead, we adopt a set of of the information to be collected, and
1115. We believe that the standard tariff provisions that we will any suggested methods for minimizing
Commission’s proposal properly and require each seller to include in its the respondent’s burden, including the
fairly balances the need to effectively, market-based rate tariff. While we will use of automated information
comprehensively, and accurately assess require all market-based rate sellers to techniques. The Commission did not
market power in wholesale markets make compliance filings to modify their receive comments specifically
with the desire to minimize any existing tariffs to reflect these standard addressing the burden estimates in the
administrative burden associated with provisions, these compliance filings are NOPR. With the exceptions of estimates
the filing and review of updated market to be made by each seller the next time regarding sellers’ market-based rate
power analyses. While we recognize the seller proposes a tariff change, tariffs, the number of market-based rate
that some sellers may file updates more makes a change in status filing, or sellers, and the burden estimates for
frequently than currently, we have submits an updated market power Category 1 sellers, we will use the same
carefully balanced the interests of all analysis in accordance with the estimates here as in the NOPR.1226
involved, and we believe that regional schedule in Appendix D, whichever
occurs first. 1122. The number of respondents
reviews of updated market analyses will expected to file to revise market-based
result in more accurate and complete 1119. In the NOPR, the Commission
also proposed that all market-based rate rate tariffs has increased from the
data. This in turn will enhance the estimate set forth in the NOPR, given
Commission’s ability to continue to sellers file one market-based rate tariff
per corporate family. Many commenters our decision not to require one MBR
ensure that sellers either lack market tariff per corporate family. We expect
power or have adequately mitigated expressed concern with this proposal. In
light of these concerns, we are not some sellers will opt to submit a single
such market power. corporate tariff, but we will estimate the
requiring sellers to file one market-
1116. Further, in light of commenters’ total number to be filed to be
based rate tariff per corporate family.
concern with the regional review approximately 1230, rather than 650 as
Instead, we will allow sellers to elect
schedule, the Commission has modified reported in the NOPR. We will conform
whether to transact under a single
the schedule as proposed in the NOPR. the number of responses to reflect this
market-based rate tariff for an entire
The NOPR proposed that regional new estimate as well. However, we note
corporate family or under separate
reviews would rotate by geographic that this number may be significantly
tariffs.
region with three regions reviewed per less if sellers choose the option to file
year. Some commenters expressed General one market-based rate tariff per
concerned that, because they operate in 1120. The Commission’s regulations corporate family. Additionally, the
multiple regions, they would be in 18 CFR Part 35 specify those Commission proposed in the NOPR that
required to file updated market power reporting requirements that must be sellers file their MBR tariffs as directed
analyses every year rather than every followed in conjunction with the filing in the rulemaking proceeding requiring
three years. To address this concern, we of rate schedules under the FPA. The the submission of electronic tariffs.
are reducing the number of filings that information provided to the However, in this Final Rule, we are
sellers with generation in multiple Commission under 18 CFR Part 35 is requiring that sellers file their modified
regions will have to make by identified for information collection and tariffs the next time sellers propose a
consolidating the regions and reducing records retention purposes as FERC– tariff change, make a change in status
the total number from nine to six. With 516. Data collection FERC–516 applies filing, or submit an updated market
fewer and larger regions, sellers will to all reporting requirements covered in power analysis. We have adjusted the
likely occupy fewer regions, 18 CFR Part 35 including: electric rate number of responses to reflect this
necessitating fewer filings. schedule filings, market power analyses, requirement.
Market-Based Rate Tariff tariff submissions, market-based rate
analyses, and reporting requirements for Burden Estimate: The Public
1117. The NOPR proposed a tariff of changes in status for public utilities Reporting and records retention burden
general applicability (MBR tariff), which with market-based rate authority. for all four reporting requirements and
would provide greater consistency and 1121. The Commission is submitting the records retention requirement is as
reduce confusion regarding tariffs. The these reporting and records retention follows.1227
Commission recognized that the requirements to OMB for its review and 1226 We note that the number of market-based rate
requirement to file the specified MBR approval under section 3507(d) of the
sellers has increased since issuance of the NOPR in
tariff might cause a minimal burden of Paperwork Reduction Act.1225 The May 2006.
document preparation and organization 1227 These burden estimates apply only to this
for existing market-based rate sellers, 1225 44 U.S.C. 3507(d). Final Rule and do not reflect upon all of FERC–516.
Title: Electric Rate Schedule Filings OMB Control No: 1902–0096.

(FERC–516).
Action: Revised Collection.
Number of Number of Hours per Total annual

Data collection respondents responses response hours
Initial Market Power Analysis ........................................................................... 120 120 130 15,600

Market-Based Rate Tariff ................................................................................ 1230 1228 410 6 2,460
Category 1 Qualification Filings 1229 ................................................................ 630 1230 210 15 1231 3,150
Updated Analyses ............................................................................................ 600 1233 200 250 50,000
Category 2 1232 Totals ..................................................................................... ........................ ........................ ........................ 71,210
Total Annual Hours for Collection: Frequency of Responses collections of information are necessary
(Reporting + record retention (if Market Power Analyses: Occasionally; and conform to the Commission’s plans,
appropriate) = 71,210 hours. consistent with current practice, a as described in this order, for the
Information Collection Costs: The market power analysis must be filed for collection, efficient management, and
total annual cost for Initial Market each utility seeking market-based rate use of the required information.1235
Power Analyses is estimated to be authority. 1123. Interested persons may obtain
$2,340,000. Total annual cost for Market-Based Rate Tariffs: Once, information on the reporting
market-based rate tariffs is projected to consistent with the requirement that all requirements by contacting: Federal
be $369,000 for the first year. Total sellers file modifications to their Energy Regulatory Commission, 888
annual cost for Category 1 Qualification existing tariffs in accordance with the First Street, NE., Washington, DC 20426
Filings is projected to be $472,500.1234 provisions in Appendix C. [Attention: Michael Miller, Office of the
Total annual cost for Updated Market Updated Market Power Analyses: Executive Director, Phone: (202) 502–
Power Analyses Category 2 is projected Updated market power analysis filed 8415, fax: (202) 273–0873, e-mail:
to be $7,500,000. The hourly rate of every three years for Category 2 sellers michael.miller@ferc.gov or the Office of
$150 includes attorney fees, engineering seeking to retain market-based rate Information and Regulatory Affairs,
consultation fees and administrative authority. Office of Management and Budget,
support. There are 2080 total work Washington, DC 20503 [Attention: Desk
hours in a year. There are no filing fees Necessity of the Information Officer for the Federal Energy
associated with applications for market- Market Power Analyses: Consistent Regulatory Commission].
based rate authority. with current practice, the market power VII. Environmental Analysis
Respondents (Market Power Analysis; analysis helps inform the Commission
as to whether an entity seeking market- 1124. The Commission is required to
MBR Tariff; Triennial Review): prepare an Environmental Assessment
Businesses or other for profit. based rate authority lacks market power,
and whether sales by that entity will be or an Environmental Impact Statement
just and reasonable. for any action that may have a
1228 We expect responses to be staggered over the
Market-Based Rate Tariff: Market- significant adverse effect on the human
course of three years. Accordingly, the number of
respondents (1230) has been divided by 3. based rate tariffs with standard environment.1236 The Commission
1229 Category 1 sellers are power marketers and
provisions will improve the efficiency concludes that neither an
power producers that own or control 500 MW or
of the Commission in its analysis and Environmental Assessment nor an
less of generating capacity in aggregate and that are Environmental Impact Statement is
not affiliated with a public utility with a franchised determination of market-based rate
service territory. In addition, Category 1 sellers authority. These will reduce document required for this Final Rule under
must not own, operate or control transmission preparation time overall and provide § 380.4(a)(15) of the Commission’s
facilities, and must present no other vertical market
utilities with the clearly defined regulations, which provides a
power issues. There are approximately 630 Category categorical exemption for approval of
1 sellers. expectations of the Commission.
1230 To determine the number of responses, the Updated Market Power Analyses: The actions under sections 205 and 206 of
number of respondents (630) has been divided by updated market power analyses allow the FPA relating to electric rate
3 because the Category 1 filings will be submitted the Commission to monitor market- filings.1237
to the Commission on a staggered basis over the
course of a three-year period. After the first three
based rate authority to detect changes in VIII. Regulatory Flexibility Act
years, the number of responses will be zero. market power or potential abuses of
1125. The Regulatory Flexibility Act
1231 This estimate reflects the limited scope of the market power. The updated market
of 1980 (RFA) 1238 generally requires a
filing required by Category 1 sellers, i.e., a filing power analysis permits the Commission
explaining why the seller meets the Category 1 description and analysis of rules that
to determine that continued market-
criteria and including a list of all generation assets will have significant economic impact
owned or controlled by the seller and its affiliates based rate authority will still yield rates
on a substantial number of small
grouped by balancing authority area. that are just and reasonable.
entities.1239 The Final Rule will be
1232 Category 2 sellers are any sellers not in Internal review: The Commission has
Category 1. conducted an internal review of the 1235 See44 U.S.C. 3506(c).
1233 To determine the number of responses, the
public reporting burden associated with 1236 OrderNo. 486, Regulations Implementing the
number of respondents (600) has been divided by
3 because the responses will be submitted to the the collection of information and National Environmental Policy Act, 52 FR 47897
Commission on a staggered basis over the course of assured itself, by means of internal (Dec. 17, 1987), FERC Stats. & Regs. Preambles
a three year period. review, that there is specific, objective 1986–1990 ¶ 30,783 (1987).
1234 We note that Category 1 sellers will only be 1237 18 CFR 380.4(a)(15).
support for this information burden 1238 5 U.S.C. 601–12.
required to file on a single occasion Category 1
qualification filings whereas Category 2 sellers will
estimate. Moreover, the Commission has 1239 The RFA definition of ‘‘small entity’’ refers to
file updated market power analyses every three reviewed the collections of information the definition provided in the Small Business Act,
years. and has determined that these Continued
applicable to all public utilities seeking IX. Document Availability § 35.27 Authority of State commissions.
and currently possessing market-based 1129. In addition to publishing the Nothing in this part—
rate authority. The Commission finds full text of this document in the Federal (a) Shall be construed as preempting
that the regulations adopted here should Register, the Commission provides all or affecting any jurisdiction a State
not have a significant impact on small interested persons an opportunity to commission or other State authority
businesses. view and/or print the contents of this may have under applicable State and
1126. The submission of a market Federal law, or
document via the Internet through
power analysis is currently required of (b) Limits the authority of a State
FERC’s Home Page (http://www.ferc.gov)
all entities seeking authority to sell at commission in accordance with State
and in FERC’s Public Reference Room
market-based rates, and the Final Rule and Federal law to establish
during normal business hours (8:30 a.m. (1) Competitive procedures for the
does not expand which entities will be
to 5 p.m. Eastern time) at 888 First acquisition of electric energy, including
required to file these analyses. The Final
Street, NE., Room 2A, Washington, DC demand-side management, purchased at
Rule does not create a new reporting
20426. wholesale, or
requirement. It does, however, expand
1130. From FERC’s Home Page on the (2) Non-discriminatory fees for the
the scope of the analysis that must be
Internet, this information is available on distribution of such electric energy to
submitted for those entities that
eLibrary. The full text of this document retail consumers for purposes
previously were exempted from
is available on eLibrary in PDF and established in accordance with State
preparing a generation market power
Microsoft Word format for viewing, law.
analysis by virtue of 18 CFR 35.27(a).
printing, and/or downloading. To access
The Commission is concerned that the ■ 3. Subpart H is revised to read as
this document in eLibrary, type the
continued use of the § 35.27(a) follows:
docket number excluding the last three
exemption, in time, would encompass Subpart H—Wholesale Sales of Electric
digits of this document in the docket
all market participants as all pre-July 9, Energy, Capacity and Ancillary Services at
number field.
1996 generation is retired. Nevertheless, 1131. User assistance is available for Market-Based Rates
because the Commission allows a seller eLibrary and the Commission’s Web site Sec.
to make simplifying assumptions, where during normal business hours from 35.36 Generally.
appropriate, and therefore to submit a FERC Online Support at (202) 502–6652 35.37 Market power analysis required.
streamlined analysis, the Commission (toll-free at 1–866–208–3676) or e-mail 35.38 Mitigation.
believes that any additional burden at ferconlinesupport@ferc.gov, or the
35.39 Affiliate restrictions.
imposed by the elimination of the 35.40 Ancillary services.
Public Reference Room at (202) 502– 35.41 Market behavior rules.
§ 35.27(a) exemption will be minimal. 8371 Press 0, TTY (202) 502–8659. E-
1127. Standard tariff provisions will 35.42 Change in status reporting
mail the Public Reference Room at requirement.
decrease document preparation by
public.referenceroom@ferc.gov. Appendix A to Subpart H Standard Screen
clearly defining the information sought Format
by the Commission. X. Effective Date and Congressional Appendix B to Subpart H Corporate Entities
1128. For certain sellers, the triennial Notification and Assets
review submissions that provide 1132. These regulations are effective
updated market power analyses are September 18, 2007. The Commission Subpart H—Wholesale Sales of
required for the retention of market- has determined, with the concurrence of Electric Energy, Capacity and Ancillary
based rate authority. Category 2 utilities the Administrator of the Office of Services at Market-Based Rates
shall continue to submit this analysis, Information and Regulatory Affairs of § 35.36 Generally.
which poses no greater burden than that OMB, that this rule is not a ‘‘major rule’’
already in place. However, the (a) For purposes of this subpart:
as defined in section 351 of the Small (1) Seller means any person that has
regulations will result in fewer filings Business Regulatory Enforcement
with the Commission after the next authorization to or seeks authorization
Fairness Act of 1996. The Commission to engage in sales for resale of electric
three years than currently required for will submit the Final Rule to both
qualified smaller (Category 1) utilities’ energy, capacity or ancillary services at
houses of Congress and to the General market-based rates under section 205 of
retention of market-based rate authority. Accounting Office.
Thus, the Final Rule will be less the Federal Power Act.
burdensome economically and reduce List of Subjects in 18 CFR Part 35 (2) Category 1 Sellers means
the frequency of document preparation wholesale power marketers and
Electric power rates, Electric utilities, wholesale power producers that own or
for market-based rate authority retention Reporting and recordkeeping
for qualified smaller utilities. The control 500 MW or less of generation in
requirements. aggregate per region; that do not own,
Commission concludes that this Final
Rule will not have a significant By the Commission. Commissioner Moeller operate or control transmission facilities
economic impact on a substantial
dissenting in part with a separate statement other than limited equipment necessary
in Attachment A. to connect individual generating
number of small entities.
Kimberly D. Bose, facilities to the transmission grid (or
which defines a ‘‘small business concern’’ as a Secretary. have been granted waiver of the
business that is independently owned and operated ■ In consideration of the foregoing, the requirements of Order No. 888, FERC
and that is not dominant in its field of operation. Commission amends part 35, Chapter I, Stats. & Regs. ¶ 31,036); that are not
15 U.S.C. 632. The Small Business Size Standards affiliated with anyone that owns,
component of the North American Industry Title 18, Code of Federal Regulations, as
Classification System defines a small electric utility follows: operates or controls transmission
as one that, including its affiliates, is primarily ■ 1. The authority citation for part 35 facilities in the same region as the
engaged in the generation, transmission, and/or continues to read as follows: seller’s generation assets; that are not
distribution of electric energy for sale and whose affiliated with a franchised public
total electric output for the preceding fiscal year did Authority: 16 U.S.C. 791a–825r, 2601–
utility in the same region as the seller’s
not exceed 4 million MWh. 13 CFR 121.201 (section 2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.
22, Utilities, North American Industry generation assets; and that do not raise
Classification System, NAICS). ■ 2. § 35.27 is revised to read as follows: other vertical market power issues.
(3) Category 2 Sellers means any horizontal market power if it passes two (3) Sources of coal supplies and the
Sellers not in Category 1. indicative market power screens: a transportation of coal supplies such as
(4) Inputs to electric power pivotal supplier analysis based on the barges and rail cars.
production means intrastate natural gas annual peak demand of the relevant (4) A Seller must ensure that this
transportation, intrastate natural gas market, and a market share analysis information is included in the record of
storage or distribution facilities; sites for applied on a seasonal basis. There will each new application for market-based
generation capacity development; be a rebuttable presumption that a Seller rates and each updated market power
sources of coal supplies and equipment possesses horizontal market power if it analysis. In addition, a Seller is required
for the transportation of coal supplies fails either screen. to make an affirmative statement that it
such as barges and rail cars. (2) Sellers and intervenors may also has not erected barriers to entry into the
(5) Franchised public utility means a file alternative evidence to support or relevant market and will not erect
public utility with a franchised service rebut the results of the indicative barriers to entry into the relevant
obligation under State law. screens. Sellers may file such evidence market.
(6) Captive customers means any at the time they file their indicative (f) If the seller seeks to protect any
wholesale or retail electric energy screens. Intervenors may file such portion of the application, or any
customers served under cost-based evidence in response to a Seller’s attachment thereto, from public
regulation. submissions. disclosure pursuant to § 388.112 of this
(7) Market-regulated power sales chapter, the seller must include with its
affiliate means any power seller affiliate (3) If a Seller does not pass one or
request for privileged treatment a
other than a franchised public utility, both screens, the Seller may rebut a
proposed protective order under which
including a power marketer, exempt presumption of horizontal market power
the parties to the proceeding will be
wholesale generator, qualifying facility by submitting a Delivered Price Test
able to review any of the data,
or other power seller affiliate, whose analysis. A Seller that does not rebut a
information, analysis or other
power sales are regulated in whole or in presumption of horizontal market power
documentation relied upon by the seller
part on a market-rate basis. or that concedes market power, is
for which privileged treatment is
(8) Market information means non- subject to mitigation, as described in
sought. A seller must grant access to
public information related to the electric § 35.38.
privileged data to any party that signs a
energy and power business including, (4) When submitting a horizontal protective order within 5 days from the
but not limited to, information regarding market power analysis, a Seller must date that the party executes the
sales, cost of production, generator use the form provided in Appendix A of protective order.
outages, generator heat rates, this subpart and include all supporting
unconsummated transactions, or materials referenced in the form. § 35.38 Mitigation.
historical generator volumes. Market (d) To demonstrate a lack of vertical (a) A Seller that has been found to
information includes information from market power, a Seller that owns, have market power in generation or that
either affiliates or non-affiliates. operates or controls transmission is presumed to have horizontal market
(b) The provisions of this subpart facilities, or whose affiliates own, power by virtue of failing or foregoing
apply to all Sellers authorized, or operate or control transmission the horizontal market power screens, as
seeking authorization, to make sales for facilities, must have on file with the described in § 35.37(c), may adopt the
resale of electric energy, capacity or Commission an Open Access default mitigation detailed in paragraph
ancillary services at market-based rates Transmission Tariff, as described in (b) of this section or may propose
unless otherwise ordered by the § 35.28; provided, however, that a Seller mitigation tailored to its own particular
Commission. whose foreign affiliate(s) own, operate circumstances to eliminate its ability to
or control transmission facilities outside exercise market power. Mitigation will
§ 35.37 Market power analysis required.
of the United States that can be used by apply only to the market(s) in which the
(a) (1) In addition to other competitors of the Seller to reach United Seller is found, or presumed, to have
requirements in subparts A and B, a States markets must demonstrate that market power.
Seller must submit a market power such affiliate either has adopted and is (b) Default mitigation consists of three
analysis in the following circumstances: implementing an Open Access distinct products:
when seeking market-based rate Transmission Tariff as described in (1) Sales of power of one week or less
authority; for Category 2 Sellers, every § 35.28, or otherwise offers comparable, priced at the Seller’s incremental cost
three years, according to the schedule non-discriminatory access to such plus a 10 percent adder;
contained in Order No. 697, FERC Stats. transmission facilities. (2) Sales of power of more than one
& Regs. ¶ 31,252; or any other time the week but less than one year priced at no
(e) To demonstrate a lack of vertical
Commission directs a Seller to submit higher than a cost-based ceiling
market power in wholesale energy
one. Failure to timely file an updated reflecting the costs of the unit(s)
markets through the affiliation,
market power analysis will constitute a expected to provide the service; and
ownership or control of inputs to
violation of Seller’s market-based rate (3) New contracts filed for review
electric power production, such as the
tariff. under section 205 of the Federal Power
transportation or distribution of the
(2) When submitting a market power Act for sales of power for one year or
inputs to electric power production, a
analysis, whether as part of an initial more priced at a rate not to exceed
Seller must provide the following
application or an update, a Seller must embedded cost of service.
information:
include an appendix of assets in the
form provided in Appendix B of this (1) A description of its ownership or § 35.39 Affiliate restrictions.
subpart. control of, or affiliation with an entity (a) General affiliate provisions. As a
that owns or controls, intrastate natural
(b) A market power analysis must condition of obtaining and retaining

address whether a Seller has horizontal gas transportation, intrastate natural gas market-based rate authority, the
and vertical market power. storage or distribution facilities; conditions provided in this section,
(c) (1) There will be a rebuttable (2) Sites for generation capacity including the restriction on affiliate
presumption that a Seller lacks development; and sales of electric energy and all other
affiliate provisions, must be satisfied on section 35.39, within 24 hours of such (g) No conduit provision. A franchised
an ongoing basis, unless otherwise deviation. public utility with captive customers
authorized by Commission rule or order. (d) Information sharing. (1) Unless and a market-regulated power sales
Failure to satisfy these conditions will simultaneously disclosed to the public, affiliate are prohibited from using
constitute a violation of the Seller’s market information may not be shared anyone, including asset managers, as a
market-based rate tariff. between a franchised public utility with conduit to circumvent the affiliate
(b) Restriction on affiliate sales of captive customers and a market- restrictions in §§ 35.39(a) through (g).
electric energy. As a condition of regulated power sales affiliate if the (h) Franchised utilities without
obtaining and retaining market-based sharing could be used to the detriment captive customers. If necessary, any
rate authority, no wholesale sale of of captive customers. affiliate restrictions regarding separation
electric energy may be made between a (2) Permissibly shared support of functions, power sales or non-power
franchised public utility with captive employees, field and maintenance goods and services transactions, or
customers and a market-regulated power employees and senior officers and board brokering involving two or more
sales affiliate without first receiving of directors under §§ 35.39(c)(2)(ii) may franchised public utilities, one or more
Commission authorization for the have access to information covered by of whom has captive customers and one
transaction under section 205 of the the prohibition of § 35.39(d)(1), subject or more of whom does not have captive
Federal Power Act. All authorizations to to the no-conduit provision in customers, will be imposed on a case-
engage in affiliate wholesale sales of § 35.39(g). by-case basis.
electric energy must be listed in a (e) Non-power goods or services. (1)
Seller’s market-based rate tariff. Unless otherwise permitted by § 35.40 Ancillary services.
(c) Separation of functions. (1) For the Commission rule or order, sales of any A Seller may make sales of ancillary
purpose of this paragraph, entities non-power goods or services by a services at market-based rates only if it
acting on behalf of and for the benefit franchised public utility with captive has been authorized by the Commission
of a franchised public utility with customers, to a market-regulated power and only in specific geographic markets
captive customers (such as entities sales affiliate must be at the higher of as the Commission has authorized.
controlling or marketing power from the cost or market price.
electrical generation assets of the § 35.41 Market behavior rules.
(2) Unless otherwise permitted by
franchised public utility) are considered Commission rule or order, sales of any (a) Unit operation. Where a Seller
part of the franchised public utility. non-power goods or services by a participates in a Commission-approved
Entities acting on behalf of and for the market-regulated power sales affiliate to organized market, Seller must operate
benefit of the market-regulated power an affiliated franchised public utility and schedule generating facilities,
sales affiliates of a franchised public with captive customers may not be at a undertake maintenance, declare outages,
utility with captive customers are price above market. and commit or otherwise bid supply in
considered part of the market-regulated (f) Brokering of power. (1) Unless a manner that complies with the
power sales affiliates. otherwise permitted by Commission Commission-approved rules and
(2) (i) To the maximum extent rule or order, to the extent a market- regulations of the applicable market. A
practical, the employees of a market- regulated power sales affiliate seeks to Seller is not required to bid or supply
regulated power sales affiliate must broker power for an affiliated franchised electric energy or other electricity
operate separately from the employees public utility with captive customers: products unless such requirement is a
of any affiliated franchised public utility (i) The market-regulated power sales part of a separate Commission-approved
with captive customers. affiliate must offer the franchised public tariff or is a requirement applicable to
(ii) Franchised public utilities with utility’s power first; Seller through Seller’s participation in a
captive customers are permitted to share (ii) The arrangement between the Commission-approved organized
support employees, and field and market-regulated power sales affiliate market.
maintenance employees with their and the franchised public utility must (b) Communications. A Seller must
market-regulated power sales affiliates. be non-exclusive; and provide accurate and factual
Franchised public utilities with captive (iii) The market-regulated power sales information and not submit false or
customers are also permitted to share affiliate may not accept any fees in misleading information, or omit
senior officers and boards of directors conjunction with any brokering services material information, in any
with their market-regulated power sales it performs for an affiliated franchised communication with the Commission,
affiliates; provided, however, that the public utility. Commission-approved market monitors,
shared officers and boards of directors (2) Unless otherwise permitted by Commission-approved regional
must not participate in directing, Commission rule or order, to the extent transmission organizations,
organizing or executing generation or a franchised public utility with captive Commission-approved independent
market functions. customers seeks to broker power for a system operators, or jurisdictional
(iii) Notwithstanding any other market-regulated power sales affiliate: transmission providers, unless Seller
restrictions in this section, in emergency (i) The franchised public utility must exercises due diligence to prevent such
circumstances affecting system charge the higher of its costs for the occurrences.
reliability, a market-regulated power service or the market price for such (c) Price reporting. To the extent a
sales affiliate and a franchised public services; Seller engages in reporting of
utility with captive customers may take (ii) The franchised public utility must transactions to publishers of electric or
steps necessary to keep the bulk power market its own power first, and natural gas price indices, Seller must
system in operation. A franchised simultaneously make public (on the provide accurate and factual
public utility with captive customers or Internet) any market information shared information, and not knowingly submit
the market-regulated power sales with its affiliate during the brokering; false or misleading information or omit
affiliate must report to the Commission and material information to any such
and disclose to the public on its Web (iii) The franchised public utility publisher, by reporting its transactions
site, each emergency that resulted in must post on the Internet the actual in a manner consistent with the
any deviation from the restrictions of brokering charges imposed. procedures set forth in the Policy
Statement issued by the Commission in rate tariff, and the prices it reported for electric power production, affiliation
Docket No. PL03–3–000 and any use in price indices. with any entity not disclosed in the
clarifications thereto. Unless Seller has application for market-based rate
previously provided the Commission § 35.42 Change in status reporting authority that owns, operates or controls
requirement.
with a notification of its price reporting transmission facilities, or affiliation
status, Seller must notify the (a) As a condition of obtaining and with any entity that has a franchised
Commission within 15 days of the retaining market-based rate authority, a service area.
effective date of this regulation or Seller must timely report to the (b) Any change in status subject to
within 15 days of the date it begins Commission any change in status that paragraph (a) of this section must be
making wholesale sales, whichever is would reflect a departure from the filed no later than 30 days after the
earlier, whether it engages in such characteristics the Commission relied change in status occurs. Power sales
reporting of its transactions. Seller must upon in granting market-based rate contracts with future delivery are
update the notification within 15 days authority. A change in status includes, reportable 30 days after the physical
of any subsequent change in its but is not limited to, the following: delivery has begun. Failure to timely file
transaction reporting status. In addition, (1) Ownership or control of generation a change in status report constitutes a
Seller must adhere to such other capacity that results in net increases of tariff violation.
standards and requirements for price 100 MW or more, or of inputs to electric (c) When submitting a change in
reporting as the Commission may order. power production, or ownership, status notification regarding a change
(d) Records retention. A Seller must operation or control of transmission that impacts the pertinent assets held by
retain, for a period of five years, all data facilities, or a Seller or its affiliates with market-
and information upon which it billed (2) Affiliation with any entity not based rate authorization, a Seller must
the prices it charged for the electric disclosed in the application for market- include an appendix of assets in the
energy or electric energy products it based rate authority that owns or form provided in Appendix B of this
sold pursuant to Seller’s market-based controls generation facilities or inputs to subpart.
Appendix A to Subpart H
STANDARD SCREEN FORMAT

[Data provided for Illustrative Purposes only]
Row Generation MW Reference
Part I—Pivotal Supplier Analysis
Seller and Affiliate Capacity

A .................. Installed Capacity ................................................................................................................................... 19,500 Workpaper.
B .................. Long-Term Firm Purchases ................................................................................................................... 500 Workpaper.
C .................. Long-Term Firm Sales ........................................................................................................................... ¥1,000 Workpaper.
D .................. Imported Power ...................................................................................................................................... 0 Workpaper.
Non-Affiliate Capacity
E .................. Installed Capacity ................................................................................................................................... 8,000 Workpaper.
F .................. Long-Term Firm Purchases ................................................................................................................... 500 Workpaper.
G ................. Long-Term Firm Sales ........................................................................................................................... ¥2,500 Workpaper.
H .................. Imported Power ...................................................................................................................................... 3,500 Workpaper.
I ................... Balancing Authority Area Reserve Requirement ................................................................................... ¥2,160 Workpaper.
J .................. Amount of Line I Attributable to Seller, if any ........................................................................................ ¥2,160 Workpaper.
K .................. Total Uncommitted Supply (SUM A,B,C,D,E,F,G,I) ............................................................................... 9,840
Load
L .................. Balancing Authority Area Annual Peak Load ......................................................................................... 18,000 Workpaper.
M ................. Average Daily Peak Native Load in Peak Month .................................................................................. ¥16,500 Workpaper.
N .................. Amount of Line M Attributable to Seller, if any ...................................................................................... ¥16,500 Workpaper.
O ................. Wholesale Load (SUM L,M) ................................................................................................................... 1,500
P .................. Net Uncommitted Supply (K–O) ............................................................................................................. 8,340
Q ................. Seller’s Uncommitted Capacity (SUM A,B,C,D,J,N) .............................................................................. 340
Result of Pivotal Supplier Screen (Pass if Line Q < Line P) (Fail if Line Q > Line P) ................................................... PASS
Q1 Q2 Q3 Q4
Row Reference
(MW) (MW) (MW) (MW)
Part II—Market Share Analysis
Seller and Affiliate Capacity

A .................. Installed Capacity ........................................................... 19,500 19,500 19,500 19,500 Workpaper.
B .................. Long-Term Firm Purchases ........................................... 500 500 500 500 Workpaper.
C .................. Long-Term Firm Sales ................................................... ¥1,000 ¥1,000 ¥1,000 ¥1,000 Workpaper.
D .................. Seasonal Average Planned Outages ............................. ¥4,000 ¥3,000 ¥800 ¥3,500 Workpaper.
E .................. Imported Power .............................................................. 0 0 0 0 Workpaper.
Capacity Deductions
F .................. Average Peak Native Load in the Season ..................... ¥11,500 ¥10,000 ¥12,500 ¥11,500 Workpaper.
G .................. Amount of Line F Attributable to Seller, if any ............... ¥11,500 ¥10,000 ¥12,500 ¥11,500 Workpaper.
H .................. Amount of Line F Attributable to Others, if any ............. 0 0 0 0 Workpaper.
I ................... Balancing Authority Area Reserve Requirement ........... ¥1,500 ¥1,320 ¥1,560 ¥1,500 Workpaper.
J ................... Amount of Line I Attributable to Seller, if any ................ ¥1,500 ¥1,320 ¥1,560 ¥1,500 Workpaper.
K .................. Amount of Line I Attributable to Others, if any .............. 0 0 0 0 Workpaper.
Non-Affiliate Capacity
L .................. Installed Capacity ........................................................... 8,000 8,000 8,000 8,000 Workpaper.
M ................. Long-Term Firm Purchases ........................................... 500 500 500 500 Workpaper.
N .................. Long-Term Firm Sales ................................................... ¥2,500 ¥2,500 ¥2,500 ¥2,500 Workpaper.
O .................. Local Seasonal Average Planned Outages ................... ¥800 ¥200 ¥300 ¥400 Workpaper.
P .................. Uncommitted Capacity Imports ...................................... 5,000 4,500 3,500 4,000 Workpaper.
Supply Calculation
Q .................. Total Competing Supply (SUM L,M,N,O,P,H,K) ............ 10,200 10,300 9,200 9,600
R .................. Seller’s Uncommitted Capacity (SUM A,B,C,D,E,G,J) .. 2,000 4,680 4,140 2,500
S .................. Total Seasonal Uncommitted Capacity (SUM Q,R) ....... 12,200 14,980 13,340 12,100
T .................. Seller’s Market Share (R/S) ........................................... 16.39% 31.24% 31.03% 20.66%
Results (Pass if < 20%) (Fail if ≥ 20%) ......................... PASS FAIL FAIL FAIL
Appendix B to Subpart H energy affiliates and their associated assets

which should be submitted with all market-
This is an example of the required
based rate filings.
appendix listing the filing entity and all its
MARKET-BASED RATE AUTHORITY AND GENERATION ASSETS

Location
Filing entity Nameplate
Date
and its Docket No. where MBR Controlled Geographic In-service and/or
Generation name Owned by control Balancing
energy authority was granted by region (per date seasonal
transferred authority
affiliates Appendix rating
area D)
ABC Corp. ER05–23X–000 ............ ABC falls plant #1 ........ ABC Corp ABC Corp NA* ........... ABC bal- Central ...... 8/12/1981 .. 153.5 MW
ancing (sea-
authority sonal).
area.
xyz Inc. ...... ER94–79XX–000 ......... NA ................................ NA ............. NA ............. NA ............. NA ............. NA ............. NA ............. NA.
RST LLC ... ER01–2XX5–000 ......... Green CoGen .............. WWW Corp RST LLC ... 5/23/2005 .. New York Northeast .. 12/20/2003 2000 MW
ISO. (name-
plate).
Sample Co. ER03–XX45–000 ......... Sample Co. 3 ............... Sample Co YYY Corp .. 2/1/1982 .... Sample Co. Southwest 5/13/1973 .. 10 MW
balancing (sea-
authority. sonal).
*If an entity has no assets or the field is not applicable please indicate so by inputting (NA).
ELECTRIC TRANSMISSION ASSETS AND/OR NATURAL GAS INTRASTATE PIPELINES AND/OR GAS STORAGE FACILITIES
Location
Filing entity Date
and its Controlled Geographic
Asset name and use Owned by control Size
energy by Balancing authority region (per
transferred
affiliates area Appendix
D)
ABC Corp .. CBA Line, used to ABC Corp ABC Corp NA* ........... New York ISO ............. Northeast .. approximately five-
interconnect Green mile, 500 kV line.
Cogen to New York
ISO transmission
system.
Etc. LP ....... Nowhere Pipeline, Etc. LP ...... Etc. LP ..... NA ............ ABC balancing author- Central ...... approximately 14 miles
used to connect ity area. of natural gas pipe-
Storage LLC’s— line and related
Longway Pipeline to equipment with 50
ABC falls plant #1. MMcf/d capacity.
*If the field is not applicable please indicate so by inputting (NA).
Note: The following appendices will not be Limitations and Exemptions Regarding power sold transfers at the metered boundary
published in the Code of Federal Regulations. Market-Based Rate Authority of the balancing authority area; (ii) any power
[Seller should list all limitations (including sold hereunder is not intended to serve load
Appendix C to the Final Rule markets where seller does not have market- in the seller’s mitigated market; and (iii) no
based rate authority) on its market-based rate affiliate of the mitigated seller will sell the
Required Provisions of the Market-Based same power back into the mitigated seller’s
Rate Tariff authority and any exemptions from or
mitigated market. Seller must retain, for a
waivers granted of Commission regulations
Compliance With Commission Regulations period of five years from the date of the sale,
and include relevant cites to Commission
all data and information related to the sale
Seller shall comply with the provisions of orders].
that demonstrates compliance with items (i),
18 CFR Part 35, Subpart H, as applicable, and Include All of the Following Provisions That (ii) and (iii) above.
with any conditions the Commission imposes Are Applicable
Ancillary Services
in its orders concerning seller’s market-based
Mitigated Sales RTO/ISO Specific—Include All Services the
rate authority, including orders in which the
Commission authorizes seller to engage in Sales of energy and capacity are Seller Is Offering
affiliate sales under this tariff or otherwise permissible under this tariff in all balancing PJM: Seller offers regulation and frequency
restricts or limits the seller’s market-based authority areas where the Seller has been response service, energy imbalance service,
granted market-based rate authority. Sales of and operating reserve service (which
rate authority. Failure to comply with the
energy and capacity under this tariff are also includes spinning, 10-minute, and 30-minute
applicable provisions of 18 CFR Part 35,

permissible at the metered boundary between reserves) for sale into the market
Subpart H, and with any orders of the the Seller’s mitigated balancing authority administered by PJM Interconnection, L.L.C.
Commission concerning seller’s market-based area and a balancing authority area where the (‘‘PJM’’) and, where the PJM Open Access
rate authority, will constitute a violation of Seller has been granted market-based rate Transmission Tariff permits, the self-supply
this tariff. authority provided: (i) Legal title of the of these services to purchasers for a bilateral
sale that is used to satisfy the ancillary purchasers within the markets administered traditional, franchised public utility affiliated
services requirements of the PJM Office of by the ISO New England, Inc. with the third-party supplier, or sales where
Interconnection. California: Seller offers regulation service, the underlying transmission service is on the
New York: Seller offers regulation and spinning reserve service, and non-spinning system of the public utility affiliated with the
reserve service to the California Independent third-party supplier; and (3) sales to a public
frequency response service, and operating
System Operator Corporation (‘‘CAISO’’) and utility that is purchasing ancillary services to
reserve service (which include 10-minute to others that are self-supplying ancillary
non-synchronous, 30-minute operating satisfy its own open access transmission tariff
services to the CAISO.
reserves, 10-minute spinning reserves, and requirements to offer ancillary services to its
Third Party Provider own customers.
10-minute non-spinning reserves) for sale to
purchasers in the market administered by the Third-party ancillary services [include all
of the following that the seller is offering: Appendix D to the Final Rule
New York Independent System Operator, Inc.
Regulation Service, Energy Imbalance Regions and Schedule for Regional Market
New England: Seller offers regulation and
Service, Spinning Reserves, and Power Update Process
frequency response service (automatic Supplemental Reserves]. Sales will not
generator control), operating reserve service include the following: (1) Sales to an RTO or The six regions are combinations of NERC
(which includes 10-minute spinning reserve, an ISO, i.e., where that entity has no ability regions; RTOs and ISOs and are depicted in
10-minute non-spinning reserve, and 30- to self-supply ancillary services but instead the map that follows.
minute operating reserve service) to depends on third parties; (2) sales to a BILLING CODE 6717–01–P
BILLING CODE 6717–01–C

ER20JY07.000</GPH>
REGIONAL MARKET POWER UPDATE SCHEDULE
Study period Filing period (anytime Entities required to file

between)
2006 ................... December 1–30, 2007 ........... Northeast Transmission Oper-

ators.
2006 ................... June 1–30, 2008 .................... Southeast Transmission Op- All others in Northeast that did not file in December includ-
erators. ing all power marketers that sold in the Northeast.
2006 ................... December 1–30, 2008 ........... ................................................ All others in Southeast that did not file in June including all
power marketers that sold in the Southeast and have not
already been found to be Category 1 sellers.
2007 ................... December 1–30, 2008 ........... Central Transmission Opera-
tors.
2007 ................... June 1–30, 2009 .................... SPP Transmission Operators All others in Central that did not file in December including
all power marketers that sold in the Central and have not
2007 ................... December 1–30, 2009 ........... ................................................ All others in SPP that did not file in June including all power
marketers that sold in SPP and have not already been
found to be Category 1 sellers.
2008 ................... December 1–30, 2009 ........... Southwest Transmission Op-
erators.
2008 ................... June 1–30, 2010 .................... Northwest Transmission Op- All others in Southwest that did not file in December includ-
erators. ing all power marketers that sold in the Southwest and
have not already been found to be Category 1 sellers.
2008 ................... December 1–30, 2010 ........... ................................................ All others in Northwest that did not file in June including all
power marketers that sold in the Northwest and have not
2009 ................... December 1–30, 2010 ........... Northeast Transmission Oper-
ators.
All Category 1 sellers should be identified by the Commission prior to the subsequent filing periods. Only Category 2 sellers will con-
tinue to file updated market power analyses according to the repeating schedule below.
2009 ................... June 1–30, 2011 .................... Southeast Transmission Op- Others in Northeast that did not file in December and have
erators. not been found to be Category 1 sellers.
2009 ................... December 1–30, 2011 ........... ................................................ Others in Southeast that did not file in June and have not
been found to be Category 1 sellers.
2010 ................... December 1–30, 2011 ........... Central Transmission Opera-
tors.
2010 ................... June 1–30, 2012 .................... SPP Transmission Operators Others in Central that did not file in December and have not
2010 ................... December 1–30, 2012 ........... ................................................ Others in SPP that did not file in June and have not been
found to be Category 1 sellers.
2011 ................... December 1–30, 2012 ........... Southwest Transmission Op-
erators.
2011 ................... June 1–30, 2013 .................... Northwest Transmission Op- Others in Southwest that did not file in December and have
erators. not been found to be Category 1 sellers.
2011 ................... December 1–30, 2013 ........... ................................................ Others in Northwest that did not file in June and have not
This review cycle will be repeated in subsequent years.
Appendix E to the Final Rule California Public Utilities Commission— Monmouth Energy, Inc.—Duquesne
California Commission Companies
List of Commenters and Acronyms
Coalition of Midwest Transmission E.ON U.S. LLC—E.ON U.S.
Allegheny Energy Supply Co. and Allegheny Customers, PJM Industrial Customer Edison Electric Institute—EEI
Power—Allegheny Energy Companies Coalition, NEPOOL Industrial Customer ElectriCities of North Carolina, Inc. and
Alliance for Cooperative Energy Services Coalition, Industrial Energy Users of Piedmont Municipal Power Agency—
Power Marketing LLC—Alliance Power Ohio, Southeast Electricity Consumers
Marketing Carolina Agencies
Association, Southwest Industrial Electricity Consumers Resource Council—
Ameren Services Co., Inc.—Ameren
Customer Coalition—Industrial ELCON
AARP—AARP
Customers El Paso E&P Co. L.P.—El Paso E&P
American Public Power Association/
Cogentrix Energy, Inc. and Goldman Sachs Electric Power Supply Association—EPSA
Transmission Access Policy Study
Group—APPA/TPAS Group—Cogentrix/Goldman Entergy Services, Inc.—Entergy
American Wind Energy Association—AWEA Constellation Energy Group, Inc.—
FirstEnergy Service Co.—FirstEnergy
Avista Corp.—Avista Constellation
Florida Power & Light Company and FPL
Board of Water, Light and Sinking Fund Consumers Energy Co.—Consumers
Energy, LLC—FP&L
Commissioners of the City of Dalton, Dominion Resources Services, Inc.—
Dominion Indianapolis Power & Light Co.—

Georgia—Dalton Utilities
Duke Energy Corp.—Duke Indianapolis P&L
California Electricity Oversight Board—
California Board Duquesne Power, LLC; Duquesne Light ISO New England Inc.—ISO–NE
California Independent System Operator Company; Duquesne Keystone, LLC; Joe Pace, PhD—Dr. Pace
Corp.—CAISO Duquesne Conemaugh, LLC; and Mark B. Lively—Mr. Lively
Merrill Lynch Commodities Inc., J.P. Morgan Puget Sound Energy, Inc.—Puget that, with respect to sales from capacity for
Ventures Energy Corp. and Bear Reliant Energy, Inc.—Reliant which construction commenced on or after
Energy—Financial Companies Richard Blumenthal, Attorney General for the July 9, 1996, but before the effective date of
MidAmerican Energy Co. and PacifiCorp— State of Connecticut and the People of this Final Rule, any public utility that has
MidAmerican the State of Illinois, by and through the authority to engage in market-based rate sales
Midwest Energy, Inc.—Midwest Energy Illinois Attorney General, Lisa should not be required to demonstrate a lack
Mirant Corp.—Mirant Madigan—Attorneys General of of market power in generation consistent
Montana Consumer Counsel—Montana Connecticut and Illinois with the terms of the exemption. That is, any
Counsel Romkaew Broehm, PhD. and Peter Fox- public utility that qualified and received a
Morgan Stanley Capital Group Inc.—Morgan Penner—Drs. Broehm and Fox-Penner 1996 exemption should retain its exemption
Stanley Sempra Energy—Sempra from filing a generation market power
National Association of State Utility Southern California Edison Co.—SoCal analysis (now termed horizontal market
Consumer Advocates—NASUCA Edison power analysis). However, any increase in
National Rural Electric Cooperative Southern Company Services, Inc.—Southern such capacity after the effective date of this
Association—NRECA Southwest Industrial Customer Coalition— Final Rule would terminate the exemption.
New Jersey Board of Public Utilities—New Southwest Coalition As I have stated previously, I am interested
Jersey Board Suez Energy North America, Inc. and
in providing regulatory certainty, and
New Mexico Office of Attorney General, Chevron USA Inc.—Suez/Chevron
promoting infrastructure investment and
Colorado Office of Consumer Counsel, Towns of Black Creek, NC; Dallas, NC; Forest
independent power production. A limited
Utah Committee of Consumer Services, City, NC; Lucama, NC; Sharpsburg, NC;
grandfathering of the 1996 exemption would,
Public Citizen, Public Utility Law Project Stantonsburg, NC; and Waynesville,
of New York, Rhode Island Office of NC—NC Towns on one hand, allow entities to continue to
Attorney General, and Rhode Island Transmission Dependent Utility Systems— preserve the bargain they received when they
Division of Public Utilities and TDU Systems relied on the exemption and, on the other
Carriers—State AGs and Advocates TXU Portfolio Management Co. LP—TXU hand, support the majority’s reasons for
New York Independent System Operator, Wholesale revoking the exemption for all generators.
Inc.—NYISO Westar Energy, Inc. and Kansas Gas and Also, my understanding is that very few
New York State Public Service Electric Co.—Westar entities would be eligible for this limited
Commission—New York Commission Williams Power Co., Inc.—Williams grandfathering; even without the
Newfoundland and Labrador Hydro—NL Wisconsin Electric Power Co.—Wisconsin grandfathering, they would probably be
Hydro Electric classified as ‘‘Category 1 sellers.’’ 1242
Newmont Mining Corp.—Newmont Xcel Energy Services Inc.—Xcel Moreover, this exemption neither precludes
NiSource Inc.—NiSource any entity from presenting evidence to the
Note: The following attachment will not
NRG Energy, Inc.—NRG Commission, nor disallows the Commission
appear in the Code of Federal Regulations
Oregon Public Utilities Commission—Oregon of its own accord, to investigate an allegation
Commission Attachment A to the Final Rule of market power abuse by an exempt
Ormet Power Marketing—Ormet generator. This should allay any fears that
Pacific Gas & Electric Co.—PG&E MOELLER, Commissioner, dissenting in these smaller entities will be able to exercise
Piedmont Municipal Power Agency and part: I find persuasive the arguments raised generation market power.1243
ElectriCities of North Carolina—Carolina by commenters 1240 that a limited Philip D. Moeller
Agencies grandfathering provision for the ‘‘1996 Commissioner.
Pinnacle West Companies—Pinnacle exemption’’ 1241 is warranted, to avoid
Powerex Corp.—Powerex modifying the understanding that certain [FR Doc. E7–13675 Filed 7–19–07; 8:45 am]
PPL Companies—PPL generators relied upon to finance and BILLING CODE 6717–01–P
PPM Energy, Inc.—PPM construct new generation. It is my position
Progress Energy, Inc.—Progress Energy 1242 ‘‘The sellers that have taken advantage of the
1240 Such
commenters include EPSA, Mirant and
Public Service Electric and Gas Company, exemption will largely qualify as Category 1 sellers,
PSEG Power LLC and PSEG Energy Constellation. and thus will be unaffected to the extent that they
1241 18 CFR 35.27(a) (2006), which states
Resources & Trade LLC—PSEG will not be required to file a regularly scheduled
Companies ‘‘Notwithstanding any other requirements, any updated market power analysis.’’ Final Rule at P
public utility seeking authorization to engage in 321.
Public Service Co. of New Mexico/Tuscon sales for resale of electric energy at market-based
Electric Power Company—PNM/Tuscon rates shall not be required to demonstrate any lack
1243 In defending our decision to create Category
Public Works Commission for the City of of market power in generation with respect to sales 1 sellers, the majority observes that no commenter
Fayetteville, North Carolina— from capacity for which construction has has submitted compelling evidence that Category 1
Fayetteville commenced on or after July 9, 1996.’’ sellers have unmitigated market power. Final Rule
at P 334.

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Friday,

July 20, 2007

3. Barriers Erected or Controlled by Other Than The Seller ................................................................................................. 452

a. Codifying Affiliate Restrictions in Commission Regulations ..................................................................................... 464

X. Effective Date and Congressional Notification ................................................................................................................................. 1132

6 Market-Based Rates for Public Utilities, 107

discussion concerning the cost-based rate

19 April 14 Order, 107 FERC ¶ 61,018 at P96.

considered in the assessment of available supply,

appropriate. For example, a seller could propose to 49 As

suppliers in a market). reply comments at 5–7.

rate authority. Acadia Power Partners, LLC, 113 Affidavit at 8–9.

141 See, e.g., Constellation at 18; Duke at 24; EPSA

NYISO at 6). can override all other entities on the decision of

7–8; PowerEx at 9–13; PPL at 13; PPL reply

documents/ www.ferc.gov/industries/electric/indus-act/ 233 Indianapolis P&L at 5–6, Puget at 9–11,

cactf_reliability_model_whitepaper_v2.pdf. reliability/standards.asp. Ameren at 4–5, Duke at 23–24, and Avista at 5–7.

248 AEP Power Marketing, Inc., 107 FERC ¶

provisions approved for the particular market. AEP

comments at 2–9. 33. 258 PSEG reply comments at 5–6.

if a seller chooses to rely on an historical period

and measurable changes. Id. at 6–7.

282 NRECA reply comments at 11; APPA/TAPS

forward markets.’’ Id. at 12. 310 PPM at 6. 69, 117.

of regulatory burden. 333 NOPR at P 71. 338 PG&E at 10–11.

eia860.pdf. capacity in the analysis. numbers that differ substantially from

the control area at the time the study is conducted

requester. We note that the 18–19.

reply comments at 2. See also Duke at 29 (OATT

constitutes a sufficient factual nexus is c. Revocation of Affiliates’ MBR Commission Determination

specific facts, such denials could 431 PG&E at 13.

444 Drs. Broehm and Fox-Penner at 14–15.

459 APPA/TAPS at 80–85. generically. Until EPSA or others

rate proceeding or a complaint, we defer Comments regulation.’’470 The Commission sought

be considered ‘‘captive’’ and a seller is therefore not ¶ 61,326 at P 38 (2006).

sales affiliate.’’ It states that the 489 PG&E at 14–21.

Cooperative, 81 FERC ¶ 61,044 at 61,236 (1997).

¶ 61,086 at P 35 (2004) (noting that Commission’s ¶ 61,184 at P 40–69.

January 9, 2007 reinstating those provisions of

and the Midwest Independent Transmission System

61,202 (2006). transmission providers may not share transmission

603 Heartland Energy Services, Inc., 68 FERC

¶ 61,247 (1994). (1996). 609 18 CFR 358.5(a) and (b) (2006).

power goods or services. The in the preamble to the NOPR is different

contribution to fixed costs)). 668 Id. at P 154 ¶ 61,047 at P 28 (2005).

sellers to sell at cost-based ‘‘up to’’ rates from which

694 NC Towns at 4–5.

be defined as the system incremental cost, a 155.

merger partners)). an experimental basis. See Western Sys. Power Pool,

726 E.ON U.S. at 12.

Cir. 1993). rates. Commission reply comments at 2.

730 MidAmerican reply comments at 3–4, 20. at 13.

based price caps subject to the market monitoring

(affirming Commission’s 16-year policy to allow

FERC ¶ 61,021, at 61,032 and fn. 8 (1991) (‘‘If PSO’s

806 APPA/TAPS at 6–7; Carolina Agencies reply

comments at 5. APPA/TAPS and NRECA respond Fuel). comments at 17 and n.7.

928 NYISO at 8–10. The NYISO suggests that the 18–20.

955 PNM/Tucson at 16; MidAmerican reply

975 Dr. Pace at 20–21. individual generating facilities to the transmission

986 See Ormet at 9. 996 See Morgan Stanley; Financial Companies.

controlled transmission system, there is only one

1036 First Energy at 27–31. 1039 EEI