Major Reforms to FERC Market-Based Rate Program Include New Data Collection Requirements

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

In a pair of rulemaking orders issued July 18, 2019, the Federal Energy Regulatory Commission (FERC) revised its regulations and policies for obtaining and maintaining authority to sell wholesale energy, capacity and ancillary services at negotiated, market-based rates. In Order No. 860, FERC announced the creation of a new “relational database” that will tag and track market-based rate sellers’ affiliates and ultimate upstream owners. The database will rely on new data collection requirements to be implemented by February 1, 2021. Separately, in Order No. 861, FERC revised its regulations to relieve market-based rate sellers operating within organized markets from the requirement to submit indicative market power screens. Instead, FERC will rely on market monitoring and mitigation measures adopted by the regional transmission organization (RTO) or independent system operator (ISO) to ensure that entities within such organized markets do not exercise horizontal or vertical market power.

Current Market-Based Rate Program

Under FERC’s market-based rate policies, FERC-regulated generation owners and power marketers that sell wholesale energy, capacity or ancillary services must obtain authorization from FERC to sell at market-based rates, which are rates, terms and conditions established by mutual agreement, as opposed to rates based on the seller’s cost-of-service or other traditional ratemaking policies. Applicants for market-based rate authority must submit a market-based rate tariff, using standard language adopted by FERC establishing terms and conditions of market-based rate sales by the applicant. FERC grants requests for market-based rate authority to sellers that demonstrate they and their affiliates lack or have adequately mitigated horizontal and vertical market power in the relevant geographic market. A seller that obtains market-based rate authority is subject to ongoing compliance obligations to demonstrate that it continues to lack or has adequately mitigated market power in its relevant market.

FERC uses two indicative screens to assess an applicant’s horizontal market power: the “pivotal supplier analysis” and the “wholesale market share analysis.” Under each screen, FERC considers all of the generation owned or controlled by an applicant and its affiliates in the relevant market as compared to the supply of generation within that market. FERC uses a seller’s balancing authority area or the relevant RTO or ISO market, as applicable, as the default geographic market. FERC also reviews a seller’s “vertical” market power, which is based on its control of inputs to power generation, including fuel supplies and transportation and electric transmission.

Currently, sellers seeking to obtain or maintain market-based rate authority must disclose all upstream owners that own 10 percent or more of the voting (i.e., managing) ownership interests in the seller or any of the seller’s upstream owners. If a seller has passive upstream investors, it must demonstrate to FERC that the passive investors’ rights are limited to those necessary to protect their investment and do not convey control over a generating facility or any power sales. In addition, for most market-based rate filings, sellers must prepare and submit an asset appendix listing all affiliates that own or control generation, transmission or certain natural gas assets. Initial applications for market-based rate authorization, and triennial market power analyses, also must include indicative market power screens demonstrating that the seller lacks horizontal and vertical market power in the markets in which it intends to transact. With some exceptions, sellers with market-based rate authority generally must file a notice with FERC within 30 days of changes in upstream ownership or the addition of new affiliates that own or control generation or transmission assets or inputs to power generation or of the acquisition of these assets by the market-based seller.

New Data Collection Requirements and the Relational Database

Although FERC is still developing the relational database, under the new policy entities with market-based rate authority must submit a baseline filing to populate the relational database with upstream ownership and affiliate information no later than February 1, 2021. As of that same date, applicants for market-based rate authority will be required to submit upstream ownership and affiliate information into the relational database in addition to describing them in the narrative of their applications. FERC intends to update its website with additional information about the database as it takes shape.

Each applicant and market-based rate seller will use a unique FERC-issued number when submitting information to the database about its energy assets. Sellers must provide to FERC the same information about their assets as they provide to the Energy Information Administration, including plant codes, generator IDs and unit codes (if applicable). In addition, sellers must report information relating to any long-term firm sales of energy, capacity and ancillary services, and the relevant wholesale markets in which the seller transacts or intends to transact. Submissions to the database also must identify any transmission facilities operated pursuant to a tariff on file with FERC and any natural gas pipeline or gas storage facilities. Finally, a seller must identify energy assets owned by affiliates without market-based rate authority—e.g. generation or transmission assets and long-term PPAs. However, FERC did not change its policy to exclude reporting of assets exempt from regulation under the Federal Power Act, such as exempt “qualifying facilities” and behind-the-meter facilities.

Similarly, a seller must identify its ultimate upstream affiliates in the relational database using a unique company identifier issued by FERC. However, sellers will not be required to identify upstream affiliates that have a franchised service territory or market-based rate authority or that directly own or control generation, transmission, intrastate natural gas transportation, storage or distribution facilities, physical coal supply sources or ownership of or control over who may access transportation of coal supplies. Such affiliate information will be captured in the narrative of the seller’s filing. In addition, sellers must identify any passive upstream owners in the narrative of their market-based rate filings. However, effective October 1, 2020, FERC will no longer require a demonstration of passivity, relying instead on affirmations in the seller’s filing that the ownership interests consist solely of passive rights that are necessary to protect the passive investors’ or owners’ investments and do not confer control over the seller or its assets.

By tracking sellers, their assets and their ultimate upstream affiliates with unique company identifiers, the FERC database will be able to automatically identify each of a seller’s affiliates. Before making a market-based rate filing, a seller will be required to report information about its assets and upstream ownership to the relational database, which will then automatically produce an asset appendix and indicative screens for that seller. When making its market-based rate filing, the seller will refer to serial numbers associated with the asset appendix and indicative screens generated by the database. A seller must reference its most recently created asset appendix, which must have been created by the database fewer than 15 days before the seller’s market-based rate filing. Sellers will be able to review their asset appendices and, if necessary, make a submission to FERC to make any corrections. However, this two-step process will require additional time and planning.

Ongoing Reporting Requirements

FERC will no longer require sellers to submit notices of changes in status within 30 days of a change from the information provided in its last market-based rate filing. Instead, on the 15th of each month, sellers must update the relational database to reflect any changes that occurred in the prior month. In addition, FERC will require sellers to submit notices of change in status on a quarterly basis, with such notices due at the end of the month following the end of the quarter in which the change occurred. For example, if an entity acquires the upstream ownership of a seller on May 5, that seller must, by June 15, update its profile in the relational database to identify its new ultimate upstream affiliate. The seller also must file a notice of change in status by July 30 that will describe the transaction, reference a newly generated asset appendix from the relational database, and include, if necessary, new indicative screens to demonstrate that the seller continues to lack horizontal and vertical market power.

Reliance on RTO/ISO Market Monitoring and Mitigation Measures

In addition to the new data collection requirements outlined above, FERC is eliminating the requirement for sellers to prepare indicative market screens if they sell into RTO or ISO markets. Effective September 24, 2019 and subject to the limitation described below, FERC will rely on market monitoring and mitigation measures to ensure that a seller within an RTO or ISO market does not exercise horizontal or vertical market power. Such measures are subject to FERC review, and so FERC is not abandoning its oversight of market power within organized markets. In addition, FERC will continue to collect information from updates to the relational database, electric quarterly reports and notices of change in status.

For any sales of capacity into the wholesale markets operated by the California Independent System Operator (CAISO) or Southwest Power Pool (SPP), FERC will continue to require sellers to submit indicative screens. This is because neither CAISO nor SPP operates a capacity market pursuant to its tariff. Instead, generation owners offer capacity to utilities within CAISO and SPP on a bilateral basis to satisfy the buyer’s resource adequacy requirements. As a result, there is no transparent market price for sales of capacity in these markets. However, in Order No. 861, FERC indicated it would reevaluate the need for indicative screens for sales of capacity in CAISO and SPP if they developed ISO-administered capacity markets subject to FERC-approved market monitoring and mitigation measures.


Taken together, FERC’s market-based rate policy reforms likely will streamline market-based rate applications and related compliance filings. However, implementation of the relational database and the new data collection requirements will require sellers with market-based rate authority to reevaluate their compliance programs. Notably, market-based rate sellers will need to prepare baseline filings to the relational database by February 1, 2021, a task that could result in a significant initial burden for owners with a portfolio of subsidiaries with market-based rate authority.

A copy of Order No. 860 can be found by clicking here.

A copy of Order No. 861 can be found by clicking here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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