USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Timothy Lee, Buchalter LLP
2.4 Market Concentration Limits While there are no explicit percentage-based market share concentration limits in California, certain mech- anisms are in place to address market concentration and prevent a single entity from exerting undue control over California’s electricity supply. Principal Laws Governing Market Concentration FPA This law is implemented by FERC, an independent federal agency whose mandate is to ensure that wholesale electricity rates are “just and reasonable” and not unduly discriminatory or preferential. This mandate includes preventing the exercise of undue market power. CAISO’s “Market Power Mitigation Procedures” These procedures are found under CAISO’s Tariff Sec- tion 39, which is approved by and subject to the over- sight of FERC under the FPA. The Tariff is intended to address potential market power abuse through certain mitigation measures administered by CAISO’s Depart- ment 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 generally falls under FERC’s jurisdiction, the CPUC also plays a role in mitigating market concentration by regulating the IOUs’ procurement practices and retail rates. Entities wishing to sell electricity at prices determined by the market (rather than traditional cost-of-service rates) must apply to FERC for “market-based rate authority”. To obtain and maintain this authority, the entity must demonstrate that it (and its affiliates) do not possess or have adequately mitigated horizontal market power (control over generation in a specific market) or vertical market power (control over essen- tial inputs such as transmission). If FERC finds that an entity abused its market power, or no longer meets the criteria for its market-based rate authority, it can revoke this designation, forcing Enforcement and Consequences FERC’s market-based rate authority
generation, especially during midday when solar out- put is abundant. Pricing for imports in the CAISO market is determined by competitive bids at the intertie scheduling points. The clearing price for imports contributes to the LMP, reflecting real-time supply, demand and transmission congestion at the relevant intertie. Exports are priced at the CAISO LMP at the relevant intertie. Exported energy may be delivered pursuant to bilateral arrange- ments or scheduled through regional markets such as the Western Imbalance Market and the Extended Day-Ahead Market (EDAM), in which prices and trans- fers are co-optimised across participating balancing authorities. 2.3 Supply Mix of Electricity California’s electricity supply includes in-state genera- tion and out-of-state imports. The CEC’s most recent comprehensive report shows that, in 2024, California’s total system electric gen- eration (all utility-scale, in-state generation plus net electricity imports) was 278,338 GWh. The supply mix of that generation was comprised of the following. • Natural gas: approximately 40%. • Renewable energy sources (excluding large hydro- electric) – approximately 39%, broken down as follows: (a) solar (utility-scale and rooftop) – approximately 23%; (b) wind – approximately 7%; and (c) geothermal, biomass and small hydroelectric – approximately 9%. • Large hydroelectric power: about 11%. • Nuclear power: approximately 9% (note that the majority of this supply was associated with Califor- nia’s single operating nuclear plant, Diablo Canyon Nuclear Power Plant (see 3.5 Decommissioning a Generation Facility )). • Coal: 1.12%. • Oil: 0.02%.
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