By Robert Mullin
FERC last week denied a request by NV Energy and PacifiCorp to rehear a previous decision that prohibits the two companies’ generating units from offering energy into the Western Energy Imbalance Market (EIM) at prices above default energy bids because of market power concerns.
Both companies are subsidiaries of Warren Buffet’s Berkshire Hathaway Energy — and currently the only major participants in the CAISO-run EIM outside of California.
The commission’s May 19 ruling also provided a key clarification: The companies’ future EIM market power studies must provide analysis of potential power in EIM submarkets stemming from transmission constraints — not just the market as a whole (ER15-2281-001, ER15-2282-002, ER15-2283-001).
That condition will apply to any new EIM participants as well, FERC said.
At issue in last week’s ruling was a November 2015 order that found the companies had provided a “deficient” market analysis that failed to disprove their horizontal market power in the EIM. The order also questioned CAISO’s ability to mitigate such power outside the ISO’s own balancing area.
“This is problematic because all of the EIM-participating generation in the NV Energy and PacifiCorp-East balancing authority areas is owned by the Berkshire EIM sellers,” the commission wrote in that order. “Therefore, when the interconnections between CAISO and the NV Energy balancing authority area are constrained, customers in the NV Energy and PacifiCorp-East balancing authority areas must take service from a Berkshire EIM seller for imbalance energy.”
FERC’s solution: to cap the companies’ imbalance energy offers at default bids and require that they facilitate CAISO’s enforcement of all internal transmission constraints throughout the NV Energy and PacifiCorp balancing areas — effectively bringing the ISO’s local market power mitigation measures into those territories.
While the companies did not oppose the first condition, they contested the second, arguing that the commission had veered from precedent by imposing bidding restrictions rather than relying on CAISO’s mitigation to address market power concerns.
In their rehearing request, the companies pointed out that generator participation in the EIM is voluntary — a fact recognized by FERC. They also argued that market power in imbalance energy did not present the same concerns as concentration in energy or capacity markets.
FERC shot down both arguments in its denial.
“The sufficiency of commission-approved market monitoring and mitigation to address market power concerns has never been invulnerable to challenge,” the commission wrote, noting FERC precedent of allowing intervenors to challenge the efficacy of an RTO’s monitoring regime.
The commission also reiterated its concern that the EIM could be subject to physical withholding precisely because it was developed and approved as a voluntary market.
“That concern is not to be overlooked simply because imbalance energy is a small part of an EIM entity’s reliability and load serving obligations,” the commission said.
The commission was also unconvinced by the companies’ contention that they have little incentive to manipulate a market in which they are among the largest buyers.
“The ability to exercise market power provides adequate justification to impose mitigation,” the commission said.
