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Capacity Planning: The Good, the Bad, and the Ugly

Market-Power Tests: A review of FERC’s market-based rate (MBR) screens, from theory to application.

Fortnightly Magazine - July 2005

because “complete nameplate rating data are unavailable.” The commission accepted the “simplifying assumption” of using summer ratings because Dayton became part of the PJM RTO, and PJM determines seasonal ratings. 12  Yet, within a week, FERC staff requested that TransCanada Hydro-Northeast resubmit its filing in part because Trans-Canada used essentially the same data as Dayton. The use of nameplate capacity resulted in TransCanada capacity declining by about 10 percent because about one-half of the facilities had “nameplate” capacities 20 percent less than both the summer and winter ratings determined by ISO New England. The use of summer (or winter) capacity would provide better information. TransCanada’s updated filing was clearly a case of form over substance as TransCanada’s original filing passed the PSA by more than 6,000 MW and its market shares were below 7 percent. Any reasonable measurement of capacities would result in TransCanada passing the screens.

Another facet in the “ugly” category is the use of the delivered-price test. If an applicant fails the screens, the applicant may submit a delivered-price test. 13  In the delivered-price test, applicants also consider the cost of generation in addition to capacities and transmission constraints. FERC requires applicants to file results for economic capacity, which does not consider native-load obligations, and available economic capacity, which subtracts out native-load obligations. Entergy took FERC at its word and submitted a delivered-price test; Entergy failed the economic-capacity screens but passed the available economic-capacity screens.

Because native-load obligations are equivalent to commitments to produce electricity for retail loads, only the available economic-capacity results are relevant for examining competition in wholesale markets in areas with traditional retail obligations like Entergy’s. Yet FERC ignored these results and still ordered a refund proceeding. Given the result, it is unlikely that many more utilities will submit a delivered-price test.

The delivered-price test, however, may be forced upon utilities as an added expense. When utilities have failed the WMSA, FERC has ordered them to provide a delivered-price test or provide for mitigation. 14 But in many cases, the delivered-price test would provide little or no additional useful information for the relevant issues. For example, a delivered price test for the Tampa Electric control area would provide no useful information on whether its municipal customers connected to the Florida Power Corp. transmission system have sufficient alternatives so that Tampa must offer competitive prices to maintain the business. Given that one of the two customers already has selected an alternative supplier at the expiration of the Tampa contract, It is clear that Tampa must offer competitive prices to keep the business. The requirement to submit a delivered-price test before FERC will examine the real competitive issues, is nothing more than a penalty on utilities that fail the initial screens.

Another area that belongs in the “ugly” category concerns historical sales. FERC stated that it would consider historical sales evidence for applicants that fail either the PSA or WMSA. 15  A number of utilities have failed the WMSA and provided historical sales evidence. 16  To date, FERC has not accepted any such evidence.