[Federal Register: January 11, 2008 (Volume 73, Number 8)]
[Notices]
[Page 2018-2023]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ja08-37]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. EL08-8-000]
Mirant Energy Trading, LLC, Mirant Chalk Point, LLC, Mirant Mid-
Atlantic, LLC, and Mirant Potomac River, LLC v. PJM Interconnection,
LLC; Order on Complaint and Setting Case for Hearing and Settlement
Judge Proceedings;
January 4, 2008.
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G.
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.
1. On November 8, 2007, Mirant Energy Trading, LLC, Mirant Chalk
Point, LLC, Mirant Mid-Atlantic, LLC, and Mirant Potomac River, LLC
(jointly, Mirant) filed a complaint against PJM Interconnection, LLC
(PJM). The complaint alleges that the default rate for the Third
Incremental Auction as part of PJM's Reliability Pricing Model (RPM) is
unjust and unreasonable and requests that the Commission institute a
new default rate for the auction to be held January 7, 2008.
2. The Commission grants, in part, and dismisses, in part, the
complaint. The Commission finds that Mirant has made a sufficient
showing that the prices resulting from the RPM program's Third
Incremental Auction may be unjust and unreasonable and may need to be
replaced. However, as Mirant's own answer indicates, even if the
existing pricing structure is found unjust and unreasonable, there is a
significant dispute as to the appropriate just and reasonable
replacement. The Commission therefore sets the RPM market rules
relating to the Third Incremental Auction for hearing, but holds the
hearing in abeyance pending settlement judge proceedings. Because this
proceeding will extend beyond the auction to be held on January 7,
2008, the Commission cannot make a finding on this matter before that
auction is held, and refunds would not be appropriate, the Commission
dismisses Mirant's complaint with respect to that auction.
I. Background
A. RPM
1. Auction Mechanism to Set the Price of Capacity
3. As discussed extensively in prior Commission orders,\1\ the
Commission found that PJM's capacity market as it existed prior to RPM
was unjust and unreasonable. On August 31, 2005, PJM and several of its
customers filed a proposed settlement establishing the RPM market
mechanism. The settlement proposed a capacity market under which
capacity sellers would offer, and PJM would purchase, capacity on a
multi-year forward basis through an auction mechanism, and that prices
for capacity would be derived through these forward auctions.
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\1\ See PJM Interconnection, LLC, 119 FERC ] 61,318 (2007) (June
25 Order); PJM Interconnection, LLC, 117 FERC ] 61,331 (2006)
(December 22 Order) and PJM Interconnection, LLC, 115 FERC ] 61,079
at P 9-17 (2006) (April 20 Order).
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4. Under RPM, PJM conducts multiple auctions in advance of each
Delivery Year to procure capacity for that year. PJM first conducts a
Base Residual Auction (BRA) three years in advance of the Delivery
Year. Capacity sellers offer capacity into the BRA, and the offers
create a demand curve that determines the price of capacity (absent
mitigation, which will be discussed infra). Thus, the offers submitted
into the market determine a single clearing price for all capacity
(i.e., the highest-priced offer accepted by PJM sets the price for all
the capacity that PJM purchases).\2\
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\2\ Additionally, the RPM mechanism provided that different
locations within PJM might have different prices, if necessary to
reflect the amount of capacity that must be acquired within each
separate location.
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5. After the BRA for each Delivery Year, PJM conducts three
incremental auctions for that year, to enable market participants to
obtain additional capacity that may be needed for that Delivery Year,
either to replace previously-committed resources that have become
unavailable, or to accommodate an increase in the forecasted load.\3\
The Third Incremental Auction (conducted four months prior to the start
of the Delivery Year) allows
[[Page 2019]]
capacity sellers to make available additional MWs of capacity for sale
(either generation that did not clear an earlier auction, or generation
that has newly become available due to an increase in PJM's rating of a
unit's capacity), and also allows capacity buyers to obtain replacement
capacity resources before the Delivery Year, if made necessary by the
derating of a unit (i.e., the determination that that unit is no longer
able to produce some or all of its previously determined capacity) or a
decrease in PJM's rating of a unit's capacity. The cost of capacity
purchased through the BRA and the Second Incremental Auction are
allocated among load-serving entities (LSEs) within PJM. The costs of
the First and Third Incremental Auctions are assessed to the capacity
buyers purchasing replacement resources in those auctions.\4\
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\3\ Mirant states (Complaint at 6-7, footnotes omitted):
The First Incremental Auction is conducted * * * 23 months prior
to the start date of the Delivery Year, and allows Capacity Market
Sellers that committed resources in the BRA for such Delivery Year
to submit Buy Bids for replacement capacity. * * * The Second
Incremental Auction is conducted only if necessary for PJM to secure
additional capacity resource commitments to satisfy an increase in
the projected peak load for the PJM Region. If held, the Second
Incremental Auction is conducted in April, 13 months prior to the
Delivery Year.
\4\ Complaint at 7, footnotes omitted.
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6. To ensure that capacity resources provide the capacity to which
they have committed, PJM imposes a Capacity Resource Deficiency Charge
on any capacity seller that is unable to deliver its full amount of
committed capacity for some or all of that Delivery Year. For each day
that the seller is deficient, the deficiency charge is equal to the
Daily Deficiency Rate (the greater of: (a) two times the Capacity
Resource Clearing Price, or (b) the Net Cost of New Entry) multiplied
by the megawatt quantity of deficiency below the level of capacity
committed in the sell offer.
2. Mitigation Measures
7. The RPM mechanism also includes mitigation measures to protect
customers from the exercise of market power by generators in the RPM
auctions. So as to prevent the withdrawal of capacity from the market
in order to increase prices, generation capacity resources are required
to submit all available capacity in the BRA for a Delivery Year. If a
generation resource does not clear in the BRA, that capacity must be
offered into the subsequent incremental auctions for that year.
8. Further, if the PJM area (or a local delivery area within PJM)
fails the Market Structure Test conducted by the PJM market monitor
(i.e., if the monitor determines that one or more sellers may be able
to exercise market power), then all sellers in the area are subject to
Market Seller Offer Caps for the applicable auction for that Delivery
Year.
9. The Offer Cap is based on either (a) the Avoided Cost Rate
(ACR), which approximates the total cost of operating a particular
generating unit, or (b) the Opportunity Cost for the resource. The
Opportunity Cost is defined as ``the documented price available to an
existing generation resource in a market external to PJM.'' \5\
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\5\ PJM Open Access Transmission Tariff, Attachment DD, section
6.7(d)(ii).
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B. Mitigation in PJM's First BRA and Third Incremental Auction
10. PJM and its stakeholders are currently in a period of
transitioning to full implementation of RPM. For Delivery Years during
this transitional period, PJM will conduct BRAs, and some (but not all)
of the incremental auctions. The Third Incremental Auction will be the
last opportunity for parties to adjust their capacity positions through
an auction before the applicable Delivery Year begins. The Third
Incremental Auction for the 2008-2009 Delivery Year is scheduled to be
held in January 2008.
11. To date, PJM has conducted three BRAs. On August 16, 2007, the
PJM Market Monitor issued a report that analyzed the first BRA,
conducted for the 2007-2008 Delivery Year.\6\ The report stated that
``[a]ll participants in the RPM auction failed the market structure
tests with the result that offer caps were applied to all sellers.''
\7\ PJM has not yet conducted an Incremental Auction. However, the
Third Incremental Auction for the 2008-2009 Delivery Year is scheduled
to begin on January 7, 2008.
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\6\ PJM Market Monitoring Unit, Analysis of the 2007-2008 RPM
Auction (Aug. 16, 2007) (PJM Report), available at: http://www.pjm.com/markets/market-monitor/reports.html
.
\7\ According to the Report, 1,090 Capacity Resources submitted
Sell Offers in the BRA. Of those 1,090 Capacity Resources, the MMU
calculated unit-specific offer caps for 125 units, 392 offers used
the default offer caps values posted by the MMU, and 510 offers were
price takers. Three offers were based on the seller's documented
Opportunity Cost. See PJM Report at 1, 4, 5.
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C. Mirant's Complaint
12. On November 8, 2007, Mirant filed the instant complaint against
PJM under section 206 of the Federal Power Act (FPA).\8\ Mirant alleges
that the prices yielded in the Third Incremental Auction are ``almost
certainly going to be unjust and unreasonable,'' \9\ and requests the
Commission to direct PJM to modify the definition of Opportunity Cost
in section 6.7(d)(ii) of the RPM market rules so that, for the Third
Incremental Auction only, Opportunity Cost is defined as the higher of
the Daily Deficiency Rate or the documented price for exports.\10\
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\8\ 16 U.S.C. 824e (2000).
\9\ Complaint at 13-14.
\10\ Id. at 14.
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13. Mirant states that the combination of the must-offer
requirement for Capacity Resources and what it considers to be the
almost certain ACR-based capping of Sell Offers in the Third
Incremental Auction will result in market-clearing prices far below
competitive market values and far below levels necessary to compensate
Capacity Market Sellers for the risks they are compelled to incur.
14. Mirant states that three factors pertaining to the Third
Incremental Auction are likely to produce clearing prices at or near
ACRs, which Mirant considers to be below prices that would be produced
in a competitively workable market. First, Capacity Market Sellers that
have newly available capacity are required to offer that capacity into
the Third Incremental Auction, and may not hold any capacity as a
physical hedge. Second, prices in the Third Incremental Auction will be
based on the Sell Offers of Capacity Market Sellers who have additional
capacity to sell and the Buy Bids of buyers who need to procure
replacement capacity. Third, because there is no comparable Opportunity
Cost that reflects the actual opportunity cost associated with
supplying the incremental MWs offered in the Third Incremental Auction,
Market Seller Offer Caps will be based on ACRs.
15. Mirant asserts that ``there is no real doubt'' that ACR rates
will be applied as Offer Caps in the next several Delivery years, and
that all existing Generation Capacity Resources will be subject to such
offer cap mitigation.\11\ Mirant states that buyers in the Third
Incremental Auction will know, based on the published results of the
BRA for a given Delivery Year, and the fact that PJM does not intend to
calculate new ACRs for the Third Incremental Auction, what approximate
ACR prices are for those sellers that have positive ACRs. Mirant states
that with this knowledge, Capacity Market Buyers can, and likely will,
submit Buy Bids with a price equal to or slightly below ACRs, knowing
that their bids will clear because Capacity Market Sellers are capped
at that level.
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\11\ Id. at 16-17.
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16. Mirant states that the price that should result in a workably
competitive market is one where the market price equals the opportunity
cost of the marginal supplier. Mirant asserts that the economic value
of retaining the capacity as uncommitted (which Capacity Suppliers are
not permitted to do) is the incremental risk associated with deficiency
charges that can be assessed in a given Delivery Year for
[[Page 2020]]
incremental capacity offered in the Third Incremental Auction. As a
result, Mirant states that Sellers will be forced to sell their
physical hedge against penalties assessed (at a Daily Deficiency Rate)
for a small fraction (the ACR rate) of what their incremental capacity
is worth to them.\12\
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\12\ Id. at 19.
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17. Mirant states that the current definition of Opportunity Cost
in the RPM market rules does not provide a solution to the problem of
artificially depressed prices in the Third Incremental Auction, because
Market Sellers have limited ability to obtain an Opportunity Cost-based
Offer Cap due to their limited access to markets external to PJM.
Mirant further states that nothing in the Opportunity Cost provision
permits Capacity Market Sellers to hedge against the increased risk of
paying deficiency charges potentially incurred for incremental capacity
committed in the Third Incremental Auction.
18. Accordingly, Mirant requests that the Commission direct PJM to
modify the definition of Opportunity Cost to read:
ii. Opportunity Cost:
(a) Opportunity Cost shall be the documented price available to an
existing generation resource in a market external to PJM. * * *
(b) In the Third Incremental Auction, Opportunity Cost shall be
calculated, at the election of the existing generation resource,
either: (i) based on the methodology set forth in (a) above, or (ii)
based on the Daily Deficiency Rate for the relevant Delivery Year as
calculated by the Office of Interconnection at the time Sell Offers are
required to be submitted for the Third Incremental Auction. In the
event that the existing generation resource owner chooses option (b),
the Market Seller Offer Cap applicable to Sell Offers relying on such
generation resource shall be the Daily Deficiency Rate for the relevant
Delivery Year.
19. Mirant states that its requested change to the definition of
Opportunity Cost would not raise market power concerns. Mirant states
that in the Third Incremental Auction, unlike the BRA and other
incremental auctions: (1) The price is established by sell offers, not
the Variable Resource Requirement curve used in the BRA, (2)
participation is limited to Capacity Market Sellers, so Capacity Market
Buyers, not Load Serving Entities, pay for MWs cleared, (3) the amount
of MWs being offered as additional supply by other market participants
is not easily known, (4) there is no direct link between a supplier's
share of installed capacity and its share of offered capacity, and (5)
a supplier has no material information about the amount of MWs that may
be offered by other market participants. Given these distinguishing
characteristics of the Third Incremental Auction, Mirant concludes
that, because sellers will compete to have their offers cleared, they
can be expected to bid at prices below the Offer Cap level of the Daily
Deficiency Rate, especially since they will be factoring in their own
assessment of the risk of penalty charges in determining what the
capacity is ``worth'' to them as a physical hedge.\13\
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\13\ Id. at 24.
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20. Mirant states that this topic was first raised with the PJM RPM
Working Group (RPMWG) on August 10, 2006. Despite several months of
discussions and presentations on this issue, the RPMWG still has not
reached consensus with respect to whether and how mitigation for the
Third Incremental Auction should be modified.
21. Mirant requested Fast Track processing, asking the Commission
to act on its Complaint before January 7, 2008.
D. Answers and Comments
22. Notice of Mirant's complaint was published in the Federal
Register, with answers, motions to intervene and comments due on or
before November 29, 2007.\14\ PJM filed an answer, Allegheny Energy
Services Company (Allegheny), EME Companies et al. (EME), PPL and
Constellation Parties (PPL/Constellation), the Borough of Chambersburg,
PA (Chambersburg), the Old Dominion Electric Cooperative and PJM
Industrial Customer Coalition (ODEC/PJMICC), the Southern Maryland
Electric Cooperative (SMEC), PEPCO Holdings (PEPCO), the Tenaska Fund
Entities (Tenaska) and Tenaska Power Services (Tenaska Power) filed
timely comments and protests, and Reliant Energy, Inc., Dayton Power
and Light Company, Exelon Corporation, FPL Energy Generators, the
Office of the People's Counsel of the District of Columbia, American
Electric Power Service Corporation, Dynegy Power Marketing, Inc., North
Carolina Electric Membership Corporation, Duke Companies, NRG
Companies, the Public Service Commission of Maryland, the Pennsylvania
Office of Consumer Advocate, Dominion Resources Services, Inc., the
Maryland Office of People's Counsel, and PSEG Companies filed timely
motions to intervene. The New Jersey Board of Public Utilities filed a
motion to intervene out of time on December 6, 2007. Indicated Buyers
filed an answer to the preceding filings on December 4, 2007,\15\ and
Mirant filed an answer on December 10, 2007.
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\14\ 72 FR 65,320 (2007).
\15\ Indicated Buyers consist of ODEC, PJMICC, SMEC, Portland
Cement Association, Mittal Steel, North Carolina Electric Membership
Corporation, the Office of the People's Counsel of the District of
Columbia, Pennsylvania Office of the Consumer Advocate, the Public
Power Association of New Jersey, and Chambersburg.
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23. PJM, in its answer, agrees with Mirant's view that because
sellers will be required to offer all available capacity into the Third
Incremental Auction, and could be compensated at levels well below the
value of that capacity to the seller as replacement capacity for its
own possible later-occurring deficiencies, the current mitigation
provisions are unjust and unreasonable. PJM explains that prospective
buyers may either bid up to the level of the deficiency charges they
avoid by securing replacement capacity, or they may anticipate that
sell offers will be capped and therefore, may have an incentive to
submit buy bids consistent with the anticipated range of price-capped
sell offers. These anticipated price-capped sell offers will be far
below the Daily Deficiency Rate sellers will incur if they become
unable to deliver previously committed capacity after the Third
Incremental Auction. PJM notes that the Third Incremental Auction will
not change prices to load, and only involves a small amount of
capacity.
24. PJM clarifies that the mere presence of an incremental auction
clearing price lower than the BRA clearing price is not indicative of a
market flaw. Rather, it is the possibility that such an outcome could
result due to the combination of the must-offer requirement, cost-based
mitigation, and buyer knowledge of offer cap levels. PJM states that
Mirant's proposed solution properly preserves both the must-offer rule
and price caps, but seeks to include within those caps an added
component to reflect the seller's lost opportunity to use its available
capacity to avoid or mitigate capacity deficiencies it may experience.
25. PJM suggests that it may not be possible to determine the
precise appropriate price cap for sell offers, and that the Commission
could consider setting the price cap somewhere between the BRA clearing
price and the maximum deficiency charge that a seller might risk paying
(the relief requested by Mirant). PJM asks the Commission to address
this problem before PJM conducts the Third Incremental Auction on
January 7, 2008.
[[Page 2021]]
26. EME Companies et al. supported Mirant's complaint, stating that
the proposed solution appears to be reasonable, as the modification to
the Opportunity Cost definition would permit capacity market sellers
with additional capacity deemed available in the Third Incremental
Auction to submit sell offers that better reflect the actual
opportunity cost of selling into that auction and becoming subject to
PJM penalties that are tied to the Daily Deficiency Rate. Tenaska Power
also supported Mirant's complaint, explaining that, absent the change
sought by Mirant, sellers will be required to sell supply capacity at
rates well below their actual opportunity costs, which raises the
possibility of confiscatory ratemaking.
27. Other parties oppose Mirant's complaint. Allegheny points out
that if the Commission now changes the rules regarding mitigation,
those changes should apply to all auctions rather than just the Third
Incremental Auction, and should not be applied now, in the middle of an
auction cycle, for which parties made commitments and chose to
participate based on their understanding of the rules currently in
place. Allegheny argues that Mirant is asking the Commission to make a
finding that the existing market mitigation rules for the Third
Incremental Auction, which it found to be just and reasonable by
approving the Settlement Agreement \16\ are all of a sudden unjust and
unreasonable, before being put into effect.
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\16\ PJM Interconnection, L.L.C., 117 FERC ] 61,331 (2006),
order on reh'g, 119 FERC ] 61,318 (2007).
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28. PPL states that Mirant has not demonstrated that it will be
injured, arguing that Mirant could hedge its own exposure by buying
capacity (presumably through bilateral agreements). PPL states that the
proposed remedy benefits sellers with excess capacity and burdens
buyers and could also encourage gaming in RPM as capacity providers
might try to sell as little capacity as possible in the BRA and hold
capacity back to sell in the Third Incremental Auction. PPL argues that
under Mirant's proposed remedy, if buyers expect they will be subject
to the Deficiency Rate (either by buying replacement capacity, or as a
result of being deficient), they may be discouraged from making an
advance purchase in the Third Incremental Auction, which could have
potential reliability consequences. PPL points out that another flaw in
Mirant's proposal is that if prices are expected to be higher in the
Third Incremental Auction, sellers will have an incentive to maintain
as much capacity as possible to sell in the Third Incremental Auction,
thereby discouraging the forward commitment aspect of RPM. ODEC/PJMICC
similarly argue that Mirant's complaint is premature, and that its
predicted outcome of the Third Incremental Auction is not a certainty.
ODEC/PJMICC also point out that Mirant was a party to the RPM
Settlement and that Mirant agreed to very clear provisions, including
mitigation and the must offer requirement.
29. PEPCO states that Mirant understood the risk it now seeks to
remedy, at least as of August 14, 2007. PEPCO points out that capacity
market sellers may elect to sell its available capacity bilaterally and
avoid the Third Incremental Auction altogether. PEPCO further protests
Mirant's proposed remedy because, it states, capacity sellers in the
BRA have the same Opportunity Cost and exposure to Daily Deficiency
Rates as those in the Third Incremental Auction, yet the remedy only
addressed the Third Incremental Auction.
30. The Borough of Chambersburg protests Mirant's proposal on the
basis that it has the potential to incent capacity sellers to engage in
economic and physical withholding. It further argues that the
fundamental basis of the Mirant complaint, that the ACR will distort
competitive rates that would prevail in the absence of mitigation,
misses the point that because of pervasive market power, offers must be
mitigated in order to prevent anti-competitive prices.
31. Several parties suggest that this problem should be resolved
through a PJM stakeholder process rather than a complaint proceeding.
II. Discussion
A. Procedural Matters
32. Pursuant to Rule 214 of the Commission's Rules of Practice and
Procedure, 18 CFR 385.214 (2007), the timely, unopposed motions to
intervene of the entities that filed them make them parties in this
proceeding. Under Rule 214(d) of the Commission's Rules of Practice and
Procedure, 18 CFR 385.214(d) (2007), the Commission may grant late-
filed motions to intervene, and it does so here.
33. Rule 213(a)(2) of the Commission's Rules of Practice and
Procedure, 18 CFR 385.213(a)(2) (2003), prohibits an answer to an
answer or protest unless otherwise ordered by the decisional authority.
We will accept the answers filed by Indicated Buyers and Mirant because
they have provided information that assisted us in our decision-making
process.
B. Analysis
34. Based on the information provided, the Commission finds that
the existing tariff may result in prices that are unjust and
unreasonable, and establishes hearing and settlement judge procedures
to resolve this matter.
35. The Market Seller Offer Cap set at the level of ACR may not
appropriately reflect the selling generators' risks in the Third
Incremental Auction. This auction, which takes place four months before
the Delivery Year begins, is the last market opportunity for generators
to sell or procure capacity for that year.\17\ Under the RPM rules,
generators are not able to withhold any of their capacity for their own
use, but must offer that capacity into the market. Since the Third
Incremental Auction is the final opportunity to procure replacement
capacity by auction, a generator that is forced to sell all of its
capacity in that auction and which subsequently becomes unable to
deliver that capacity, has no opportunity to purchase replacement
capacity in a subsequent incremental auction. Thus, if the generator
cannot arrange a private purchase of capacity, it will be required to
pay the deficiency charge. The possibility of being assessed the
deficiency charge is a risk that generators face when bidding into the
RPM Auctions, but the cost associated with that risk is not reflected
in the ACR. Thus, under the current rules, generators are required to
offer capacity into the Third Incremental Auction at prices that may
not compensate them for their full potential risk.\18\
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\17\ After the Third Incremental Auction, generators may still
sell or procure capacity through bilateral contracts, assuming that
they can find a counterparty that close to the time of delivery.
\18\ This situation is most likely to be critical in the Third
Incremental Auction. A generator that discovers prior to the Third
Incremental Auction that it is unable to deliver may avoid the
deficiency charge by acquiring replacement capacity in one of the
incremental auctions and paying the market clearing price in that
auction. Thus, the same argument for revising the ACR mitigation
rate as the mitigated bid price does not apply to the earlier
auctions.
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36. We do not, however, agree with Mirant that the solution to this
problem is to modify the definition of Opportunity Cost to include the
deficiency charge. To do so would, in essence, immediately raise the
floor for all mitigated prices up to the level of the deficiency
charge, the highest price that could result from the auction. Setting
the Market Seller Offer Cap at the deficiency charge appears to
establish too high a mitigated offer cap because
[[Page 2022]]
the risk of each generator being unable to meet its capacity obligation
clearly is less than 100 percent. Setting a Market Seller Offer Cap at
the deficiency charge, therefore, might permit the exercise of market
power by generators.\19\ No party has presented evidence in this
proceeding to document the risk that a generator committed to provide
capacity will be unable to meet its capacity obligation. The PJM Market
Monitor also has recognized that the existing Market Seller Offer Cap
may be too low and has proposed that, if the Commission determines that
the offer cap should be modified for this Third Incremental Auction
pending a stakeholder process, the clearing price from the BRA could be
used as the price of capacity transactions in this auction, although
only in the event that the price would otherwise be low or zero.\20\
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\19\ For instance, if there were a complete monopoly in a local
delivery area (with only one generator participating in the auction)
and that generator had excess capacity, allowing the generator to
bid the deficiency charge would set the price at the deficiency
charge even though the generator did not face a reasonable risk of
being unable to deliver.
\20\ PJM MMU Response to Mirant Complaint re RPM auction,
attachment to Indicated Buyers answer, at 9.
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37. Because there is reason to believe that the existing rate is
not just and reasonable and because we have no evidence to establish a
just and reasonable replacement rate, we will set this matter for
settlement judge and trial-type hearing. At hearing, we will direct the
parties to examine the likelihood that resources (or particular classes
of resources) will be unable to provide their committed capacity when
demanded, and thus, the likelihood that the owner of that resource will
be required to pay a deficiency charge. The parties may also consider
alternative mechanisms that would mitigate the potential risks
suppliers face in the Third Incremental Auction without modifying the
offer cap, including but not limited to examining other possible
hedging mechanisms.
38. We will dismiss the complaint with respect to the auction to be
conducted on January 7, 2008. Given the timing of this filing, the
issues raised, and Mirant's own recognition that its initially proposed
replacement rate may not be just and reasonable, we cannot resolve this
proceeding prior to January 7, 2008. Moreover, because this is a
market-determined result, refunds based on a subsequently determined
Market Seller Offer Cap could not be accurately calculated.\21\
However, we instruct the Administrative Law Judge (ALJ) and the parties
to set a hearing schedule that will leave sufficient time for an
initial decision and Commission review prior to the next Third
Incremental Auction.
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\21\ Moreover, both equity and the desire to protect market
certainty counsel against applying the result in this case to the
January 7 auction, since, as several protesters pointed out, all
parties entered this first cycle of RPM auctions with the
expectation that the market rules agreed to in the RPM settlement
would remain in place.
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39. PJM has already been pursuing settlement of its issue through
its RPM Working Group.\22\ To aid the parties in their settlement
efforts, we will hold the hearing in abeyance and direct that a
settlement judge be appointed, pursuant to Rule 603 of the Commission's
Rules of Practice and Procedure.\23\ If the parties desire, they may,
by mutual agreement, request a specific judge as the settlement judge
in the proceeding; otherwise, the Chief Judge will select a judge for
this purpose.\24\ The settlement judge shall report to the Chief Judge
and the Commission within 30 days of the date of the appointment of the
settlement judge, concerning the status of settlement discussions.
Based on this report, the Chief Judge shall provide the parties with
additional time to continue their settlement discussions or provide for
commencement of a hearing by assigning the case to a presiding judge.
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\22\ PJM notes that it has discussed this matter at the RPM
Working Group on August 14, 2007, October 10, 2007, and October 25,
2007, and that ``[c]onsideration of possible changes to the offer
caps in the incremental auctions * * * has been assigned a `high'
priority by the working group.'' PJM answer at 6-7.
\23\ 18 CFR 385.603 (2007).
\24\ If the parties decide to request a specific judge, they
must make their joint request to the Chief Judge by telephone at
202-502-8500 within five days of this order. The Commission's Web
site contains a list of Commission judges and a summary of their
background and experience (http://www.ferc.gov_click on Office of
Administrative Law Judges).
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40. Pursuant to section 206(b) of the FPA, the Commission must
establish a refund effective date that is no earlier than the date of
the filing of such complaint nor later than 5 months after the filing
of such complaint. Because, as discussed above, the results of the
hearing cannot be applied to the January 7, 2008 auction, the
Commission will establish a refund effective date of 5 months from the
date of the complaint. The Commission is also required by section 206
to indicate when it expects to issue a final order. The Commission
expects to issue a final order in this section 206 investigation within
180 days of the date this order issues.
The Commission orders:
(A) Mirant's complaint is hereby granted, in part, and dismissed in
part, as discussed above.
(B) Pursuant to the authority contained in and subject to the
jurisdiction conferred upon the Federal Energy Regulatory Commission by
section 402(a) of the Department of Energy Organization Act and the
Federal Power Act, particularly Section 206 thereof, and pursuant to
the Commission's Rules of Practice and Procedure and the regulations
under the Federal Power Act (18 CFR Chapter 1), a public hearing shall
be held in Docket No. EL08-8-000 to examine the justness and
reasonableness of the calculation of the mitigated bid rate for the
Third Incremental Auction as discussed in the body of this order.
(C) The hearing established in Ordering Paragraph (B) is hereby
held in abeyance pending the outcome of the settlement proceedings
described in the body of this order.
(D) Pursuant to Rule 603 of the Commission's Rules of Practice and
Procedure, 18 CFR 385.603 (2005), the Chief Administrative Law Judge is
hereby directed to appoint a settlement judge in this proceeding within
fifteen (15) days of the date of this order. Such settlement judge
shall have all powers and duties enumerated in Rule 603 and shall
convene a settlement conference as soon as practicable after the Chief
Judge designates the settlement judge. If the parties decide to request
a specific judge, they must make their request to the Chief Judge
within five (5) days of the date of this order.
(E) Within 30 days of the appointment of the settlement judge, the
settlement judge shall file a report with the Chief Judge and the
Commission on the status of the settlement discussions. Based on this
report, the Chief Judge shall provide the parties with additional time
to continue their settlement discussions, if appropriate, or assign
this case to a presiding judge for a trial-type evidentiary hearing, if
appropriate. If settlement discussions continue, the settlement judge
shall file a report at least every 30 days thereafter, informing the
Chief Judge and the Commission of the parties' progress toward
settlement.
(F) If settlement judge procedures fail and a trial-type
evidentiary hearing is to be held, a presiding judge, to be designated
by the Chief Judge, shall, within fifteen (15) days of the date of the
presiding judge's designation, convene a prehearing conference in these
proceedings in a hearing room of the Commission, 888 First Street, NE.,
Washington, DC 20426. Such a conference shall be held for the purpose
of establishing a procedural schedule. The presiding judge is
authorized to establish procedural dates and to rule on all motions
(except motions to dismiss) as provided in the
[[Page 2023]]
Commission's Rules of Practice and Procedure.
(G) The Secretary is directed to publish a copy of this order in
the Federal Register.
(H) The refund effective date in Docket No. EL08-8-000 established
pursuant to section 206(b) of the Federal Power Act is 5 months from
the date of the filing of the complaint.
By the Commission.
Kimberly D. Bose,
Secretary.
[FR Doc. E8-301 Filed 1-10-08; 8:45 am]
BILLING CODE 6717-01-P