• APPA Wants FERC to Consider Generator Profits in Performance Metrics
  • March 9, 2010 | Authors: Amie V. Colby; Kevin C. Fitzgerald; Peter S. Glaser; John Robert Varholy
  • Law Firms: Troutman Sanders LLP - Washington Office; Troutman Sanders LLP - London Office
  • On February 19, 2010, the American Public Power Association, Electric Consumers Resource Council, National Consumer Law Center, PJM Industrial Customer Coalition, Portland Cement Association, and Public Citizen sent a letter to FERC asking that generator profits be included in performance metrics for Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”). On February 3, 2010, FERC issued a Notice Requesting Comments on proposed performance metrics for RTOs and ISOs to use when they submit annual reports to FERC (see February 12, 2010 edition of the WER).  FERC is developing these performance metrics in response to the Government Accountability Office recommendation that such metrics be created.  On February 4, 2010, Chairman Wellinghoff commented at a related Technical Conference that generator costs and profits do not serve as good indicators of an RTO’s performance.  Wellinghoff said he would not advocate using generator profits as an RTO metric, unless he was somehow compellingly convinced to do otherwise.

    The group of organizations stated in their joint letter to FERC that it is necessary to measure the revenues and production costs of generators selling electricity into regional markets in order to meaningfully evaluate whether RTOs have been good for consumers, how RTOs have affected electricity prices, and whether RTOs have produced the benefits originally predicted by the Commission.  Moreover, the letter states that FERC is required by Sections 205 and 206 of the Federal Power Act to evaluate generator profits as part of its statutory mission to ensure that public utilities charge just and reasonable rates.  The letter noted that while FERC may adopt market-based rates, it must still ensure that rates are just and reasonable, which includes ensuring that consumers are not subjected to the exercise of market power.

    The letter stated that a generator-specific metric would enable FERC to determine whether prices generators obtain are close to their marginal costs and allowing only for a normal rate of return on investment.  If the generator-specific metric shows that RTOs do not manage prices and generators are making exorbitant profits, then that may indicate that consumers are not benefiting from RTOs.

    The original letter sent to FERC is available under Docket No. AD10-5 at www.ferc.gov.