USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Elisa Rivas, Buchalter
2.4 Market Concentration Limits While there are no explicit percentage-based market share concentration limits in California, certain mechanisms are in place to address market concentration and prevent a single enti- ty from exerting undue control over California’s electricity supply. Principal Laws Governing Market Concentration FPA This law is implemented by FERC, an independ- ent federal agency whose mandate is to ensure that wholesale electricity rates are “just and rea- sonable” and not unduly discriminatory or pref- erential. This mandate includes preventing the exercise of undue market power CAISO’s “Market Power Mitigation Procedures” These procedures are found under CAISO’s Tar- iff Section 39, which is approved by and subject to the oversight of FERC under the FPA. The Tariff is intended to address potential market power abuse through certain mitigation meas- ures administered by CAISO’s Department of Market Monitoring (DMM). These measures aim to correct for conduct that could disturb com- petitive outcomes while minimising interference with market-driven price signals. Although the oversight of market concentration in California’s wholesale electricity market gen- erally falls under FERC’s jurisdiction, the CPUC also plays a role in mitigating market concentra- tion by regulating the IOUs’ procurement prac- tices and retail rates.
cost-of-service rates) must apply to FERC for “market-based rate authority”. To obtain and maintain this authority, the entity must demon - strate that it (and its affiliates) do not possess or have adequately mitigated horizontal mar- ket power (control over generation in a specific market) or vertical market power (control over essential inputs such as transmission). If FERC finds that an entity abused its market power, or no longer meets the criteria for its mar- ket-based rate authority, it can revoke this des- ignation, forcing the entity to sell at cost-based rates. FERC can also order the disgorgement of unjust profits, impose civil penalties or mandate other remedies. CAISO monitoring CAISO’s DMM is responsible for continuously monitoring the electricity market to identify conduct that could indicate an abuse of market power, such as bidding strategies that artificially inflate prices or physical withholding of genera- tion capacity. CAISO’s Market Power Mitigation Procedures provide for automated mechanisms that can cap bids from suppliers identified as potentially exercising market power under cer- tain conditions. The DMM can report suspected market power concerns to CAISO and FERC. 2.5 Surveillance to Detect Anti- Competitive Behaviour The CAISO DMM’s primary role is to conduct continuous surveillance of the wholesale elec- tricity market and scrutinise the market for signs of market design flaws, inefficiencies, anti-com- petitive behaviour or manipulation. The DMM reports its findings to CAISO and FERC, and can trigger certain automated market power-mitiga- tion measures established under Tariff Section 39, but it does not have independent enforce- ment authority. Rather, under the FPA, FERC has
Enforcement and Consequences FERC’s market-based rate authority
Entities wishing to sell electricity at prices deter- mined by the market (rather than traditional
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