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Commission Watch

How far will FERC go to restore market confidence?
Fortnightly Magazine - September 15 2003

MCC believes consumers will be insufficiently protected since higher prices paid to nonperpetrators will not be subject to recapture.

The Sacramento Municipal Utility District (SMUD) agrees. To illustrate the need for making the market whole, it uses the example of collusive conduct found in rotating bids, where a would-be seller stays on the sidelines to inflate the prices earned by other sellers, with the promise that other sellers will do likewise at the next bidding opportunity. In other words, the conspirators take turns withholding supply. SMUD notes that in such a case, the party withholding supply may not have benefited from the higher resulting market price and so would have no refund obligation. The seller would profit only when it benefited from the agreement of other sellers to withhold the next time.

SMUD wants Massey's option enacted, but if not, it offers an alternative remedy previously used by FERC-a refund of the time value of the charges imposed unlawfully, plus disgorgement of any unlawful profits.

The Connecticut Department of Utility Control (DPUC) called the proposed monetary penalty a "timid" response to anticompetitive behavior. "At a minimum, the monetary penalty should be double or triple the unjust profits obtained so that sellers risk their normal profits if they choose to engage in anticompetitive behavior," the DPUC says. Also, in making that calculation, the DPUC wants the term "seller" to include affiliates.

The California ISO (Cal-ISO) notes that profit disgorgement "only puts the market participant back in the position it would have been had it not engaged in the improper behavior." Cal-ISO urges a remedy based on market impacts and/or harm to customers, plus disgorgement of profits.

The ISO also wants FERC to allow independent transmission providers (ITPs) to include market behavior rules in their tariffs.

The proposed time frame for filing complaints also is an issue of contention. The MCC finds the 60-day complaint window too short to allow a reasonable opportunity to detect, identify, and evaluate suspected abuses. The group lobbies for a window of at least 12 months.

SMUD wants FERC to clarify what it means by "market participant," and it urges FERC to give all such market participants 180 days to file a complaint from the date they knew or should have know of a violation.

But Southern Company Services Inc. attacks FERC's authority to impose remedies on an earlier action, regardless of date, since no time restriction would apply to them. Southern Co. argues that Section 206 of the Federal Power Act prohibits open-ended, retroactive liability.

However, the New England Conference of Public Utility Commissioners (NECPUC) feels that FERC, to effectively prosecute tariff violations, should not face artificial time limits.

NECPUC says, "It is a virtual certainty that, in cases of collusion, market participants will not know of the violation until some time after it has occurred." NECPUC urges FERC to adopt a rebuttable presumption that the complainant did not know, and should not have known, of the conspiracy or collusion until after the details had become known to the public.


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