FERC Filings
COMPLAINT REQUEESTING FAST TRACK PROCEDURES, PJM INTERCONNECTION, L.L.C.
COMPLAINT
A. The Operating Agreement Is A Filed FERC Rate Schedule That
Can Only Be Changed With Rate Filing With The FERC
A fundamental tenet of the FPA is that matters relating to rates, terms and conditions involving jurisdictional sales of electricity must be filed with the Commission under Section 205 and accepted or approved by the Commission before such rates, terms or conditions become effective. Pursuant to Section 205(c) of the FPA, all jurisdictional entities are required to file "all rates and charges for transmission or sale . . . and the classifications, practices and regulations affecting such rates and charges . . . ." PJM has filed with the Commission its Operating Agreement, which contains the rules and procedure for the PJM Markets in the Market Tariff. PJM routinely makes Section 205 filings with the Commission when PJM seeks to modify these rules.
Changes, including additions, to existing rates, terms and conditions may only be made through filing with the Commission. In fact, the Commission specifically required that all terms and conditions relating to the rates in the Market Tariffs (including the Operating Agreement and its Schedules) be included in those tariffs, rather than allowing PJM to refer to its many Manuals. The Commission further required that "any references to the specific rates, terms and conditions that are found in the PJM Manuals should be set forth in the tariff or rate schedule as well." In the FERC's Order on Compliance, the FERC noted that the prior order
directed PJM-OI to revise the PJM Transmission Tariff and other agreements to eliminate the definition of rates, terms and conditions by reference to the PJM Manuals, and instead to incorporate specific rates, terms and conditions into the PJM Transmission Tariff.
The requirement for ISOs to file with the Commission all rules related to rates, terms and conditions, and changes to those rules before implementation is permitted, has been consistently applied to other markets. For example, the Commission ordered the following with respect to NEPOOL markets:
The market rules set forth procedures governing how prices will be determined, as well as other important terms and conditions, and significantly affect rates and services. The parties have expressed numerous concerns regarding the effect of the market rules on market efficiency and competitiveness. In these circumstances, we conclude that NEPOOL should submit filings, under Section 205 of the Federal Power Act, of all market rules, and all changes to those rules, prior to their implementation. . . .
Similarly, the Commission required the California Power Exchange Corporation to file its Meter Service Agreement because "the agreement clearly affects rates, terms and conditions of service. . . ." The Commission should find that no changes to the filed Market Tariffs, including the Operating Agreement, are permissible, without the prior review of the FERC and an opportunity for interested participants to submit comments on such a proposed rate change.
B. PJM's Improper Attempt To Modify A Rate Through A PJM Manual Change Is Unlawful, Invalid And Ineffective
Under the current market rules set forth in the Market Tariff, generation resources that are scheduled to provide Operating Reserves for a particular day, are paid their offer or "bid" price. PJM may not unilaterally reduce these payments by issuing an unilateral change to the PJM OAA Manual without making any tariff filing with the FERC.
PJM's attempted modification to the PJM OAA Manual eliminating certain payments for Operating Reserves on days for which PJM declares a Maximum Emergency Generation Alert is clearly a change that relates to rates, terms and conditions which must be filed with the FERC before it can be made effective. As PJM noted in its December 28 letter, the modification is intended to lower payments for Market Sellers. Furthermore, the MMU Manager's December 28 letter argued that the alleged market design flaw "could produce significant excess payments this winter" and produced, in the MMU Manager's view in excess of $10 million dollars of payments to Market Sellers this past summer. As noted above, provisions related to rates in the PJM energy market must be set forth in the Market Tariff.
C. No Authority Granted To The MMU, Including The MMU's Authority to Take Corrective
Action, Permits PJM to Avoid the Filing Requirements of the FPA and Commission Orders.
PJM stated in its December 28 letter that "[t]he MMU's decision to request that the PJM Manuals be modified is consistent with its authority." However, PJM has never cited any authority (nor could it) that permits it to make modifications to PJM Manuals that add or alter the rate provisions set forth in the filed FERC tariffs.
The Market Tariff specifically recognizes that the PJM OI has the authority and responsibility to maintain, update and promulgate PJM Manuals. However, the Market Tariff limits the OI's authority to make changes to the Manuals. Specifically, Section 1.7.14 of the Market Tariff states that the Manuals "shall conform and comply" with the Operating Agreement, which includes the market rules for the PJM Market.
As pointed out in the background section above, Sections 3.2.3(b) and 3.3.3 of the market rules provide that a Market Seller which is scheduled to provide operating reserves shall be paid its offered price, and if that price is in excess of market clearing price, "the difference shall be credited to the Market Seller." Indeed, the PJM OAA Manual conformed to this Tariff rule prior to the modification implemented effective January 1, 2000. Specifically, Section 5 (Operating Reserves Accounting), paragraph 10 provided that in all cases, the generating resource was paid based upon its bid price, even when that price exceeds the applicable Locational Margin Price. The modification to the PJM OAA Manual announced by PJM on December 30, eliminates this payment on any day that PJM declares a Maximum Emergency Generation Alert. As a result, the PJM OAA Manual no longer conforms to the terms of the Operating Agreement since the Operating Agreement makes no distinction between payments on Alert and other days when there is no Alert. Thus, the OI has exceeded it authority by implementing the MMU's recommendation of a change to the PJM OAA Manual.
In its December 28 letter, PJM attempts to reconcile its recommended action by citing Schedule 1, Section 1.10.1(e) which states that Market Sellers should submit offers "in the form specified by the OI. . . ." Apparently, the MMU's position is that it may refuse to accept minimum run times contained in the bids of Market Sellers. The MMU appears to have concluded that such minimum run times, on days PJM declares a Maximum Emergency Generation Alert, permit Market Sellers to obtain payment in excess of the market cap under the Market Tariff. The PJM letter argues that the Market Tariff does not require PJM "to accept minimum run-time constraints."
The MMU's concern regarding minimum run-times provides no basis for the elimination of certain payments for Operating Reserves. First, PJM has taken no action to change bidding procedures to eliminate minimum run-times on any particular day. Second, minimum run-times are an established feature of Market Sellers' offers, and any attempt to eliminate this feature would require a rate filing. Third, to support such a filing, PJM would have to demonstrate the exercise of market power by Market Sellers to justify action to change existing bid practices. Certainly, PJM has not, and may not, use its authority to specify the "form" or format of offers by Market Sellers to make such a major modification.
In the Commission's recently issued Order No. 2000, the Commission recognized the important role that RTOs can play for market monitoring functions. However, the Commission emphasized that any such monitoring would be subject to its ultimate authority:
In response to commenters' arguments that RTO market monitoring results in an impermissible shift of Commission authority to other entities, we emphasize that performance of market monitoring by RTOs is not intended to supplant Commission authority. Rather it would provide the Commission with an additional means of detecting market power abuses, market design flaws and opportunities for improvement in market efficiency.
The Commission has approved a MMP for PJM, and this plan is part of the OATT. Under the terms of the Plan, the MMU is allowed to take corrective actions as a result of its market monitoring activities. In particular, Section IV, paragraph 5, provides that "to address design flaws" the MMU "with the approval of the PJM Board" may "file reports or complaints with Authorized Government Agencies or make other appropriate regulatory filings." Thus, the MMU did not follow proper procedures to resolve the alleged market design defect, which would require PJM to make a rate filing with the Commission.
In its December 16 letter, PJM attempts to defend the change to the PJM OAA Manual by referencing another portion of the MMP (Section IV, paragraph 2) which provides the MMU the following authority:
Recommend to the appropriate entity (including, if and as appropriate, PJM committees, the PJM Board, or the Commission) modifications to the PJM Tariff, the PJM Operating Agreement, the PJM Reliability Assurance Agreement, the PJM Manuals, or other PJM rules, standards, practices, or procedures.
Based upon this authority, the MMU takes the position that since it may recommend changes to PJM Manuals, the OI may implement its recommendation to eliminate certain payments to Market Sellers during Maximum Emergency Generation Alerts. The ability to recommend modifications to PJM Manuals was never intended to obviate the obligation of PJM to make required filings with the Commission under Section 205 of the FPA or the obligation to use proper procedures to change the market rules set forth in the Operating Agreement.
D. Requiring PJM To File Rate Changes Establishes The Right Policy And Incentives
In addition to the legal requirements discussed above, policy considerations dictate that PJM make rate filings whenever it seeks to modify its filed FERC rate schedules. Further, the right market incentives are provided by requiring PJM to make rate filings.
First, the filing requirements of the FPA provide essential protections for PJM Market participants. Once a proposed modification to the Market Rules is submitted to the Commission, the filing is noticed and interested parties have an opportunity to present their protests and other comments to the Commission. Based upon this input, the Commission then decides whether the filing is just and reasonable and the filing is not effective until it is accepted or approved by the Commission. In this case, a significant number of PJM members disagree with the MMU's conclusion that a market design flaw exists when PJM declares a Maximum Emergency Generation Alert. While these market participants respect the MMU's views, this rate matter should be decided by the Commission and not through a unilateral change to the PJM OAA Manual.
Second, PJM Members that have made substantial investments in the region have bargained for markets that are consistent with the filed FERC tariffs. Allowing the OI to negate the benefits of the rates in those filed FERC tariffs without giving the market participants an opportunity to be heard at the Commission is unreasonable and contrary to the PJM agreements to which the PJM Members have agreed.