PJM’s Market Monitor overstepped its authority in calculating the maximum price generators can offer into capacity auctions, but the RTO’s Tariff may need to be changed to prevent a windfall to generators, the Federal Energy Regulatory Commission ruled.
The commission ruled in favor of FirstEnergy Solution’s challenge to the Monitor’s method of calculating market seller offer caps. But while FE won its legal argument, the commission also gave weight to arguments by the Monitor and load representatives, who contended FE’s interpretation could allow generators to exercise market power. As a result, the commission ordered a “paper hearing” to determine whether PJM’s Tariff should be changed.
In April, FE asked FERC to rule that PJM’s Tariff requires the use of a generator’s cost-based energy offers in the determination of net projected PJM market revenues, a component used in calculating capacity offer caps.
The Monitor uses the lower of the price-based offer and the cost-based offer submitted by the capacity resource.
The case centered on a dispute over the Tariff’s requirement that projected energy market and ancillary services revenues be “net of marginal costs for providing such energy (i.e., costs allowed under cost-based offers pursuant to Section 6.4 of Schedule 1 of the Operating Agreement) and ancillary services.”
FERC agreed with FE that the Tariff’s use of the abbreviation “i.e.” prevents the Monitor from exercising its discretion in choosing between price- and cost-based offers.
“The term ‘i.e.,’ as defined by Black’s Law Dictionary, is an abbreviation of the Latin id est meaning ‘that is.’ The Tariff therefore is defining the term ‘marginal costs’ to be the cost-based offers under Section 6.4 of Schedule 1,” the commission ruled (EL14-36). “In addition, the Tariff neither mentions a ‘lower-of’ methodology as proposed, nor does it suggest that the determination of marginal cost is subject to the interpretation of the IMM. Indeed, the final interpretation is made by PJM under the Tariff, and our interpretation is also consistent with PJM’s own reading of its Tariff.”
The Monitor said its interpretation was justified because non-zero price-based energy offers that are less than cost-based offers reflect actual marginal cost. Intervenors representing consumers had filed comments supporting the Monitor’s position.
The PJM Industrial Customer Coalition and consumer advocates for six states and D.C. contended a FE victory “would result in a direct transfer of potentially billions of dollars from customers to sellers.” (See Billions at Stake in Capacity Market Challenge.)
Because of those concerns, the commission said, the Tariff’s provisions for the calculation of projected market revenues “may be unjust and unreasonable.”
The commission ordered PJM to file a brief defending the current language within 60 days. Reply briefs will be due 30 days after PJM’s brief.
