[Federal Register Volume 72, Number 244 (Thursday, December 20, 2007)]
[Rules and Regulations]
[Pages 72239-72243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-24736]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM04-7-003; 121 FERC ] 61,260]


Market-Based Rates for Wholesale Sales of Electric Energy, 
Capacity, and Ancillary Services by Public Utilities

Issued December 14, 2007.
AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Order Clarifying Final Rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
clarifying: the effective date for compliance with the requirements of 
Order No. 697; which entities are required to file updated market power 
analyses for the Commission's regional review; the data required for 
the horizontal market power analyses; and what constitute ``seller-
specific terms and conditions'' that sellers may list in their market-
based rate tariffs in addition to the standard provisions listed in 
Appendix C to Order No. 697.

FOR FURTHER INFORMATION CONTACT: Paige C. Bullard, Office of the 
General Counsel--Energy Markets, Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426, (202) 502-6462.

SUPPLEMENTARY INFORMATION:

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

Order Clarifying Final Rule

I. Introduction

    1. On June 21, 2007, the Commission issued Order No. 697,\1\ in 
which the Commission revised and codified its market-based rate policy 
for public utilities. In the instant order, we make several 
clarifications. First, we clarify that, notwithstanding that Order No. 
697 did not require market-based rate sellers to make immediate 
compliance filings amending their market-based rate tariffs, the 
Commission intended that all requirements and limitations applicable to 
market-based rate sellers set forth in Order No. 697 should become 
effective on September 18, 2007. Second, we clarify that transmission-
owning utilities with market-based rate authority and their affiliates 
with market-based rate authority must file updated market power 
analyses for the Commission's regional review as discussed herein. 
Third, we clarify the data to be used in submitting the horizontal 
market power indicative screens and the Delivered Price Test (DPT) 
analysis.
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    \1\ Market-Based Rates for Wholesale Sales of Electric Energy, 
Capacity and Ancillary Services by Public Utilities, Order No. 697, 
72 FR 39904 (July 20, 2007), FERC Stats. & Regs. ] 31,252 (2007).
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    This requirement will apply to new applications for market-based 
rate authorization and updated market power analyses, including the 
updated market power analyses that must be submitted for the 
Commission's regional review. As discussed below, for purposes of the 
market power analyses to be submitted in December 2007, we will extend 
the date for filing such analyses until 30 days after the date of 
issuance of this order. Fourth, we clarify that ``seller-specific terms 
and conditions'' that go beyond the standard provisions required in 
Appendix C of Order No. 697, and that sellers are permitted to list in 
their market-based rate tariffs, are those tariff provisions that are 
commonly found in power sales agreements, such as creditworthiness, 
force majeure, dispute resolution, billing, and payment provisions.

[[Page 72240]]

II. Background

    2. In order to codify and revise its market-based rate policy for 
wholesale sellers of electric energy, capacity, and ancillary services, 
as well as streamline the administration of the market-based rate 
program, the Commission in Order No. 697 modified its regulations 
governing market-based rate authorization. Order No. 697 became 
effective on September 18, 2007.

III. Discussion

    3. In Order No. 697, the Commission determined that continuing to 
allow basic inconsistencies in market-based rate tariffs due to the 
lack of consistent form and content of certain key provisions was 
unjust and unreasonable under sections 205 and 206 of the Federal Power 
Act (FPA). As such, the Commission required that all market-based rate 
sellers revise their respective tariffs to contain standard required 
provisions.\2\ Order No. 697 adopted two standard required provisions 
that each market-based rate seller must include in its tariff: (1) A 
provision requiring compliance with Commission regulations at 18 CFR 
Part 35, Subpart H; and (2) a provision identifying all limitations and 
exemptions regarding the seller's market-based rate authority.\3\ Order 
No. 697 also adopted a set of standard applicable provisions that must 
be included in a seller's market-based rate tariff to the extent that 
they are applicable based upon the services that are provided by a 
seller.\4\
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    \2\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 912-913.
    \3\ Id. P 914-916.
    \4\ Id. P 916.
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A. Effective Date of Order No. 697

    4. Rather than requiring sellers to make immediate compliance 
filings amending their market-based rate tariffs, Order No. 697 instead 
required sellers to amend their market-based rate tariffs to include 
the required standard provisions, as well as the required applicable 
provisions, at the earliest of: (1) The next time they file any other 
amendment to their market-based rate tariffs; (2) when they report a 
change in status; or (3) when they file their updated market power 
analyses.\5\
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    \5\ Id. P 924.
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    5. As the Commission stated in Order No. 697, regardless of the 
date on which market-based rate sellers make their compliance filings, 
the tariff provision providing that failure to abide by the regulations 
will constitute a tariff violation is considered part of each seller's 
current market-based rate tariff as of the effective date of Order No. 
697, September 18, 2007.\6\ Notwithstanding that Order No. 697 did not 
require sellers to make immediate compliance filings amending their 
market-based rate tariffs,\7\ the Commission intended that all 
requirements and limitations applicable to market-based rate sellers 
set forth in Order No. 697 should become effective on September 18, 
2007. To the extent that some sellers may not be aware that, effective 
September 18, 2007, provisions in their market-based rate tariffs that 
are inconsistent with the requirements of Order No. 697 are no longer 
in effect, we provide this clarification. While we do not attempt in 
this order to provide an exhaustive list of all of the applicable 
requirements of Order No. 697, we do provide a number of examples below 
for illustrative purposes.
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    \6\ Id.
    \7\ Id.
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    6. For example, the Commission adopted in Sec.  35.39(d) of the 
affiliate restrictions codified in Order No. 697 a two-way information 
sharing restriction.\8\ The Commission recognized that some sellers may 
need to adjust their activities to comply with the two-way information 
restriction. The Commission stated that any sellers whose activities 
had been governed by a code of conduct with a one-way information 
restriction will be deemed to have adopted a two-way information 
restriction as of the effective date of Order No. 697.\9\
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    \8\ 18 CFR 35.39(d) (2007).
    \9\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 588.
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    7. Similarly, in Order No. 697, the Commission concluded that 
adequately protecting customers from the potential exercise of market 
power required that it continue to apply mitigation to all of a 
seller's sales in the balancing authority area in which a seller is 
found, or presumed, to have market power.\10\ In this regard, the 
Commission rejected proposals that it limit mitigation to sales that 
``sink'' in the balancing authority area where the mitigated seller is 
found, or presumed, to have market power.\11\ Some mitigated sellers 
have tariff language that is inconsistent with the Commission's current 
policy as set forth in Order No. 697. These mitigated sellers' tariffs 
currently only prohibit sales at market-based rates that ``sink'' in a 
balancing authority area in which the mitigated seller has been found, 
or presumed, to have market power. We clarify that, although the 
Commission may have previously accepted these sellers' provisions, 
effective September 18, 2007, all sellers are subject to the 
requirements of Order No. 697 and thus may not limit mitigation to 
sales that ``sink'' in the balancing authority area where the mitigated 
seller has been found, or presumed, to have market power. Rather, such 
sellers are required to comply with the mitigation policy as stated in 
Order No. 697.
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    \10\ Id. P 817. Although the Commission used the term 
``mitigated market'' in Order No. 697, we believe that ``balancing 
authority area in which a seller is found, or presumed, to have 
market power'' is a more accurate way to describe the area in which 
a seller is mitigated. Accordingly, we use that phrase herein.
    \11\ Id. P 818.
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    8. Accordingly, we clarify that, effective September 18, 2007, 
provisions in a seller's previously-approved market-based rate tariff 
that are inconsistent with the requirements of Order No. 697 are no 
longer in effect. However, we will not pursue any violations that 
resulted from the new requirements in Order No. 697 that were 
inconsistent with a seller's previously-approved market-based rate 
tariff prior to 30 days after the issuance of this clarification order.

B. Entities Required To File Updated Market Power Analyses for the 
Commission's Regional Review

    9. In Order No. 697, the Commission determined that it would 
conduct a regional review of updated market power analyses and set 
forth in Appendix D the schedule for such review.\12\ The first round 
of updated market power analyses, for the Northeast, are due in 
December 2007. Order No. 697 states that ``[t]he transmission-owning 
utilities, which have the information necessary to perform 
[simultaneous import limit] studies, will be required to file their 
updated market power analyses first.'' \13\ Appendix D of Order No. 697 
lists ``Transmission Operators'' as filing updated market power 
analyses in the regional reviews. Because there may be confusion 
concerning which entities are required to file updated market power 
analyses as a result of the use of the term ``transmission operators'' 
in Appendix D of Order No. 697, we clarify that transmission-owning 
utilities with market-based rate authority and their affiliates with 
market-based rate authority must file the updated market power analyses 
for the Commission's regional review. Accordingly, the term 
``Transmission Operators'' in Appendix D should instead be 
``Transmission Owners.'' A revised version of the relevant table in 
Appendix D is attached.
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    \12\ Id. P 882.
    \13\ Id. P 889.
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    10. Further, we clarify that market-based rate sellers that are 
affiliated with

[[Page 72241]]

transmission-owning utilities and are located in the same region \14\ 
as their transmission-owning utility affiliate (either physically 
located in that region such as a generation affiliate, or making sales 
in that region such as an affiliated power marketer) must file their 
updated market power analyses during the same review period as their 
transmission-owning utility affiliate. For example, Order No. 697 
stated that the first set of updated market power analyses (for the 
Northeast) would be filed in December 2007. This set of analyses should 
include transmission-owning utilities with market-based rate authority 
and all of their affiliates with market-based rate authority located in 
the same region (either physically located in that region such as a 
generation affiliate, or making sales in that region). The second set 
of updated market power analyses would include all other sellers in the 
Northeast and is due in June 2008.
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    \14\ In Order No. 697, the Commission identified six regions 
(Northeast, Southeast, Central, Southwest Power Pool, Southwest, and 
Northwest) for purposes of the regional market power update review 
process. Id. P 885.
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C. Required Data for Horizontal Market Power Analyses

    11. It has come to the Commission's attention that, for the 
purposes of the horizontal market power analysis, there may be 
confusion regarding whether market shares calculated for the market 
share screen and the DPT analysis should be based on the four quarters 
of the calendar year or the four seasons as defined in the April 14 
Order.\15\ As a result, there may be confusion concerning which data 
and market share calculations must be submitted as part of sellers' 
updated horizontal market power analyses. As we explained in Order No. 
697, the wholesale market share analysis measures for each of the four 
seasons whether a seller has a dominant position in the market based on 
the number of megawatts of uncommitted capacity owned or controlled by 
the seller as compared to the uncommitted capacity of the entire 
relevant market.\16\ Order No. 697 states that the Commission will 
continue to require the use of historical data for both of the 
horizontal market power indicative screens and the DPT analysis in 
evaluating whether a seller may possess market power, and states that 
``in light of adopting a regional approach with regard to regularly 
scheduled updated market power analyses, we will require the use of the 
actual historical data for the previous calendar year.'' \17\ However, 
the Commission's April 14 Order, in describing the seasons for the DPT, 
defines the study periods (seasons) as: Summer (June/July/August); Fall 
(September/October/November); Winter (December/January/February); and 
Spring (March/April/May).\18\ We understand that some have interpreted 
Order No. 697 as revising the study periods to be the four quarters of 
the calendar year instead of the four seasons. This was not the 
intention of Order No. 697. Accordingly, we clarify that market shares 
calculated for the market share screen and the DPT analysis should 
continue to be based on the four seasons.\19\
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    \15\ AEP Power Marketing Inc., 107 FERC ] 61,018 at n.85 (April 
14 Order), order on rehearing, 108 FERC ] 61,026 (2004).
    \16\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 34 (citing 
April 14 Order at P 100).
    \17\ Id. P 298.
    \18\ April 14 Order at n.85.
    \19\ Summer (June/July/August); Fall (September/October/
November); Winter (December/January/February); and Spring (March/
April/May).
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    12. In addition, we also clarify that, as a general matter, the 
market share studies performed in market-based rate filings for both 
the preliminary screens and the DPT analysis should be based on the 
most recent available actual historical data for each full season. 
However, we recognize that it may be appropriate to allow exceptions to 
this general principle in certain limited circumstances. We describe 
below how this general principle should be applied to applicants making 
various types of market-based rate filings:
    a. Updated market power analyses (triennial reviews) for 
transmission-owning applicants: Transmission-owning applicants filing 
triennial reviews in June or December should base their market share 
analysis on the actual historical data for the four seasons (winter 
(December-February), spring (March-May), summer (June-August) and fall 
(September-November)) ending November 30 of the previous calendar year 
consistent with Appendix D.\20\
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    \20\ The relevant tables in Appendix D to Order No. 697 have 
been revised to reflect this clarification and are attached 
herewith.
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    b. Updated market power analyses for applicants that do not own 
transmission: Applicants that do not own transmission should base their 
market share analysis in their triennial reviews on actual historical 
data using the same seasons that were used in the triennial reviews 
filed by the transmission owners in their region consistent with 
Appendix D. For example, for transmission owners in the Southeast 
filing triennial reviews in June of 2008, the seasonal analysis would 
be based on the following: December 2005, January 2006 and February 
2006 for winter; March 2006, April 2006 and May 2006 for spring; June 
2006, July 2006 and August 2006 for summer; September 2006, October 
2006 and November 2006 for fall (because at the time of filing these 
months had the most recently available actual historical data for each 
of those complete seasons). All other applicants in the Southeast 
should base their studies on these same seasons when they file their 
triennials six months later in December 2008.\21\
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    \21\ As set forth in Order No. 697, Applicants that do not own 
transmission are required to file their triennials six months after 
the transmission owners in that region filed their triennials. Order 
No. 697, FERC Stats. & Regs. ] 31,252 at P 889.
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    c. Transmission-owning applicants for initial market-based rate 
authorization or submission of a change in status filing: Transmission-
owning applicants filing applications for initial market-based rate 
authorization, or those submitting a change in status filing, should 
rely on the most recent available actual historical data for each 
complete season of: Winter (December-February), spring (March-May), 
summer (June-August) and fall (September-November).
    d. All other applicants: All other applicants filing applications 
for initial market-based rate authorization or submitting change in 
status filings and, which have to rely on other studies because they do 
not have access to all the needed data, should rely on the same vintage 
data that were used in the triennial reviews filed by the transmission 
owners in their region within the past year.\22\ If triennial reviews 
were not filed by the transmission owners in their region within the 
past year, then the applicants covered under this part may base their 
market share analysis on either (i) the most recently available actual 
historical data for each complete season of: Winter (December-
February), spring (March-May), summer (June-August) and fall 
(September-November), or (ii) the same seasons in their market share 
studies that were used in the most recently filed triennial studies 
submitted by the transmission owners in their region, provided that the 
non-transmission owning applicant shows what its market shares would 
have been in each season

[[Page 72242]]

based on those studies, and states whether there would be a significant 
increase in the market shares during any season if more recent data had 
been used (as well as the basis for this claim).\23\
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    \22\ Applicants in this category include those that do not own 
transmission or do not have affiliates that own transmission, as 
well as those that file a market power study as part of their change 
in status filing. Although applicants do not typically submit market 
power studies as part of their change in status filings, sometimes 
they do, and at other times the Commission may require the 
submission of a market power study at the time of a change in status 
filing.
    \23\ We note that the Commission reserves the right to require 
an updated market power analysis at any time and may request the 
applicant to use the most recently available actual historical data 
for each complete season of: Winter (December-February), spring 
(March-May), summer (June-August) and fall (September-November).
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    13. In light of these clarifications, we will extend the deadline 
for filing the first set of regional triennial studies that we directed 
in Order No. 697 from December 2007 to 30 days after the date of 
issuance of this order. Furthermore, we will not require those entities 
that have already submitted their updated market power studies for the 
December filing period to file revisions to those studies if they were 
based on calendar year quarters, rather than the approach set forth in 
(a) above.

D. Seller-Specific Terms and Conditions

    14. In Order No. 697, the Commission required that all sellers 
include in their respective market-based rate tariffs certain standard 
required provisions and standard applicable provisions to the extent 
that they are applicable based on the services provided by the 
seller.\24\ The Commission also explained that it would permit sellers 
to list in their market-based rate tariffs additional terms and 
conditions that go beyond the standard provisions set forth in Appendix 
C.\25\ The Commission stated that it recognized benefits to both 
sellers and customers of having terms and conditions relevant to the 
seller's market-based rate power sales available in one document.
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    \24\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 914-917. 
These standard provisions are listed in Appendix C to Order No. 697.
    \25\ Id. P 919, 927.
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    15. In order to ensure full compliance with the tariff requirements 
set forth in Order No. 697, we clarify that ``seller-specific terms and 
conditions'' are those provisions that are commonly found in power 
sales agreements, such as creditworthiness, force majeure, dispute 
resolution, billing, and payment provisions. As the Commission noted in 
Order No. 697, it has been our practice not to evaluate these types of 
terms and conditions once the seller is authorized to sell power at 
market-based rates, but to allow them to be included in the market-
based rate tariff that is on file with the Commission. We clarify, 
however, that we did not intend that ``seller-specific terms and 
conditions'' include other ``services'' offered by the seller beyond 
those set forth in Appendix C.

IV. Conclusion

    16. In sum, to the extent that it was not clear in the Final Rule 
that all requirements and limitations of Order No. 697 became effective 
on September 18, 2007, we hereby clarify that sellers are required to 
comply with all of the requirements of Order No. 697 as of the 
effective date of the Final Rule, even if sellers have previously-
approved tariff provisions to the contrary. Thus, any sales made after 
September 18, 2007 are expected to be in compliance with the 
requirements of Order No. 697. We also clarify that both transmission-
owning utilities with market-based rate authority and their affiliates 
with market-based rate authority are required to file updated market 
power analyses for the Commission's regional review as discussed 
herein. We clarify that we will require use of the actual historical 
data through November of the previous calendar year, including data 
from December of the prior year, for both of the horizontal market 
power screens and the DPT analysis as discussed herein. Additionally, 
we clarify that ``seller-specific terms and conditions'' are those 
tariff provisions that are commonly found in power sales agreements, 
such as creditworthiness, force majeure, dispute resolution, billing, 
and payment provisions. ``Seller-specific terms and conditions'' do 
not, however, include other ``services'' offered by the seller.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

Regional Review Schedule for Sellers Filing Triennial Reviews

                                                   Appendix D
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                                       Filing period  (anytime
      Entities required to file           during the month)                       Study period
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  Schedule for Transmission Owning Utilities With Market-Based Rate Authority and Their Affiliates in the Same
                                                     Region
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Northeast Transmission Owners........  December, 2007.........  Dec. 1, 2005-Nov. 30, 2006.
Southeast Transmission Owners........  June, 2008.............  Dec. 1, 2005-Nov. 30, 2006.
Central Transmission Owners..........  December, 2008.........  Dec. 1, 2006-Nov. 30, 2007.
SPP Transmission Owners..............  June, 2009.............  Dec. 1, 2006-Nov. 30, 2007.
Southwest Transmission Owners........  December, 2009.........  Dec. 1, 2007-Nov. 30, 2008.
Northwest Transmission Owners........  June, 2010.............  Dec. 1, 2007-Nov. 30, 2008.
Northeast Transmission Owners........  December, 2010.........  Dec. 1, 2008-Nov. 30, 2009.
Southeast Transmission Owners........  June, 2011.............  Dec. 1, 2008-Nov. 30, 2009.
Central Transmission Owners..........  December, 2011.........  Dec. 1, 2009-Nov. 30, 2010.
SPP Transmission Owners..............  June, 2012.............  Dec. 1, 2009-Nov. 30, 2010.
Southwest Transmission Owners........  December, 2012.........  Dec. 1, 2010-Nov. 30, 2011.
Northwest Transmission Owners........  June, 2013.............  Dec. 1, 2010-Nov. 30, 2011.
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                                         Schedule for All Other Entities
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All others in Northeast that did not   June, 2008.............  Dec. 1, 2005-Nov. 30, 2006.
 file in December including all power
 marketers that sold in the Northeast.
All others in Southeast that did not   December, 2008.........  Dec. 1, 2005-Nov. 30, 2006.
 file in June including all power
 marketers that sold in the Southeast
 and have not already been found to
 be Category 1 sellers.
All others in Central that did not     June, 2009.............  Dec. 1, 2006-Nov. 30, 2007.
 file in December including all power
 marketers that sold in the Central
 and have not already been found to
 be Category 1 sellers.

[[Page 72243]]

 
All others in SPP that did not file    December, 2009.........  Dec. 1, 2006-Nov. 30, 2007.
 in June including all power
 marketers that sold in SPP and have
 not already been found to be
 Category 1 sellers.
All others in Southwest that did not   June, 2010.............  Dec. 1, 2007-Nov. 30, 2008.
 file in December including all power
 marketers that sold in the Southwest
 and have not already been found to
 be Category 1 sellers.
All others in Northwest that did not   December, 2010.........  Dec. 1, 2007-Nov. 30, 2008.
 file in June including all power
 marketers that sold in the Northwest
 and have not already been found to
 be Category 1 sellers.
Others in Northeast that did not file  June, 2011.............  Dec. 1, 2008-Nov. 30, 2009.
 in December and have not been found
 to be Category 1 sellers.
Others in Southeast that did not file  December, 2011.........  Dec. 1, 2008-Nov. 30, 2009.
 in June and have not been found to
 be Category 1 sellers.
Others in Central that did not file    June, 2012.............  Dec. 1, 2009-Nov. 30, 2010.
 in December and have not been found
 to be Category 1 sellers.
Others in SPP that did not file in     December, 2012.........  Dec. 1, 2009-Nov. 30, 2010.
 June and have not been found to be
 Category 1 sellers.
Others in Southwest that did not file  June, 2013.............  Dec. 1, 2010-Nov. 30, 2011.
 in December and have not been found
 to be Category 1 sellers.
Others in Northwest that did not file  December, 2013.........  Dec. 1, 2010-Nov. 30, 2011.
 in June and have not been found to
 be Category 1 sellers.
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 [FR Doc. E7-24736 Filed 12-19-07; 8:45 am]
BILLING CODE 6717-01-P