Also known as: market based rates · market-based rate · market rates
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
Rates for wholesale power or utility services established through negotiation between buyers and sellers rather than through a regulatory formula based on historic costs. The method requires that the parties possess comparable bargaining power so that neither exercises market power to distort the outcome.
Rates for wholesale power or utility services established through negotiation between buyers and sellers rather than through a regulatory formula based on historic costs. The method requires that the parties possess comparable bargaining power so that neither exercises market power to distort the outcome.
A public utility negotiated a long-term contract to purchase electricity from an independent generator at a price determined solely by the parties' agreement. The utility later sought regulatory approval to pass the cost through to retail customers. The commission examined whether the negotiated price qualified as a market-based rate because the buyer and seller had roughly equal bargaining strength.
Prices or payment terms reflecting prevailing market conditions when a state participates in commerce as a buyer or seller rather than as a regulator. Such terms may favor in-state parties without violating the Dormant Commerce Clause.
The State of Maryland operated a program that purchased abandoned automobiles from in-state processors at a premium above prevailing market rates while paying nonresidents a lower amount. Out-of-state processors challenged the differential pricing. Because the state acted as a market participant purchasing goods for its own account, the pricing terms were upheld.
Prices or payment terms reflecting prevailing market conditions when a state participates in commerce as a buyer or seller rather than as a regulator. Such terms may favor in-state parties without violating the Dormant Commerce Clause.
Each sense below has its own examples, sources, and questions.
The buyer and seller must have roughly equal bargaining power so that neither can impose terms through market dominance. Without that balance the rates may be rejected as the product of market power rather than genuine negotiation.
A state may do so when it acts as a market participant purchasing goods or services for its own account rather than regulating private transactions. The differential pricing is treated as a proprietary choice rather than economic protectionism.
The doctrine permits the state to favor residents when it buys or sells goods in the marketplace. The state is not acting as a regulator imposing burdens on interstate commerce, so the Dormant Commerce Clause does not apply.