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Commission policies need to recognize customer obligations and state commission decisions.
Fortnightly Magazine - July 2004

agreement, OG&E guaranteed $75 million in savings during a three-year period, starting this past January.

FERC in its ruling said that this new capacity would increase OG&E's incentive to use control of its transmission facilities to the disadvantage of its competitors in wholesale power markets, and therefore must be mitigated. OG&E offered several mitigation steps, including making transmission upgrades and using a market monitor to oversee its calculation of available and total transmission capacity. These were acceptable to commission staff, but a FERC administrative law judge has stated that the proposal needs more time to be vetted.

The commission also is considering taking action in a case involving supply procurement transactions between Ameren Corp., a holding company, and its regulated and unregulated subsidiaries. Ameren wanted to transfer control of two power plants from its unregulated affiliate, AmerenEnergy Generating, to one of its regulated electric utilities, AmerenUE. AmerenUE, as with OG&E, was acting with the consent of the Missouri Public Service Commission to expand its capacity base.

The commission is reviewing the asset transfers to see if the utility should be required to demonstrate that its purchase price at net book value is consistent with the results that would be obtained through a competitive procurement process. A FERC administrative law judge had found no evidence of affiliate abuse in this case. Despite this, the commission still has not acted.

In another affiliate relationship issue, this one involving Southern California Edison Co. (SCE), the commission approved a 30-year, cost-based power purchase agreement between SCE and its wholly owned subsidiary, Mountainview Power Co. LLC. Mountainview owns a not-yet-completed 1,054-MW generating plant in SCE's service area. SCE planned to exercise an option to purchase the project by buying Mountainview from its current owner, Sequoia Generating LLC, but sought FERC approval of the purchased power agreement before exercising the option.

Although it approved the purchase, the commission conditioned its approval on the termination of Mountainview's eligibility to make market-based sales and the company's agreement not to sell power to anyone but SCE, with no possibility for revisiting the decision in the future. FERC put others on notice that future reviews of affiliate deals would be subject to the standards raised in its case.

In , the commission ruled that an affiliate's market-based sales of power to a franchised utility must be shown to be "reasonably priced" compared with competitive alternatives. Traditionally, a purchased-power agreement with a cost-based rate has not triggered application of the standard set forth in . FERC noted that market prices are now below cost-based rates in many regions of the country, and the application of to all long-term contracts will guard against potential self-dealing in those markets. The policy will be applied prospectively, however, to avoid regulatory impacts on transactions already filed for FERC approval as of its February 2004 order.

The net effect is that FERC will look at whether an affiliate deal results in the lower of cost or market price. In applying to a cost-based affiliate transaction, the commission apparently believes it has the right to reject a cost-based rate,