FERC Filings
COMPLAINT REQUEESTING FAST TRACK PROCEDURES, PJM INTERCONNECTION, L.L.C.
BACKGROUND FACTS
The Parties
The following Complainants are active participants in the PJM Market and members (or affiliates of members) of PJM:
Atlantic City Electric Company;
Camden Cogen, L.P.;
Delmarva Power & Light Company;
Edison Mission Marketing & Trading, Inc.;
FPL Energy, Inc.;
New Energy Inc.;
Old Dominion Electric Cooperative;
PECO Energy Company;
PG&E Energy Trading-Power, L.P.;
PG&E Generating Company;
Sithe Power Marketing, L.P.;
Strategic Energy L.L.C.;
Virginia Electric and Power Company;
Williams Energy Marketing and Trading Company; and
WPS Energy Services, Inc.
The Electric Power Supply Association ("EPSA") is the national trade association representing competitive power suppliers active in U.S. and global power markets. EPSA's members, which include power generators, power marketers and suppliers of goods and services to the electric power supply industry, share a commitment to bring the benefits of competition to all electric customers.
PJM is an independent system operator authorized by the Commission. The PJM OI administers the OATT filed with the Commission, including the Market Tariff.
Market Tariff
The Commission has issued orders restructuring the PJM as an independent system operator and administrator of the PJM Markets covering energy and related services. Initially, the Market Tariff contained cost-based caps, but effective April 1, 1999, the Commission authorized the operation of the PJM Markets with market-based pricing authority. The PJM Market rules are set forth in the Market Tariff, which has been filed and accepted by the FERC.
PJM Operating Reserves
The Market Tariff provides that Market Sellers providing Operating Reserves shall be compensated for providing Operating Reserves according to the Market Seller's bid price and the specific bidding parameters set forth in the Market Seller's Offer Data submitted to PJM. Operating Reserves are defined as "the amount of generating capacity scheduled to be available for a specified period of an Operating Day to ensure the reliable operation of the PJM Control Area, as specified in the PJM Manuals."
Payments due to Market Sellers for the provision of Operating Reserves are discussed in the Market Tariff, and described as the amount of "credit" due to the Market Seller. Specifically, Section 3.3.3 of the Market Tariff provides that a Market Seller "shall be credited for its pool-scheduled resources based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for each resource, in accordance with the procedures set forth in Section 3.2.3(b)."
Section 3.2.3(b) of the Market Tariff provides that a Market Seller scheduled to provide Operating Reserves on a particular day shall be credited (i.e., paid) based upon its " total offered price," even if the price exceeds the clearing price (i.e., the "Locational Marginal Price") in a particular hour, which the Market Tariff refers to as the "total value of the resource's Spot Market Energy." The Market Tariff provides that "[i]f the total offered price exceeds the total value, the difference shall be credited to the Market Seller."
PJM OAA Manual
PJM maintains a number of manuals for implementing the Market Tariff. These manuals, "as they relate to the operation of the PJM Interchange Energy Market" are required by the Market Tariff to "conform and comply" with the Operating Agreement, including Schedule 1.
The PJM OAA Manual sets forth accounting for credits and charges for the purchase and sale of energy and related services, such as Operating Reserves. Based upon the Market Tariff provision discussed above, the introduction of Section 5 of the PJM OAA Manual describes how generators would be paid for Operating Reserves where their bids exceed the Locational Marginal Price. That Section provides that:
The total offered price for unit operation, including start-up and no-load costs if applicable, is compared to the total value of the unit's operation during the day. If the total value is less than the offered price, the difference is credited to the PJM Member.
Consistent with the Market Tariff, no change to this basic provision has been made or proposed.
Until December 31, 1999, Section 5 of the PJM OAA Manual contained a formula to calculate the hourly Operating Reserve energy credit, or payment, to generators where bid price exceeded Locational Marginal Price. This formula stated:
(10) The PJM OI calculates the hourly Operating Reserves energy credit as follows:
Hourly OR Energy Credit = (MW to Use * Credit Bid Price Used) - (Unit Generation * LMP)
PJM's change provides a carve-out to the above formula in instances where PJM declares a Maximum Emergency Generation Alert, as discussed in the PJM Manual for Emergency Operations, Manual M-13. In particular, this new provision provides:
For any days for which PJM declares a Maximum Emergency Generation Alert:
Hourly OR Energy Credit = (0), if (Generating Unit bid price for Minimum Generating Limit > Generating Unit LMP), for Generating Units which have submitted Price Bids.
Pursuant to PJM's December 30, letter "[t]his change will be effective on January 1, 2000. The formal Manual revision will be posted during the week of January 3, 2000."
MMU Actions
On August 27, at a meeting of the Energy Market Committee, the OI raised a concern about an alleged "market design flaw" based upon prices offered by certain generators during periods when PJM declares Maximum Emergency Generation Alerts. At this meeting there was no consensus reached that the situation described reflected a market design flaw or the exercise of market power. The OI indicated that PJM would conduct a market power analysis of bidding behavior during high-priced periods.
Despite being on the October and November PJM Energy Market Committee agendas, there was no discussion or report on the issue in either the October or the November meetings. The MMU Manager raised his view regarding a possible market design flaw at the December 8, 1999 meetings of the Energy Market Committee (the minutes of this meeting are attached hereto as Exhibit D), and indicated that the MMU intended to make a filing with the FERC to change the Operating Agreement to correct the alleged design flaw. Many Committee members expressed significant concerns regarding the process suggested by the MMU Manager and supported by the OI. The focus of the discussion was that PJM proposed to file changes to the Operating Agreement without full discussion and input through the Committee process.
On December 9, 1999, the MMU Manager made a presentation to the PJM Members Committee on his view that a market design flaw existed. In his presentation, slides of which were also distributed (and which are attached hereto as Exhibit E), the MMU Manager said the following:
PJM rules permit restrictive operating constraints in market bids.
Minimum run times permitted circumvention of $1,000 price cap during high demand/high price days.
Potentially very large impact on Operating Reserve payments.
PJM will make a filing with FERC to modify the Operating Agreement to correct this design flaw in the operating rules.
Members' objections were based on the fact that they were not given any period to study and discuss the PJM recommended change. The MMU Manager never requested that the Members Committee approve any such modification to the Operating Agreement.
On December 16, 1999, the MMU Manager sent to the PJM Members Committee a letter stating that, effective January 1, 2000, PJM would take action with respect to the previously discussed alleged market design flaw and that the "short run solution" would be implemented by a change to the PJM Manuals with no FERC filing. The letter also indicated that for a "long run solution," the MMU would, "if necessary," submit a proposed modification to the Operating Agreement at the Energy Market Committee on January 26, 2000 and send a proposal to the Members Committee.
On December 30, 1999, the MMU sent a letter to the Energy Market Committee setting forth its "short run solution." Specifically, the MMU announced, effective January 1, 2000, for any day on which the PJM declares a Maximum Emergency Generation Alert that the hourly Operating Reserve energy credit would be eliminated if a generating resources offer (bid) price exceeded the Locational Marginal Price, even though the resource had been scheduled to be available. The credit was maintained for other days when there was no such Alert. This elimination of the Operating Reserve energy credit would be implemented by an addition to the PJM OAA Manual (Section 5, Credits for Pool-Scheduled Steam Resources).
PJM Correspondence
After receiving the December 16 letter from the MMU announcing a unilateral change to payments for Operating Reserves on days for which PJM declared a Maximum Emergency Generation Alert, a number of PJM Members and their affiliates expressed their concern about the MMU's "short run solution," which would modify existing payments for Operating Reserves. Specifically in a letter dated December 23, 1999 addressed to the President and CEO of PJM (attached hereto as Exhibit F), these parties informed PJM that the MMU's attempted action sought to change existing rates and related terms and conditions applicable to the PJM Markets and that any change to these market rules must be filed with the Commission and be accepted prior to the implementation. These parties noted the market rules as set forth in Market Tariff could not be modified by a unilateral change to the PJM OAA Manual and that a FERC filing was required in this case. The parties urged PJM to reconsider taking unilateral action without a FERC filing.
On December 28, the PJM General Counsel responded to the letter of December 23. The letter (attached hereto as Exhibit G), reiterated that the MMU had identified a market design flaw on days PJM declares a Maximum Emergency Generation Alert, that "MMU investigations determined that this design flaw effectively resulted in purchases of electricity during the summer of 1999 in excess of $10 million," and that the MMU determined the alleged flaw "could produce significant excess payments this winter." The letter took the position that the MMU had authority to recommend changes to the PJM OAA Manual and that no filing with the FERC was required to implement its modification to correct the alleged market design flaw.