On February 20, 2020, FERC issued Order No. 861-A, granting certain clarifications about, and denying rehearing of, FERC’s sweeping market-based rate reforms in Order No. 861 (see July 24, 2019 edition of the WER). In Order No. 861-A, FERC held that sellers of capacity located in the California Independent System Operator Corporation (“CAISO”) market must continue to submit indicative screens in order to obtain authorization to make capacity sales at market-based rates. FERC also affirmed that capacity sellers located in CAISO may not rely on a rebuttable presumption that the Capacity Procurement Mechanism (“CPM”) adequately mitigates these sellers’ horizontal market power. FERC issued Order No. 861-A in response to requests for rehearing and clarification from CAISO and Pacific Gas & Electric Company (“PG&E”).

In Order No. 861, FERC rejected arguments that California’s Resource Adequacy Program coupled with the CAISO’s backstop CPM offer adequate safeguards against the exercise of horizontal market power in capacity sales. The Resource Adequacy Program is a bilateral market for procuring capacity overseen by the California Public Utilities Commission; the CPM is a competitive solicitation process, administered by CAISO, to procure additional capacity if load serving entities fail to meet resource adequacy requirements. The CPM includes a soft offer cap, above which bids must be verified as representative of the bidder’s costs.

In Order No. 861-A, FERC clarified that although the CPM soft offer cap represents an estimate of going forward costs plus a 20 percent adder, the cap does not provide mitigation comparable to the mitigation applied in Regional Transmission Organization/Independent System Operator (“RTO/ISO”) administered capacity markets. FERC stated its continued belief that CAISO lacks a transparent market price for capacity because the vast majority of capacity sales in California are bilateral sales, which the CAISO does not review, approve, or monitor. FERC also denied as outside the scope of its rulemaking requests from PG&E to: 1) order modifications to the CPM in order for it to provide mitigation of horizontal capacity market power comparable to RTOs/ISOs, and 2) hold a technical conference to determine how to adapt market power screens for different capacity products.

Order No. 861-A is available here.