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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

(2004) (Use of FERC Form 714 capacity).

12.  Dayton Power and Light Co. and DPL Energy LLC, 109 FERC ¶61,268, at P 9 (2004) .

13.  April 14 order, at PP 105-112.

14.  For example, The Empire District Electric Co., 110 FERC ¶61,214 (2005); Pinnacle West Capital Corp. et al., 109 FERC ¶61,295 (2004); Westar Energy Inc. et al., 110 FERC ¶61,316 (2005); and Tampa Electric Co. et al., 110 FERC ¶61,206 (2005) . These orders are consistent with paragraph 105 of the April 14 order, which states that an applicant that fails a screen and “chooses not to proceed directly to mitigation … must present a more thorough analysis using the Commission’s Delivered Price Test.”

15.  April 14 order, at P 102, 112.

16.  See, for example, Duke Power, a division of Duke Power Corp., et. al. , 109 FERC ¶61,270, at PP 11-13, 30 (2004).

 

 


FERC's Market Power Screen

Designed for Failures

It is relatively easy to show that the Wholesale Market Share Analysis (WMSA) was designed to fail for traditional vertically integrated utilities. Utilities must have enough generation sources to meet peak loads in each season; therefore, let P be equal to the seasonal peak load and be a proxy for the available generation. Uncommitted capacity is equal to P less the peak on the minimum load day, which can be represented by mP, where m is the minimum peak divided by the seasonal peak. Finally, given the instructions in Appendix E of the April 14, 2004, order, simultaneous import capability can be no more than the seasonal peak load, P. It follows that a reasonable proxy for the applicant's wholesale market share in its control area is W=(P-mP)/(P-mP+P). To pass the WMSA, it can be shown that m must be less than 75 percent. As far as I am aware, only Minnesota Power meets this condition.

There are only two ways to avoid failure of the WMSA. One is to have hydroelectric generation. Under the WMSA, hydroelectric generation is derated to average production levels, which results in uncommitted capacity falling below P-mP. The other is to have a low share of generation and loads within the control area, like Avista Corp. But few vertically integrated utilities have a sufficiently low share of generation within their own control area to pass the WMSA. -JM


WMSA's Bad Math: 10 x 10 = 200

When the uncommitted capacity for a control area is less than the simultaneous import capability (SIC), the WMSA inflates the relevant market shares of suppliers outside of the control area. Consider a situation in which a control area has 500 MW of SIC, 250 MW of uncommitted capacity (including supplies from imports), 10 suppliers outside of the control area, and each of the 10 suppliers has 60 MW of uncommitted capacity. Each supplier would be allocated 50 MW of the SIC. This is calculated by multiplying each supplier's share of uncommitted capacity outside of the control area, 10 percent, by the 500 MW of SIC. The allocation of 50 MW is divided by