Energy Law

FERC Orders Review of Sellers Using WSPP Agreement Demand Charge in Markets where They Lack Market-Based Rate Authority

By Tracy Davis

Last week, following an investigation under Federal Power Act section 206, FERC issued an order finding it is unjust and unreasonable to allow power sellers to keep using the WSPP-wide "up to" demand charge as a ceiling rate in markets where the seller does not have market-based rate authority, unless the seller can justify that rate based on its own costs.  Under the WSPP Agreement, sellers may charge "up to" a cost-based ceiling rate, which consists of a seller's forecasted incremental cost plus an "up to" demand charge based on the costs of a sub-set of 18 of the original parties to the WSPP Agreement.  In its February 21 order, FERC directed sellers that wish to continue transacting under the WSPP demand charge in markets where they do not have market-based rate authority or where they are presumed to have market power to make a filing by April 21 justifying continued use of the rate.  FERC emphasized that this affects only some, and not all, sellers that use the WSPP Agreement.  In a statement issued along with the order, Chairman Joseph Kelliher stated that allowing sellers to continue to use the WSPP demand charge without justifying the rate based on their own costs would "effectively let those sellers sidestep the more rigorous market-based rate test that we have put in place in recent years."

FERC began its review of the widespread use of "up to" demand charge rates under the WSPP Agreement last year as part of its rulemaking proceeding examining sellers' market-based rate authorizations.  In Order No. 697, FERC explained that it had accepted the use of the WSPP Agreement "up to" rate as a mitigation measure by several different sellers that had failed the indicative screens for market power and were found or presumed to have market power.  FERC expressed concern that use of the WSPP rate was no longer just and reasonable for such sellers because it appeared that many sellers used the rate without showing any relationship to their actual costs.  FERC thus began the investigation into whether WSPP rates can be used by sellers that are found or presumed to have market power or that lack market-based rate authority in certain markets.

Full post as published by Energy Legal Blog on February 28, 2008 (boomark / email).