FERC Imposes New Constraints On Utility Procurement

Fri Oct 01 16:24:38 EDT 2004
By Kurt Strunk et al.

In February and July 2004, the Federal Regulatory Energy Commission (FERC) issued decisions on a number of affiliate transactions. FERC is expanding the scope of its review and subjecting all future ones to the standard set by Edgar (55 FERC ¶ 61,382, Order Noting and Granting Interventions, and Rejecting Rates without Prejudice. FERC Docket No. ER91-243-000: June 7, 1991). Business is not as usual. Utilities that wish to enter into power purchase contracts with affiliates or wish to buy assets from them face brand new constraints. These constraints require utilities to rethink their procurement processes and to consider open competitive solicitations that level the playing field for affiliates and non-affiliates and squarely meet the Edgar standard.

FERC's goal is to expand the role of competitive markets, foreclosing neither existing merchant generators, new entrants or non-affiliated suppliers. In the Commissioners' words, "[t]he public interest requires policies that do not harm the development of vibrant, fully competitive generation markets." FERC is prodding utilities with supply resource needs to rely on market-based mechanisms for procurement, and is discouraging them from direct awarding of contracts to affiliates. FERC has pledged to undertake a thorough review of all future affiliate transactions to assure that independent suppliers are not denied equal competitive opportunities. It has, however, pointed out one sure way to achieve fast-track review and approval of an affiliate transaction: the transaction in question must be the result of an open and transparent competitive solicitation process conducted by an independent third party.

This October 2004 article from The Electricity Journal reviews FERC's new affiliate policy and presents a case study illustrating how to design a competitive solicitation to meet the Edgar standard.