posted on Tuesday, August 02, 2005 8:54 PM by Andrea Robinson

Entergy Will Not Renew Market-Based Rate Authority

Entergy Services has notified FERC that it no longer seeks market pricing authority for its wholesale sales of power, and will instead charge cost-based rates for power sales in its home territory.  The move leaves Southern Company, of the three utilities originally cited by FERC for market power concerns in 2001, as the only utility still seeking to maintain its market-based rate authority.

Entergy’s decision to abandon its market-based rate application concludes a protracted dispute that began in 2001, when FERC abandoned its “hub-and-spoke” test for market power and instituted the “supply margin assessment” (SMA) screen on an interim basis.  FERC found that Entergy, along with AEP and Southern Company, failed the SMA screen.  Facing strong opposition to the new interim screen, FERC postponed implementation of SMA, and then abandoned the screen altogether in 2004.  In its place, FERC implemented two interim market power screens, to remain in effect until a broader rulemaking could implement a permanent test.  Applying these interim screens to Entergy, FERC found that the company once was unable to demonstrate that it did not possess  market power in generation.  Faced with the choice of performing a delivered-price test (DPT) to rebut this finding, or agreeing to the default solution of selling power at cost-based rates, Entergy initially chose to submit a DPT.  Entergy has now changed course and opted to join AEP and Duke Energy in agreeing to forego market pricing and engage only in cost-based sales within its own service territory.

The company emphasizes that its decision does not constitute an admission of market power.  Rather, faced with the mounting costs of a long battle with FERC over this issue, Entergy made its decision based on economic considerations.  The switch, combined with the decisions of AEP and Duke Energy to revert to cost-based rates, suggests that FERC's penalty for a finding of market power may not have as much bite as was intended, as utilities are finding that reverting to cost-based sales does not harm their bottom line in the current electric power market.  [Docket Nos. ER91-569, EL04-123] [UPDATE]