Presentation on theme: "Market-Based Rates: Lessons from the Trenches EBA YLC Brown Bag Seminar April 23, 2013 Jane E. Rueger, Counsel"— Presentation transcript:
Market-Based Rates: Lessons from the Trenches EBA YLC Brown Bag Seminar April 23, 2013 Jane E. Rueger, Counsel
White & Case Agenda I. A Brief History The path to market-based rates (“MBR”) in the US II. MBR Application Framework Overview of FERC’s requirements for obtaining MBR Authority III. Spotlight on Market Power Presented by Julie Solomon IV. Maintaining MBR Authority Ongoing compliance obligations V. “Tips from the Trenches” VI. Q&A 1
White & Case I. A BRIEF HISTORY 2
White & Case Federal Rate Regulation Starts With The Federal Power Act 3 Under Part II of the Federal Power Act, FERC has jurisdiction over wholesale sales of electric energy in interstate commerce and the transmission of electric energy in interstate commerce. FPA Section 205 requires that public utilities file with FERC all rates and charges subject to FERC’s jurisdiction, and such rates and charges must be “just and reasonable.” Traditionally, rates were (and many still are) cost-based, allowing a public utility to recover its cost of service plus a reasonable return on equity. In the late 1980s, FERC began to approve market-based rates for wholesale sales of electric energy in order to incentivize participation in the energy markets by non-traditional suppliers such as independent power producers and power marketers.
White & Case Development of FERC’s Market-Based Rate Program 4 While the FPA does not require rates to be cost-based, FERC must exercise its oversight to ensure ex ante that market-based rates are just and reasonable when granted. Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 1486 (D.C. Cir. 1984). FERC must also engage in effective regulatory oversight after market-based rate authority is granted to ensure that market-based rates continue to be just and reasonable over time. State of California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9 th Cir. 2004). Order No. 697 and orders on rehearing and clarification of Order No. 697 provide the essential roadmap for FERC’s current approach to these two requirements.
White & Case II.MBR APPLICATION FRAMEWORK 5
White & Case Essential Components of MBR Application 6 Describe Applicant & Affiliates Address Market Power Address Ancillary Services, Category Status, and Other Waivers and Limitations eTariff and Appendices
White & Case 1. Describe Applicant & Affiliates 7 Describe the applicant and the facilities it owns and controls. Describe the corporate ownership structure of the applicant Upstream holding companies Downstream subsidiaries Describe affiliates of the applicant that own or control generation facilities transmission facilities natural gas transmission, storage or distribution facilities inputs to electric power production
White & Case 2. Address Market Power 8 Explain how the applicant meets the legal standard … a. Applicant and affiliates do not have, or have adequately mitigated, horizontal (generation) market power. b. Applicant and affiliates do not have, or have adequately mitigated, vertical market power. Transmission market power Ability to erect barriers to entry in the relevant market: “Applicant affirmatively states that it has not erected barriers to entry into the relevant market and will not erect barriers to entry into the relevant market” FPA § 205 Rates and charges made or received by any public utility for the sale of electric energy subject to the Commission’s jurisdiction must be “just and reasonable” and not unduly discriminatory or preferential.
White & Case 3. Address Ancillary Services, Category Status, and Other Waivers and Limitations 9 Sellers must separately request authorization to sell ancillary services into relevant markets. Sellers must request and justify appropriate category status in each FERC designated region Category 1 sellers are defined in Section of FERC’s regulations Sellers may request appropriate waivers and blanket authorizations Waiver of the accounting, reporting, and other requirements of Parts 41, 101, and 141 of the Commission’s regulations, with the exception of 18 C.F.R. Sections and ; Blanket authorization under Section 204 of the FPA and Part 34 of the Commission’s regulations for future issuances of securities and assumptions of liability; Waiver of the full filing requirements of subparts B and C of Part 35 of the Commission’s regulations, except the transmittal requirements of 18 C.F.R. Sections 35.12(a), 35.13(b), and the notification of succession and cancellation of service requirements of 18 C.F.R. Sections and Waiver of the affiliate code of conduct Sellers must notify FERC whether they will engage in the reporting of transactions to publishers of electric or natural gas prices indices.
White & Case 4. eTariff and Appendices The MBR application including a proposed tariff must be submitted through FERC’s eTariff program Use standard tariff language for Ancillary services available for sale in each organized market and outside organized markets Statement of ongoing compliance with Part 35 Subpart H of FERC’s regulations Limitations and Waivers that have been granted to seller Seller’s Category Status in all regions Consult FERC website for guidance on standard language 10
White & Case 4. eTariff and Appendices 11 List all affiliates with MBR authority, identifying all generation assets owned or controlled by the corporate family by balancing authority area and geographic region. List all electric transmission and natural gas intrastate pipelines and/or gas storage facilities owned or controlled by the corporate family.
White & Case Primary FERC Tools For Monitoring MBR Sellers MBR sellers must file Electric Quarterly Reports containing contract and transaction data relevant to their market-based sales, even if no sales have occurred Order Nos. 768 and 770 revised content and filing system effective 3Q 2013 MBR sellers must abide by the Market Behavior Rules codified in Part 35 of FERC’s regulations MBR sellers must file change in status notifications within 30 days of the effective date of a change “that would reflect a departure from the characteristics that FERC relied upon in granting market-based rate authority.” If Category 2, MBR sellers must make triennial market power filings reaffirming that they do not have, or have adequately mitigated, horizontal and vertical market power. MBR sellers must abide by RTO/ISO market rules designed to mitigate market power 34
White & Case 4. Triennial Market Power Update Regions 35
White & Case V. SOME TIPS FROM THE TRENCHES 36
White & Case Tips from the Trenches Don’t get sloppy with the MWs from partially owned affiliates. FERC has specific rules governing how to attribute MWs, and it differs between partially owned plants and partially owned affiliates. 2. Describe all affiliates in all regions. 3. If you complete the market screens using data filed by someone else, use the most recent market data on file. And, indicate whose screens you are relying upon. 4. Ask lots of questions of your clients! 5. Do not deviate from standard language for barriers to entry affirmative statement or required tariff provisions.
White & Case Tips from the Trenches Check your asset appendices, and then check them again. Do not deviate from the form the Commission requires. 7. Project companies can be Category 1 sellers in regions where they are affiliated with over 500 MWs of generation if they do not have any MWs themselves in those regions. 8. Consider whether to seek waiver of the open access requirements with regard to interconnection facilities. 9. Change in status filings are required for net increases in generation of 100 MW or more and separately for affiliation with new generation- owning entities that were not previously divulged. 10. Think through the eTariff program requirements well in advance of filing.
White & Case Questions? For more information: Jane Rueger, Counsel: Julie Solomon, Managing Director: 39