This is the third and final of three posts on this blog providing short summaries of the generic electricity policy initiatives already teed up and awaiting possible action by the newly-constituted FERC. Together, these three posts describe initiatives that address fundamental market and resource issues spanning a broad range of FERC’s electricity authorities.
Today’s post summarizes FERC initiatives concerning analytic issues in the context of change of control applications pursuant to Section 203 of the Federal Power Act, and with respect to market-based rate evaluations. The first post addressed initiatives affecting wholesale market rules, and the second summarized initiatives affecting new transmission development, generator interconnection and access to the market by qualifying facilities, also known as QFs.
Modifications to Commission review of transactions under Section 203 of the FPA and market-based rate applications
In September 2016, FERC issued a Notice of Inquiry (NOI) launching a review of the standards used for assessing the impact of mergers or acquisitions on horizontal competition in electricity markets (i.e., the consolidation of generation resources). Under current policies, an applicant may show that a transaction will not adversely impact competition by: (1) explaining how the transaction does not result in an increase in the amount of generation capacity owned or controlled by the applicant; (2) explaining how the transaction results in only a de minimis change in its market power; or (3) submitting a Competitive Analysis Screen, which assesses a transaction’s impact on concentration in relevant markets.
The NOI identifies potential ways of modifying these analyses, such as:
- Establishing a threshold for determining whether the proposed transaction’s impact is de minimis and perhaps applying the threshold to the cumulative impact of serial mergers over a period of time.
- Adding a demand and supply curve analyses to the Competitive Analysis Screen to determine whether a company has the ability and incentive to withhold capacity from a market.
- Adding to the merger analysis two metrics used in FERC’s market-based rate analysis: pivotal supplier and market share. These metrics measure unilateral market power while the current merger analysis measures only concentration in the market.
The NOI also discussed eliminating some generic blanket authorizations now granted for certain transactions as well establishing abbreviated filing requirements for certain categories of transactions.
FERC requested comments and alternative proposals on these issues, which have been filed. Given the significant volume of acquisitions of securities and facilities in the electricity industry that require FERC review, this NOI may mark the first step in policy changes that would affect a wide range of industry participants.
Data collection for analytics and surveillance and market-based rate purposes
In a July 2016 Notice of Proposed Rulemaking (NOPR), FERC proposed to revise the data it collects from electricity sellers authorized to charge market-based rates (MBR sellers) and from entities trading virtual products or holding financial transmission rights (FTRs) in organized wholesale markets.
The NOPR sets out two categories of information submission requirements. The first requirements are applicable only to MBR sellers. This category includes data needed to indicate that the entity satisfies FERC’s standards for selling at MBR, i.e., the seller cannot exercise market power. Entities that trade solely virtual instruments and/or FTRs are not required to obtain MBR authority, and therefore are not required to submit this information.
The second category of information requirements applies to MBR sellers and to virtual/FTR participants and is referred to as Connected Entity Information. According to the NOPR, this information pertains to market analytics and surveillance and helps the Commission understand the financial and legal connections among market participants and other entities.
A Connected Entity is any one of the following:
- An ultimate affiliate owner of a seller or virtual/FTR participant that participates in organized wholesale electric markets, or purchases or sells financial natural gas or electric energy derivative products that settle off the price of physical electric or natural gas energy products.
- A trader employed or engaged by a seller or virtual/FTR participant that makes, or participates in, decisions and/or devises strategies for buying or selling physical or financial Commission jurisdictional electric products or physical natural gas.
- An entity that has entered into an agreement with a seller or virtual/FTR participant that confers control over an electric generation asset that is used in, or offered into, wholesale electric markets.
Connected Entities would be required to report certain information regarding these types of connections to a MBR seller or a virtual or FTR participant.
The NOPR also proposes to collect this information in a consolidated and streamlined manner through a relational database, i.e., a database model whereby multiple data tables relate to one another via unique identifiers. The Commission staff has held two workshops on the data base and the data submittal process. The Commission’s Connected Entity Information proposals, in particular, are highly controversial with some market participants.
As indicated in the first post of this trilogy, all of these matters are teed up for whatever action, if any, the new Commission chooses to take.
 Virtual trading involves sales or purchases in an RTO/ISO day-ahead market that do not go to physical delivery. Virtual bidding allows entities that do not serve load or control generating resources to make purchases or sales in the day-ahead market. Such purchases or sales are subsequently sold or purchased in the real-time spot market. Virtual transactions allow any market participant to arbitrage price differences between the two markets.
 FTRs are financial instruments that entitle the holder to rebates of congestion charges for using the grid. FTRs provide a potential hedge for market participants, allowing them to offset the price risk of delivering energy to the grid. They do not represent a right for physical delivery of power.