Southern disputes FERC market power probe

OREANDA-NEWS. June 01, 2015. Southern Co. is asking federal regulators to reconsider a probe into its ability to exercise market power in some southeastern US electric markets.

The utility filed a request for a rehearing asking the Federal Energy Regulatory Commission (FERC) to terminate an order issued last month, because its power auctions provide "effective tailored mitigation" over feared market power and prevents Southern from withholding or charging excessive prices. The company said it has followed the commission-approved rules for auctions and noted that it had committed to changes such as waiving the demand charge.

FERC launched a review in April and ordered Southern to show why it should not lose its authorization to use market-based rates in four southeastern US balancing areas. Losing that authority could force the utility to sell at cost-based rates or take other measures to mitigate potential market power.

Southern agreed to create day-ahead and hour-ahead energy auctions in 2008, amid earlier concerns from FERC over its market power. The company must offer its available and uncommitted capacity in the auctions at the production cost of the generator plus a 10pc adder and a demand charge of about \\$21/MWh.

But last month FERC questioned if the auctions effectively mitigating Southern's presumed market power given the "limited number" of transactions, amounting to 38 trades over the past five years. The agency found Southern's prices were consistently higher than its competitors' and that its market share in the Southern balancing area had increased to 53-58pc, up from 30-43pc in 2008.

Southern challenged some of FERC's data. In yesterday's filing, it said the commission relied on "extra-record evidence" as the basis to initiate its review of market power. The utility claims the agency compared Southern's prices to its competitors based on a review of electronic quarterly reports that it had no chance to review. The company said there is no evidence it can raise its prices above competitive levels.

Southern chief executive Thomas Fanning said on 29 April that he did not think FERC's review was a "big deal" and that there was "almost no potential adverse financial impact." He said changes made to the auction this year increased activity in the auction "many-fold."