FERC gives utilities 15 days to respond to market power finding

Federal regulators Tuesday found three of the nation's biggest electric utilities have monopoly power within their control areas and gave them 15 days to explain how they will fix the problem. American Electric Power Co., Entergy Inc., and Southern Co., Atlanta, Ga., have ability to exercise market power because their generation is needed to meet the market's peak demand, the Federal Energy Regulatory Commission said.

Nov. 20, 2001

3 min read

Kate Thomas
OGJ Online Staff

HOUSTON, Nov. 20 -- Federal regulators Tuesday found three of the nation's biggest energy companies have monopoly power within their control areas and gave them 15 days to explain how they will fix the problem.

American Electric Power Co. Inc. (AEP), Columbus, Ohio; Entergy Inc., New Orleans, La.; and Southern Co., Atlanta, Ga.; have ability to exercise market power because their electric generation is needed to meet the market's peak demand, the Federal Energy Regulatory Commission said.

It said more information was needed before it could make a determination about Mirant Corp., recently spun off from Southern, and ordered the company to submit a revised analysis within 15 days.

The commission also ordered the companies to begin daily postings of the projected 24-hr incremental costs for energy offered for spot market sales in each company's control area or adjacent control areas, thus making the energy available to "all interested buyers."

Officials at the companies appeared stunned by the finding. Entergy spokesman Morgan Stewart said the company believes it is "without merit or basis" and is evaluating its options. He said these range from making a concerted effort to comply with the order to filing for injunctive relief.

"We will make a more complete assessment when we actually see the order," he said. "We are anxious to examine it."

An AEP spokesman said the company hasn't seen the order and couldn't comment on it. Southern Co. spokesman Mike Tyndall said, "We are poring over it to learn how it will affect the company. It is complex and lengthy. We didn't have any advance notice."

FERC said the primary tool for exercising generation market power is through physical or economic withholding of electricity. To prevent physical withholding, applicants who fail the commission's new market power test will be required to offer uncommitted electricity capacity to the spot market.

Likewise to prevent economic withholding, applicants who fail the test will have to sell the electricity on the spot market under a "split-savings" approach, or a form of cost-based rates. The commission said the new screening technique will apply to market-based rate applications and triennial reviews on an interim basis, pending a generic review of new methods for analyzing market power.

Sales into an independent system operator or regional transmission organization with commission-approved market monitoring and mitigation rules in place will be exempt from the market power order. FERC said these sales will be governed by specific thresholds and mitigation measures approved for particular markets.

In addition, the order also requires Entergy and Southern to use an independent third party to operate and administer their Open Access Same Time Information System (OASIS) sites to diminish residual transmission market power. FERC said AEP is already complying with the requirement.

Separately, the commission asked for comment on a proposal to revise existing market-based rate tariffs to prohibit anticompetitive behavior or the exercise of market power. The order includes examples of prohibited practices, including physical and economic withholding of power.