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;, 2018-2023 [E8-301]
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not impact building habitability (indoor
air) as no change to mechanical
ventilation rates or building envelope
that would affect indoor air quality are
being made. The EA also finds that
implementation of this rule would not
adversely affect minority or low-income
populations, nor is the rule expected to
impact wetlands, endangered species, or
historic or archaeological sites.
The purpose of the final rule is to
improve energy efficiency. The main
environmental impact of the final rule is
a reduction in emissions to the outdoor
air from fossil-fueled electricity
generation. The alternatives are
projected to result in decreased
electricity use and, therefore, a
reduction in power plant emissions. The
environmental analysis focuses on two
criteria pollutants, nitrogen oxides
(NOX) and sulfur dioxide (SO2), and one
additional emission, carbon.
For commercial and high-rise multifamily residential buildings, at the 30
percent reduction level, carbon dioxide
emissions are estimated to be reduced
by 38,500 metric tons of carbon in the
first year the rule is in effect, with the
savings compounding in future years as
more Federal construction occurs.
Nitrogen oxides and sulfur dioxide
emissions are estimated to be reduced
by 317 and 625 tons, respectively, in the
first year the rule is in effect.
For low-rise residential buildings, at
the 30 percent reduction level, carbon
dioxide emissions are estimated to be
reduced by 763 metric tons of carbon in
the first year the rule is in effect, with
the savings compounding in future
years as more Federal construction
occurs. Nitrogen oxides and sulfur
dioxide emissions are estimated be
reduced by about 4 tons each in the first
year the rule is in effect.
The EA was originally developed
based on an interim final rule published
on December 3, 2006. DOE received 20
comments on the interim final rule and
made minor changes and clarifications
in the Final Rule to address these
comments. None of the changes or
clarifications would lead to any change
to the findings of the EA for the interim
final rule. The EA was posted on the
DOE Web site at (https://
www1.eere.energy.gov/femp/pdfs/
doe_ea1463.pdf) and received no
comments. Therefore, DOE is issuing
the EA developed for the interim final
rule in support of the final rule.
Determination: Based upon the EA,
DOE has determined that the adoption
of the new building energy standards
(10 CFR part 433 and 10 CFR part 435
subpart A) would not constitute a major
Federal action significantly affecting the
quality of the human environment,
VerDate Aug<31>2005
14:33 Jan 10, 2008
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within the meaning of NEPA. Therefore,
an EIS is not required.
Issued in Washington, DC, on November 1,
2007.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and
Renewable Energy.
[FR Doc. E8–324 Filed 1–10–08; 8:45 am]
BILLING CODE 6450–01–P
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.
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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.
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
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
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).
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.
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.
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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
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
4 Complaint
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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
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.
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
5 PJM Open Access Transmission Tariff,
Attachment DD, section 6.7(d)(ii).
6 PJM Market Monitoring Unit, Analysis of the
2007–2008 RPM Auction (Aug. 16, 2007) (PJM
Report), available at: https://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.
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 ACRbased 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.
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
11 Id.
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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
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
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
13 Id.
12 Id.
at 19.
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at 24.
FR 65,320 (2007).
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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.
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 lateroccurring 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.
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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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.
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
16 PJM Interconnection, L.L.C., 117 FERC ¶ 61,331
(2006), order on reh’g, 119 FERC ¶ 61,318 (2007).
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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 anticompetitive 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
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2021
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
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
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.
E:\FR\FM\11JAN1.SGM
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2022
Federal Register / Vol. 73, No. 8 / Friday, January 11, 2008 / Notices
ebenthall on PRODPC61 with NOTICES
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
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
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.
21 Moreover, both equity and the desire to protect
market certainty counsel against applying the result
VerDate Aug<31>2005
14:33 Jan 10, 2008
Jkt 214001
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.
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.
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
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.
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
(https://www.ferc.gov—click on Office of
Administrative Law Judges).
PO 00000
Frm 00023
Fmt 4703
Sfmt 4703
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
E:\FR\FM\11JAN1.SGM
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Federal Register / Vol. 73, No. 8 / Friday, January 11, 2008 / Notices
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
DEPARTMENT OF ENERGY
National Nuclear Security
Administration
Draft Complex Transformation
Supplemental Programmatic
Environmental Impact Statement
National Nuclear Security
Administration, U.S. Department of
Energy.
ACTION: Notice of Availability and
Public Hearings.
ebenthall on PRODPC61 with NOTICES
AGENCY:
SUMMARY: The National Nuclear
Security Administration (NNSA), a
semi-autonomous agency within the
U.S. Department of Energy (DOE),
announces the availability of the Draft
Complex Transformation Supplemental
Programmatic Environmental Impact
Statement (Draft Complex
Transformation SPEIS, DOE/EIS–0236–
S4). The Draft Complex Transformation
SPEIS analyzes the potential
environmental impacts of reasonable
alternatives to continue the
transformation of the U.S. nuclear
weapons complex to one that is smaller,
more efficient, more secure, and better
able to respond to changes in national
security requirements. While NNSA has
revised the document title from that
indicated in the Notice of Intent, it
remains a supplement to the Stockpile
Stewardship and Management
Programmatic Environmental Impact
Statement. NNSA has prepared this
document in accordance with the
National Environmental Policy Act
(NEPA), the Council on Environmental
Quality (CEQ) regulations that
implement the procedural provisions of
NEPA (40 CFR Parts 1500–1508), and
DOE procedures implementing NEPA
(10 CFR Part 1021).
DATES: NNSA invites comments on the
Draft Complex Transformation SPEIS
during the 90-day public comment
period, which ends on April 10, 2008.
NNSA will consider comments received
VerDate Aug<31>2005
14:33 Jan 10, 2008
Jkt 214001
after this date to the extent practicable
as it prepares the Final Complex
Transformation SPEIS. NNSA will hold
19 public hearings on the Draft Complex
Transformation SPEIS. The locations,
dates, and times are listed in the
SUPPLEMENTARY INFORMATION section.
ADDRESSES: Requests for additional
information on the Draft Complex
Transformation SPEIS, including
requests for copies of the document,
should be directed to: Mr. Theodore A.
Wyka, Complex Transformation SPEIS
Document Manager, Office of
Transformation, NA–10.1, Department
of Energy/NNSA, 1000 Independence
Avenue, SW., Washington, DC 20585,
toll free 1–800–832–0885 ext. 63519.
Written comments on the Draft Complex
Transformation SPEIS should be
submitted to the above address, by
facsimile to 1–703–931–9222, or by
e-mail to complextransformation@
nnsa.doe.gov. Please mark
correspondence ‘‘Draft Complex
Transformation SPEIS Comments.’’
For general information regarding the
DOE NEPA process contact: Ms. Carol
M. Borgstrom, Director, Office of NEPA
Policy and Compliance, GC–20, U.S.
Department of Energy, 1000
Independence Avenue, SW.,
Washington, DC 20585, telephone 202–
586–4600, or leave a message at 1–800–
472–2756. Additional information
regarding DOE NEPA activities and
access to many of DOE’s NEPA
documents are available on the Internet
through the DOE NEPA Web site at
https://www.eh.doe.gov/nepa.
SUPPLEMENTARY INFORMATION: Public
Hearings and Invitation to Comment.
NNSA will hold 19 public hearings on
the Draft Complex Transformation
SPEIS. The hearings will be held at the
following locations, dates, and times:
North Augusta, South Carolina, North
Augusta Community Center, 495
Brookside Avenue, North Augusta,
SC, Thursday, February 21, 2008 (11
a.m.–3 p.m. and 6 p.m.–10 p.m.)
Oak Ridge, Tennessee, New Hope
Center, 602 Scarboro Road (Corner of
New Hope and Scarboro Roads), Oak
Ridge, TN, Tuesday, February 26,
2008 (11 a.m.–3 p.m. and 6 p.m.–10
p.m.)
Amarillo, Texas, Amarillo Globe-News
Center, Education Room, 401 S.
Buchanan, Amarillo, TX, Thursday,
February 28, 2008 (11 a.m.–3 p.m. and
6 p.m.–10 p.m.)
Tonopah, Nevada, Tonopah Convention
Center, 301 Brougher Avenue,
Tonopah, NV, Tuesday, March 4,
2008 (6 p.m.–10 p.m.)
Las Vegas, Nevada, Atomic Testing
Museum, 755 E. Flamingo Road, Las
PO 00000
Frm 00024
Fmt 4703
Sfmt 4703
2023
Vegas, NV, Thursday, March 6, 2008
(11 a.m.–3 p.m. and 6 p.m.–10 p.m.)
Socorro, New Mexico, Macey Center (at
New Mexico Tech), 801 Leroy Place,
Socorro, NM, Monday, March 10,
2008 (6 p.m.–10 p.m.)
Albuquerque, New Mexico,
Albuquerque Convention Center, 401
2nd Street NW, Albuquerque, NM,
Tuesday, March 11, 2008 (11 a.m.–3
p.m. and 6 p.m.–10 p.m.)
Los Alamos, New Mexico, Hilltop
House, 400 Trinity Drive at Central,
Los Alamos, NM, Wednesday, March
12, 2008 (6 p.m.–10 p.m.)
Los Alamos, New Mexico, Hilltop
House, 400 Trinity Drive at Central,
Los Alamos, NM, Thursday, March
13, 2008 (11 a.m.–3 p.m.)
Santa Fe, New Mexico, Genoveva
Chavez Community Center, 3221
Rodeo Road, Santa Fe, NM, Thursday,
March 13, 2008 (6 p.m.–10 p.m.)
Tracy, California, Holiday Inn Express,
3751 N. Tracy Blvd., Tracy, CA,
Tuesday, March 18, 2008 (6 p.m.–10
p.m.)
Livermore, California, Robert Livermore
Community Center, 4444 East
Avenue, Livermore, CA, Wednesday,
March 19, 2008 (11 a.m.–3 p.m. and
6 p.m.–10 p.m.)
Washington, DC, Forrestal Building,
1000 Independence Ave, SW.,
Washington, DC, Tuesday, March 25,
2008 (11 a.m.–3 p.m.)
Individuals who would like to present
comments orally at these hearings must
register upon arrival at the hearing.
NNSA will allot three to five minutes,
depending upon the number of
speakers, to each individual wishing to
speak so as to ensure that as many
people as possible have the opportunity
to speak. More time may be allotted by
the hearing moderator as circumstances
allow. NNSA officials will be available
to discuss the Draft Complex
Transformation SPEIS and answer
questions during the first hour. NNSA
will then hold a plenary session at each
public hearing in which officials will
explain the Draft Complex
Transformation SPEIS and the analyses
in it. Following the plenary session, the
public will have an opportunity to
provide oral and written comments.
Oral comments from the hearings and
written comments submitted during the
comment period will be considered by
NNSA in preparing the Final Complex
Transformation SPEIS.
The Draft Complex Transformation
SPEIS and additional information
regarding complex transformation are
available on the Internet at https://www.
ComplexTransformationSPEIS.com and
https://www.nnsa.doe.gov. The Draft
E:\FR\FM\11JAN1.SGM
11JAN1
]]>Agencies
[Federal Register Volume 73, Number 8 (Friday, January 11, 2008)]
[Notices]
[Pages 2018-2023]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-301]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\5\ PJM Open Access Transmission Tariff, Attachment DD, section
6.7(d)(ii).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\6\ PJM Market Monitoring Unit, Analysis of the 2007-2008 RPM
Auction (Aug. 16, 2007) (PJM Report), available at: https://
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\8\ 16 U.S.C. 824e (2000).
\9\ Complaint at 13-14.
\10\ Id. at 14.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\11\ Id. at 16-17.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\12\ Id. at 19.
---------------------------------------------------------------------------
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 (https://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
