D R A F T June 25, 1999 (1:45 p.m.)
TO BE FILED 6/28/99
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
______
)
Southern Company Services, Inc. ) Docket No. ER96-2573-001
Coral Power, L.L.C. ) No. ER96-25-000
Electric Clearinghouse, Inc. ) No. ER94-968-000
Merchant Energy Group of ) No. ER98-1055-000
the Americas )
Statoil Energy Services, Inc. ) No. ER97-4381-000
______)
MOTION TO INTERVENE AND
APPLICATION FOR REHEARING OF THE
COALITION FOR A COMPETITIVE ELECTRICITY MARKET
& THE NATIONAL ENERGY MARKETERS ASSOCIATION
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
Pursuant to 16 U.S.C. §825l (1994) and 18 C.F.R. §§385.214 and 385.713 (1998), the Coalition for a Competitive Electricity Market ("CCEM")[1] and each of its members individually, and the National Energy Marketers Association ("NEMA")[2] on behalf of its members, (jointly referred to herein as "Petitioners"), hereby move to intervene (to the extent intervention has not already been granted) in the above-captioned dockets and apply to the Commission for rehearing of the Commission's May 27, 1999, Order in the above-referenced proceeding, Southern Company Services, Inc., 87 F.E.R.C. ¶ 61,214 (1999) (hereinafter "May 27 Order"). Rehearing of the May 27 Order should be granted because it makes an indefensible increase in the regulatory burden borne by the most competitive sector of the power industry.
In support of rehearing, CCEM and NEMA endorse and incorporate by reference the concurrently filed Request for Rehearing of PG&E Energy Trading, et al., and supporting Affidavit of Howard Pifer, and state:
I.
COMMUNICATION & CORRESPONDENCE
Communications and correspondence regarding this proceeding should be directed to:
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
For Intervenors:
Jeffrey D. Watkiss
Ronald N. Carroll
Bracewell & Patterson, L.L.P.
2000 K Street, N.W., Suite 500
Washington, D.C. 20006-1872
(202) 828-5800
(202) 223-1225 (fax)
For Coral Power, L.L.C.:
Robert Reilley
Vice President, Regulatory Affairs
Coral Power, L.L.C.
909 Fannin, Suite 700
Houston, TX 77010
(713) 767-5632
(713) 767-5699 (fax)
For Electric Clearinghouse, Inc.:
Daniel A. King, Esq.
Electric Clearinghouse, Inc.
805 15th Street, N.W. - Suite 510-A
Washington, D.C. 20005-2207
(202) 842-9180
(202) 429-8805 (fax)
For Electric Clearinghouse, Inc.
Kathryn L. Patton, Esq.
Electric Clearinghouse, Inc.
1000 Louisiana
Suite 5800
Houston, TX 77002-5050
(713) 507-3761
(713) 507-6834 (fax)
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
For Merchant Energy Group
of the Americas:
Joseph Limone
Merchant Energy Group of
the Americas (MEGA)
151 West Street, Suite 320
Annapolis, MD 21401
410-295-1700
410-295-1705 (fax)
For National Energy Marketers Association:
Craig G. Goodman, Esq.
President
National Energy Marketers Association
3333 K Street, NW - Suite 425
Washington, DC 20007
Tel: (202) 333-3288
Fax: (202) 333-3266
email:
website: www.energymarketers.com
For Statoil Energy, Inc.:
Mary Beth Tighe
Statoil Energy, Inc.
2800 Eisenhower Avenue
Suite 300
Alexandria, Virginia 22314
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
INTERVENORS
CCEM is an ad hoc coalition of power marketers, each of whom seeks to expand competitive electricity markets and power marketing opportunities throughout North America. Each CCEM member is authorized to sell wholesale electric energy at market-based prices pursuant to rate schedules on file with the Federal Energy Regulatory Commission. Each CCEM member currently enjoys a waiver of the requirement of Part 35 of the Commission’s regulations that would otherwise require that they file with the Commission electric energy service agreements to which they are a party. Pursuant to the May 27 Order, each CCEM member would prospectively lose that waiver.
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
NEMA is a national, non-profit trade association representing a regionally diverse cross-section of both wholesale and retail marketers of natural gas and electricity. NEMA also represents producers, generators, transporters, and marketers of energy-related information, services and technology throughout the United States.
Affiliated and independent marketers have come together under the NEMA auspices to forge consensus and to help eliminate as many issues as possible that would otherwise delay competition. NEMA is committed to working with regulators and all the other stakeholders to devise fair and effective ways to implement the competitive restructuring of natural gas and electricity markets.
BACKGROUND
In the May 27 Order, the Commission responded to a request for rehearing submitted by Southern Co. Services, Inc. ("Southern") in response to a letter order issued on September 26, 1996. That letter order denied confidential treatment of the rate schedule portion of a service agreement filed by Southern as an agent for Georgia Power Company. Southern Co. Services, Inc., 76 F.E.R.C. ¶ 61,321 (1996).
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
As part of its request for rehearing, Southern asked the Commission to cease requiring traditional investor-owned utilities, such as Southern's operating companies, to file long-term (i.e., longer-than-one-year) service agreements and instead require only that they report such agreements in quarterly summaries as they are currently allowed to report short-term service agreements. Pointing to the waiver that permits power marketers to report all service agreements in quarterly summary reports, Southern recommended that the Commission "level the playing field" by replacing all service agreement filing requirements with quarterly filings of transaction summaries. The Commission denied Southern's request. However, responding to Southern's request that it "level the playing field," the Commission decided prospectively to revoke, in part, the waiver from the filing requirements of Part 35 that power marketers have been granted, and ordered that they file all of their new long-term service agreements within 30 days of the commencement of service. Both power marketers and traditional utilities would retain their waivers with respect to short-term service agreements, which would require only quarterly reporting in summary form.
The Commission thus chose to increase, rather than decrease, the reporting burden on long-term transactions, reasoning that long-term service, unlike short-term transactions, is "almost always the subject of separate written agreements and do not normally involve the same time-sensitive pressures as short-term competitive markets." 87 F.E.R.C. at 61,848. Moreover, the Commission stated that it saw "no reason to continue allowing power marketers a more relaxed reporting requirement for long-term transactions than that applicable to traditional utilities," id., implying that the two categories of public utilities are similarly situated with respect to reporting their transactions.[3]
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
In a concurring opinion, Commissioner Bailey agreed with the decision to equalize the reporting requirements for both marketers and traditional utilities; however, she opined that it made more sense to do so by relieving traditional utilities of the burden of filing long-term service agreements rather than by rescinding the filing waiver provided to power marketers. Commissioner Bailey questioned how the filing of actual service agreements rather than summary quarterly reports "will materially help the Commission in its monitoring of competitive markets and in its responsibility to ensure that all wholesale power rates are just and reasonable." Id. at 61,850 (Bailey, concurring). Commissioner Bailey also questioned the propriety of implementing a generic change in reporting requirements in the context of Southern's "single request for rehearing filed almost three years ago," and suggested that "it may be useful to consider this issue in a more global context." Id.
INTERVENTION
As marketers of electric power and related services, the interests of CCEM members are directly compromised by the May 27 Order. That Order recognizes this interest by making all of the companies listed in the Order's caption parties to this proceeding. Each CCEM member is listed in that caption. Each member of CCEM reserves its right to participate individually in this proceeding.
The May 27 Order also provided that any power marketer with market-based rate authorization not listed in the caption (or its customers) may also file a late motion to intervene and request for rehearing of the order. As a trade association representing numerous such marketers, NEMA therefore moves to intervene in these proceedings.[4] The interests of NEMA on behalf of its members cannot be adequately represented by any other party.
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
SPECIFICATION OF ERROR
CCEM AND NEMA specify the following errors of law committed in the May 27 Order:
t The Commission's decision to rescind prospectively the waiver enjoyed by power marketers from Part 35 filing requirements for long-term service agreements was based on false and unsupported assumptions and is not the product of reasoned decisionmaking.
t The Commission's decision to equalize all public utility filing requirements under Part 35 by increasing the filing burden of power marketers rather than decreasing the filing burden of traditional utilities is not reasoned decisionmaking.
t The Commission's decision in a case specific adjudication to implement a generic change to its longstanding practice of waiving power marketers' obligations to file long-term service agreements, was arbitrary, capricious, an abuse of discretion, and not supported by substantial evidence.
ARGUMENT
I. RECISION OF THE POWER MARKETER FILING WAIVER IS NOT REASONED DECISIONMAKING BECAUSE IT IS BASED ON FALSE ASSUMPTIONS
A. Filing Service Agreements Can Be Justified for Traditional Utilities but not for Power Marketers
The Commission's justification that market participants should be placed "on a level playing field" assumes that traditional utilities and power marketers are similarly situated with respect to the filing requirements of Part 35. In fact, they are not. Traditional utilities enjoy privileges and are subject to obligations not shared by power marketers.
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
First, traditional utilities still enjoy significant market power in their ownership of and control over the transmission grid. As a result of the Commission's decision in Order No. 888 to exempt all service to captive load customers from the open-access rules of the pro forma transmission tariff and the open-access same-time information system, only a small fraction of commerce on the transmission grid today is on a level playing field. Traditional utilities still remain largely free to discriminate in favor of their own uses of their transmission systems. This is shown by the recent proposed rulemaking on regional transmission groups, where the Commission repeatedly recognized the incentive and ability of traditional utilities to use their transmission systems to confer competitive advantages on their own generation and merchant activities. Regional Transmission Organizations, Notice of Proposed Rulemaking, FERC Docket No. RM99-2-000, mimeo. at 60-63 (1999).
Repeatedly, the Commission has explained that the purpose of the Federal Power Act's ("FPA's") filing requirements, as implemented in Part 35, is to ensure compliance with the FPA, including its nondiscrimination requirements, and to monitor the reasonableness of rates and the exercise of market power. E.g., LG&E Power Marketing, Inc., 68 F.E.R.C. ¶ 61,247 at 62,124 (1994); Heartland Energy Services, Inc., 68 F.E.R.C. ¶ 61,223 at 62,065-66 (1994). From the perspective of these purposes, however, a traditional transmission-owning utility, with an incentive and ability to use its transmission system to favor its own generation and merchant activities, does not play on the same field (level or not) on which that power marketers operate. To assume that they are similarly situated, as the May 27 Order does, is simply wrong.
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
Second, in exchange for being given a monopoly franchise that includes the right to condemn private property, traditional utilities undertake an obligation to provide certain basic utility services pursuant to both state and federal tariffs in a nondiscriminatory fashion. In stark contrast, power marketers enjoy no such franchise and consequently have no parallel obligation to provide a basic utility service. Rather, marketers are permitted to transact opportunistically in the wholesale market with large and sophisticated counter parties, subject only to contractual obligations. While monitoring and policing traditional utilities' obligation to serve without discrimination may justify requiring them to file their long-term service agreements, there is no similar justification with respect to power marketers whose obligations are implemented and enforced by contracts alone.
B. Confidentiality, not Publication, of Long-Term Transactions Promotes Market Efficiency
CCEM and NEMA Application for Rehearing
Docket No. ER96-2573-001, et al. Page 19
The Commission's second erroneous assumption is that regulatory publication of long-term agreements will somehow promote market efficiency. This is not correct. In fact, filing the service agreements will have just the opposite effect because it will diminish efficiency as market participants become less willing to invest significant time and resources in tailoring value-added provisions to service agreements that meet the long-term needs and risk profiles of the parties. The parties will be reluctant to go to this trouble when the terms of their service agreement will be made public during the term of the agreement, not only surrendering that value added away for no compensation, but also surrendering to the market the details of how the parties have allocated risk between them. Once the parties' risk allocation is known to the market, the parties will lose much of their bargaining position in relation to other counter parties. The Commission's failure to appreciate this ineluctable market response is both unsustainable and harmful to the industry.[5]
Requiring marketers to publicize their long-term service agreements in fact threatens precisely the harm that the Commission unfortunately chose to ignore in its recent decision in AES Huntington Beach, 87 F.E.R.C. ¶ 61,221 (1999), in which the Commission denied AES Companies' request for confidential treatment of its tolling agreement with the Williams Energy Service Company ("Williams"). A tolling agreement is a good example of the value-added provisions of a long-term service agreement that meet needs and allocate risks in ways that are highly idiosyncratic and proprietary, disclosure of which could cause serious competitive harm. Although the specific terms vary widely, a tolling agreement essentially involves the delivery of a fuel (coal, fuel oil, natural gas) by one party to a generator in exchange for some or all of the generators output — i.e., the seller exchanges a fossil fuel for electric energy. This arrangement allocates the risk of a great number of uncertainties, including the expected price of the fossil fuel, financial risk of the investment (debt or equity) in the generator, the performance of the generating unit(s), and the future price of electric energy. If the market learns through regulatory publication which party to the tolling agreement has undertaken which of these elements of risk, then everyone in the market selling the inputs to or buying the outputs of the tolling agreement will know the bottom line of the parties to the tolling agreement, significantly skewing all future bargaining relationships.