By Robert Mullin
FERC last week revoked authorization for Berkshire Hathaway Energy subsidiaries to sell wholesale power at market-based rates in four neighboring balancing authority areas in the West.
The commission ruled that Berkshire failed to prove that its affiliates — which include PacifiCorp, NV Energy and 19 other generating entities — do not exercise horizontal market power in the PacifiCorp East (PACE), PacifiCorp West (PACW), Idaho Power and NorthWestern Energy areas (ER10-2475, et al.).
“In the absence of reliable delivered price test (DPT) analyses rebutting the presumption of market power, we find that the continuation of the Berkshire [subsidiaries’] market-based rate authority in these four balancing authority areas is not just and reasonable,” the commission said.
FERC ordered the companies to file revised tariffs limiting their market-based sales to regions outside the four areas within 30 days. The companies must also issue refunds for the period between January 9, 2015, and April 9, 2016.
The decision left intact Berkshire market-based rate authority in the Arizona Public Service, Bonneville Power Administration, Los Angeles Department of Water and Power, Western Area Power Administration Colorado-Missouri and WAPA Lower Colorado balancing authority areas, as well as in CAISO.
Berkshire companies are already prohibited from selling power at market-based rates in the NV Energy area covering most of Nevada.
FERC’s ruling marks the second such setback for Berkshire in less than a month. In May, the commission declined to rehear a 2015 decision that prohibits PacifiCorp and NV Energy from offering energy into the Western Energy Imbalance Market (EIM) at prices above default energy bids because of concerns about the companies’ combined market power. (See Berkshire Denied Rehearing on EIM Market Power.)
The June 9 order stems from Berkshire’s 2013 acquisition of NV Energy, which put Warren Buffett’s energy conglomerate in control of more than 19 GW of generation serving states throughout the western U.S. In light of the acquisition, the commission instituted a Section 206 proceeding requiring the Berkshire companies to submit evidence that their market-based rate authority remained valid in the four areas in question.
While the Berkshire companies failed the indicative “pivotal supplier” and “wholesale market power” screens for initially assessing horizontal market power in the four areas, FERC policy allows a power supplier to rebut that presumption by performing a more thorough DPT analysis. The DPT factors in native load commitments to determine a supplier’s “available economic capacity” — energy available for offer in the open market — over 10 different seasons and load conditions. The analysis must also consider the load commitments for and available supply from other generators in the region.
FERC’s decision to revoke Berkshire’s market-based rate authority ultimately rested on what the commission called a “flawed” DPT analysis from the company. The commission focused in particular on Berkshire’s failure to calculate unique season and load levels for each of the four areas, instead relying on assumptions based on data for only the PACE area.
One example cited by the commission: “In the Idaho Power balancing authority area, Idaho Power would likely not be a competing supplier in certain season/load levels in the [available economic capacity] analysis, even though it is listed as having the most competing capacity in many of the season/load levels.
“The Berkshire [companies] are attempting to demonstrate that they do not have market power in four different balancing authority areas,” the commission continued. “In order to do so, the DPT analyses submitted by the Berkshire [companies] should have used inputs, assumptions and facts appropriate to the unique characteristics of each balancing authority area when studying that particular area.”
As a result of the decision, the Berkshire companies must each submit tariff revisions providing for default cost-based rates for the PACE, PACW, Idaho Power and NorthWestern areas — or inform the commission of their intention to use any cost-based tariff currently on file.
PacifiCorp — the largest Berkshire entity affected by the ruling — told RTO Insider that it continues to review the order but expects “limited impact” because of the small number of transactions involved.
“The bulk of PacifiCorp’s wholesale sales occur at trading hubs that are outside the areas affected by the order, or within the Energy Imbalance Market, which is also not impacted by the order,” spokesman Bob Gravely said.
Asked whether the ruling would strengthen the case for PacifiCorp to join CAISO in an effort to reduce market power concerns, Gravely said, “This ruling shouldn’t impact one way or the other the decision to join a regional ISO. Issues such as governance and ensuring overall net benefits for customers are what will ultimately drive that decision.”