Deadlock Strikes the Federal Energy Regulatory Commission

The perils of having only four members in a five-member regulatory agency were on display this week at the Federal Energy Regulatory Commission. The commission deadlocked 2-2 over whether to consider a complaint from activists claiming that the owner of the 1,530-MW coal-fired Brayton Point generating station near Boston manipulated an ISO-New England forward capacity auction by exercising market power. As a result, FERC did not issue a ruling on the complaint, a rare action by the power regulator. The resulting rate goes into effect by law.

The deadlock prompted a flurry of statements from the four sitting commissioners, including a joint statement by Tony Clark and newly-seated Norman Bay saying they saw evidence of the abuse of market power, a separate statement by Philip Moeller denying any taint of market manipulation, and a five-page, copiously footnoted exegesis by Chairman Cheryl LaFleur that wandered over the regulatory landscape before concluding that she would have approved the results of the ISO-NE auction had FERC been able to take up the case.

The consumer group Public Citizen last April filed a complaint at FERC. They charged that Energy Capital Markets, a private equity firm that owns Brayton Point and plans to close it in 2017, along with owning other generators in the region, used the closure to push up prices in the auction for 2017 capacity. Public Citizen said the result was an extra $74 million in the company’s pockets by artificially hiking auction prices for its non-Brayton Point units.

In their joint statement, Bay and Clark wrote, “Here, there is evidence suggesting the exercise of market power, and it is uncontroverted that the market power, if it existed, was not mitigated. In the words of ISO-NE, prices resulted from a ‘non-competitive auction.’ To the extent any portion of those prices was attributable to an exercise of market power, the auction will have imposed unwarranted costs upon consumers. Moreover, it is possible that ISO-NE may have violated its Tariff in the way it conducted the auction. On this record, we do not believe that ISO-NE has carried its burden of establishing that the auction results are just and reasonable. As a result, we would set this matter for a fast-track hearing and settlement procedures.”

Moeller noted, “While a tariff filing rarely takes effect without an order by the Commission, such a result will happen when a four-member panel finds itself deadlocked.” He added, “Higher prices obviously merit more scrutiny from this Commission, and I have reviewed these prices more extensively than any prior auction. While markets do not always result in a low price, they will establish the best price to enable a matching of supply and demand. Accordingly, if I had the opportunity to vote on an order in this proceeding, I would have voted to find that the auction resulted in just and reasonable rates.”

LaFleur said that “after consideration of the requirements of the Federal Power Act, court and Commission precedent, and the factual record, I would have voted to certify the outcome of [forward capacity auction 8] as just and reasonable. I believe that the resulting rates, which send clear signals that additional capacity is needed in New England, are both lawful and necessary to ensure reliability.”

Public Citizen says it will ask for a rehearing and may take the matter to federal court.

FERC may find itself working with a four-member commission for some time. The nomination of Arkansas utility regulatory Colette Honorable is on hold, following the unexpected death of her husband in Little Rock September 7. It now looks like the Senate Energy and Natural Resources Committee won’t be able to hold a confirmation hearing until after the November election.