By Robert Mullin

Tucson Electric Power could become the latest Western utility to lose its authorization to sell electricity at market-based rates within its own balancing authority area (BAA).

FERC last week said it will commence a Section 206 proceeding to determine whether the Arizona utility’s market-based rate authority (MBRA) remains “just and reasonable” within its service territory in the southwestern corner of the state.

The commission’s review was triggered when the utility failed a key market test designed to demonstrate whether an electricity seller wields too much market power within a specific geographical area (ER10-2564, et al.).

Tucson Electric, along with its parent company UNS Energy, are now faced with making the case for why the commission should not revoke its MBRA. Absent that, the utility could provide a proposal to mitigate its market power. It could also adopt FERC’s cost-based rates — or propose other acceptable cost-based rates.

The order comes less than a month after Tucson Electric filed a “change in status” notice indicating that the utility passed FERC’s “pivotal supplier” and “wholesale market share” screens for so-called “first-tier,” or neighboring, balancing areas but failed the market share screen covering its own territory.

While the commission acknowledged the delivered price test (DPT) analysis submitted by Tucson Electric to rebut the presumption of market power stemming from the failed screen, it also said the utility should not expect it to postpone instituting the proceeding — which establishes a refund date for utility customers — while it examines supplemental information.

The DPT factors in native load commitments to capture a detailed picture of an electricity supplier’s “available economic capacity” — energy available for offer in the open market — over multiple seasons and load conditions. The analysis must also consider the load commitments for, and available supply from, other generators in the region.

“In addition to the previously filed delivered price test, sellers may present alternative evidence such as historical sales and transmission data to rebut the presumption that they have the ability to exercise horizontal market power in the Tucson Electric balancing authority area,” the commission wrote.

If Tucson Electric does lose its MBRA within its balancing area, it won’t be the first major Western utility to see FERC restrict its selling power in some way this year.

In a sweeping June order impacting NV Energy and PacifiCorp, the commission revoked MBRA for Berkshire Hathaway Energy subsidiaries in four neighboring BAAs in the West. (See Berkshire Market-Based Rates Restricted in 4 Western BAAs.)

Closer to home, an August FERC ruling conditioned Arizona Public Service’s EIM membership on a requirement that each of the utility’s generating units offer into the market at or below default energy bids (ER10-2437). The commission rejected the argument that CAISO’s own mitigation measures would be sufficient to keep the utility in check. FERC noted that APS did not even attempt to file indicative screens or a DPT to rebut the presumption that it exercised market power within its own portion of the EIM.

Tucson Electric is also exploring the possibility of joining the EIM. The utility plans to release a study outlining the potential benefits of market membership later this month.

Arizona is coming off a contentious political campaign in which APS spent more than $4 million to elect three of the utility’s favored candidates to the Corporation Commission. All five members of the commission are now Republicans, including incumbent Bob Burns, who earned APS’s financial support despite the fact that the utility is suing to prevent him from subpoenaing records of the company’s political contributions.

“I think [the high spending] just puts a bad taste in the public’s mouth,” Burns told public radio station KJZZ, noting that he could do nothing to prevent the spending in support of his election because of federal election laws.

In an additional twist, Burns benefited from campaign spending by a coalition of solar companies that also heavily backed Democratic candidates Bill Mundell and Tom Chabin. The coalition, which includes Solar City, was attempting to counter what it considers to be a regulatory bias that favors APS in disputes with supporters of rooftop solar.