Message-ID: <24235420.1075852035785.JavaMail.evans@thyme> Date: Mon, 2 Jul 2001 08:11:00 -0700 (PDT) From: janine.ponsart@bakernet.com Subject: E-Notes: Market-Based Rates for Ancillary Services Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Janine.Ponsart@BAKERNET.com X-To: X-cc: X-bcc: X-Folder: \Richard_Shapiro_Nov2001\Notes Folders\Wholesale markets X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf <<...OLE_Obj...>> E-Notes provides regular briefings on new developments in global energy and public utility law. July 2, 2001 Market-Based Rates for Ancillary Services Pursuant to Order No. 888, companies with general market-based rate authority must separately obtain market-based rate authority for ancillary services. See Order No. 888 at 31,720 quoting the Federal Energy Regulatory Commission (FERC) as stating: "The fact that we have authorized a utility to sell wholesale power at market-based rates does not mean we have authorized the utility to sell ancillary services at market-based rates." Accordingly, an entity with market-based rate authority must make a separate showing with regard to securing market-based rates for ancillary services. In markets that are currently administered by independent system operators ("ISOs") - i.e., the PJM Interconnection, LLC ("PJM"), the New York ISO ("NYISO"), ISO-New England ("ISO-NE"), and the California ISO ("Cal-ISO") - the FERC has previously permitted entities with general market-based rate authority to sell ancillary services in those markets to the extent that it has authorized other suppliers to sell such ancillary services. See Canadian Niagara Power Co., Ltd., 87 FERC ? 61,070 (1999) (authorizing sales of ancillary services at market-based rates into the NYISO and ISO-NE markets); Minergy Neenah, L.L.C., et al., 88 FERC ? 61,102 (1999) (authorizing sales of ancillary services at market-based rates into the NYISO); Atlantic City Elec. Co., et al., 86 FERC ? 61,039 (1999) (authorizing sales of ancillary services at market-based rates into PJM); PJM Interconnection, L.L.C., 91 FERC ? 61,021 (2000) (same); see also New England Power Pool, 85 FERC ? 61,379 (1998); Central Hudson Gas & Elec. Corp., et al., 86 FERC ? 61,062 (1999); Connectiv Energy Supply Inc., 91 FERC ? 61,076 (2000); AES Redondo Beach, L.L.C., et al., 83 FERC ? 61,358, order on reh'g and clarification, 85 FERC ? 61,123 (1998), order on reh'g and clarification, 87 FERC ? 61,208, order on reh'g, 88 FERC ? 61,096 (1999), order on reh'g and clarification, 90 FERC ? 61,036 (2000). As a general proposition, companies that have sought authority to sell ancillary services in these ISO markets have simply requested the blanket authorization for sales of ancillary services. Many companies have added that they desire the authority to be extended to additional ancillary services and geographic markets, as the FERC may specify and authorize in the future in orders that extend such authority to all sellers previously authorized to sell energy and/or capacity at market-based rates. See Edison Mission Mktg. and Trading, Docket No. ER99-2434-000 (unpublished delegated letter order issued May 7, 1999). The authority to make sales of ancillary services at market-based rates is not, merely, limited to only those markets were established by the FERC with operating ISOs. The criteria for seeking such authority in non-ISO markets is found in the Avista case. See Avista Corp., 87 FERC - 61,223, reh'g granted, 89 FERC - 61,136 (1999) ("Avista"). The problem associated with obtaining market-based rates for ancillary services in non-ISO markets has centered on the difficulty (or impossibility) of obtaining estimates of other suppliers' abilities to supply ancillary services to support a reliable market analysis that demonstrates that the entity seeking such authority does not have market power in the relevant markets for ancillary services. However, in the Avista case, the FERC authorized the provision of Regulation and Frequency Response, Energy Imbalance, Operating Reserve - Spinning Reserve Service, and Operating Reserve - Supplemental Reserve Service at market-based rates in non-ISO markets with certain conditions. The Avista conditions require the Company to consider: (1) the establishment of an internet site that provides information on, and conducts, ancillary services transactions; (2) the posting on the internet site of the offering prices of all available services; and (3) the ability of customers to request services and make bids for those services using the site. Moreover, the entity must file with the FERC one year after the internet site is operational, and at least three years thereafter, a report describing its activities in the relevant ancillary services markets. The entity must also commit not to sell ancillary services at market-based rates to: (i) regional transmission organizations ("RTOs") such as an ISO or transco, i.e., where the RTO has no ability to self-supply ancillary services but instead depends on third parties; (ii) a traditional franchised public utility affiliated with the entity, or sales where the underlying transmission is on the system of a public utility affiliated with the entity; or (iii) a public utility that is purchasing ancillary services to satisfy its own open access transmission tariff requirements to offer ancillary services to its own customers. Id. at 61,833, note 12. The terms and conditions associated with the provision of ancillary services at market-based rates must be included in the market-based rate schedule filed with the FERC and address the limitations on that authority as discussed above. For entities which have already obtained general market-based rate authority, an amendment could be filed in their underlying market-based rate dockets before the FERC seeking the authority to also sell ancillary services at market-based rates consistent with the referenced FERC precedent. Michael J. Zimmer John A. Cohen ____________________________________________________________________________ ________ E-Notes is a publication of Baker & McKenzie. It does not constitute legal advice or a legal opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult your attorney concerning your situation and specific legal questions you may have. For further information on the subjects discussed in E-Notes, contact Michael J. Zimmer, michael.j.zimmer@bakernet.com or Jonathan W. Gottlieb jonathan.w.gottlieb@bakernet.com. 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