MEMORANDUM

TO: Regulatory Affairs Committee
       Power Marketers Working Group

FROM: Jim Steffes, Regulatory Affairs Committee Chair
            Bob Reilley, Power Marketers Working Group Chair
            Julie Simon, Vice President of Policy
            Erin Perrigo, Manager of Policy

DATE: October 19, 2001

RE: EPSA Leave-Behind on Market-Based Rate Authority
      ?Conference Call on Friday, October 26th at 11:00 a.m. 
      (EDT)

On September 14th, EPSA held a meeting at our office to discuss possible changes in the Commission's approach to granting market-based rate authority.  On October 2nd, the Commission staff released a white paper on market-based rate issues.  The Commission has also discussed the issue at recent meetings, but it was struck from the last Commission agenda and is not listed on the agenda for the October 24th Commission meeting.  

Based on our conversations, attached is a draft leave-behind addressing market-based rate authorization and FERC's recently released staff report outlining several alternatives to the currently used hub-and-spoke method.  The draft puts the issue of market-based rate authority into the bigger context of both the Commission's goals of creating workably competitive markets and the array of tools available to deal with market power abuses.  We criticize the proposed supply margin assessment approach, but are less clear on what alternative we would prefer if hub-and-spoke is no longer viable.

We have scheduled a conference call on Friday, October 26th at 11:00 a.m. (EDT) to discuss the draft leave-behind and our strategy for moving forward on this issue.  We have to very clear on what message we want to leave with the Commissioners and FERC staff.  Are we recommending a less rigorous test for market-based rate authority with market mitigation and intervention after the fact?  Under what circumstances is market mitigation appropriate and how should it be done?  If the hub-and-spoke methodology is flawed, is it worth leaving it in place to get maximum market entry?  Are there alternative tests that better meet the Commission (and our) goals?

If you have any questions or comments before the call, please contact Erin Perrigo at 202-628-8200 or eperrigo@epsa.org.  

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