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November 19, 2024

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ISO-NE Gens. Challenge Capacity Rules Ahead of FCA

ISO-NE generators asked federal regulators to change market rules ahead of February’s capacity auction while state officials complained consumers face excessive costs because of unrealistic load forecasts. In all, the ISO’s load and supply interests opened three capacity market dockets at the Federal Energy Regulatory Commission in the last two weeks. (See related story, States, NEPOOL: ISO-NE Overestimating Capacity Needs.)

By William Opalka

Exelon, Calpine: ISO-NE New Entry Rule Suppresses Prices

Exelon and Calpine want FERC to change a pricing rule in the forward capacity market (FCM) in New England that FERC has previously rejected in PJM.

The companies are seeking a ruling by Jan. 23, before ISO-NE’s Forward Capacity Auction (FCA) for the 2018/19 capacity commitment period begins Feb. 2.

The New Entry Pricing Rule in the ISO-NE Tariff gives the sponsor of a new resource the option of locking in the price at which the resource first clears in an FCA for up to six subsequent delivery years.

In a complaint filed Nov. 28 (EL15-23), the companies said the rule suppresses prices for other capacity providers because it results in new resources entering the equivalent of zero-price offers in the six additional years.

FERC had rejected a similar rule in PJM but noted that PJM uses a downward-sloped demand curve in its capacity market.

“That distinction is no longer valid as ISO-NE has adopted a downward-sloping demand curve beginning with the FCA for the 2018/2019 capacity commitment period,” the companies said. “As a result, the PJM precedent is now indisputably applicable to ISO-NE’s FCM rules.”

They said they are not trying to eliminate the rule but asked the commission to “remedy the impacts of the resulting price suppression.” Such a remedy could “entail additional payments” to other capacity suppliers, they said.

The New Entry Pricing Rule was intended to provide predictable revenues for new capacity. Earlier this year, the maximum lock-in period was extended from five to seven years, which FERC had acknowledged could result in lower market clearing prices.

The companies supported their complaint with an affidavit from Michael M. Schnitzer, a director of the NorthBridge Group, who said the zero-price offer requirement will significantly suppress FCM clearing prices, hurting both existing resources and new ones.

“Remedying this price suppression is even more vital in this case than it was in PJM’s case, because locked-in pricing is more widely available and the potential lock-in period is more than twice as long under ISO-NE’s New Entry Pricing Rule than under PJM’s [New Entry Price Adjustment] mechanism,” the companies added.

New England Gens: Cut Rebate Payments

Meanwhile, the New England Power Generators Association wants ISO-NE to immediately roll back the Peak Energy Rent Adjustment, saying recent policy changes eliminate the need for it and that its existence threatens reliability.

The group representing the owners of 26,000 MW of generation in New England filed a complaint (EL15-25) with FERC on Dec. 3. They seek to have ISO-NE modify the PER for Capacity Commitment Periods 5 through 8 — from now until early 2018 — and then eliminate it altogether for FCA 9. The auction covers delivery year 2018/19, when the ISO will implement its pay-for-performance program, which will tie capacity revenues to real-time performance.

“The current PER Adjustment, which obligates capacity suppliers to rebate a portion of their capacity revenues based on real-time energy prices, is unjust and unreasonable in light of the increases in the Reserve Constraint Penalty Factors (RCPFs) in ISO-NE’s energy market directed by the commission earlier this year,” the association said.

NEPGA requests a refund-effective date of Dec. 3, the effective date of the previously accepted increase in the RCPFs.

The new RCPFs could substantially increase real-time energy prices and, by extension, the PER Adjustment.

NEPGA says the PER Strike Price, which determines the magnitude of the PER Adjustment, should be increased by $250/MWh, as proposed recently by ISO-NE in its stakeholder process in response to the change in RCPFs.

The proposal fell short of the 60% support ISO-NE said it would require to seek FERC approval. The proposal won almost 58% support at the Markets Committee and a 47% vote in favor at the New England Power Pool Participants Committee.

The PER Adjustment was designed in part to discourage the exercise of market power through withholding and to provide a hedge to load against high real-time prices. NEPGA says any benefits now are outweighed by its likely cost.

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FERC Approves Revised PJM-Duke JOA Despite IMM Protest

By Michael Brooks

The Federal Energy Regulatory Commission approved a revised joint operating agreement (JOA) between PJM and Duke Energy Progress (DEP) last week despite protests from the RTO’s Independent Market Monitor that it gives Duke favored treatment on interchange pricing.

The revisions to the JOA, which PJM originally signed with Progress Energy Carolinas (PEC) in 2005, were relatively minor, including updates to the company’s name and contact information to reflect Duke Energy’s 2012 acquisition of the utility.

The Market Monitor filed a protest in October contending that PJM should terminate the JOA and negotiate a new one to reflect the joint dispatch agreement (JDA) that PEC and Duke Energy Carolinas signed as part of the acquisition. (See IMM Calls for New PJM-Duke Progress JOA.)

FERC dismissed (ER15-29) the Monitor’s protest, saying that it was challenging unchanged portions of the agreement, not the changes themselves, making the protest beyond the scope of the filing. The commission said the Monitor could file a complaint in a new docket making its case that the dispatch agreement renders the JOA unjust and unreasonable.

In joint comments filed last month, PJM and DEP called the Monitor’s protest “a pretext to rehash old arguments on which the commission has already ruled.”

“Having failed to obtain its desired result in 2010 [when FERC approved the JOA], the PJM IMM now tries for a second bite at the apple,” they said.

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Study: Southeast to Become No. 1 Natural Gas Destination

By Chris O’Malley

natural gasElectric demand, industrial use and liquefied natural gas exports will make the Southeast the top destination for natural gas in the U.S. by 2019, according to a Bentek Energy study for America’s Natural Gas Alliance (ANGA).

Richard Smead, managing director of RBN Energy, presented the study results at a meeting of MISO’s Entergy Regional State Committee in Austin, Texas, last week.

Demand in the 10-state Southeast region will increase by 9.5 Bcf/d by 2024, about 39% of the projected demand growth in the U.S.

Gas burned to produce power will increase by 2.2 Bcf/d in the region, a 31% jump, with triple-digit increases in Tennessee (+290%), Kentucky (+276%) Arkansas (+150%).

“The rate of growth in power generation has been huge. A lot of that is driven of course by coal retirements … which raises the question of whether gas is capable of doing this,” Smead said. The answer, he said, is yes.

The study concludes that there is enough supply and pipeline capacity to meet any plausible power generation demand scenario in the Southeast “with stable, affordable power,” Smead said.

LNG Exports

Combined with LNG exports and increased industrial demand, the Southeast will become the nation’s top demand region by 2019, surpassing the Northeast. LNG exports will be responsible for more than half of the Southeast’s demand growth, with LNG shipments from three terminals in the Gulf and one in Georgia projected to hit 5.7 Bcf/d by 2021.

The Northeast is projected for a 3.4 Bcf/d increase in demand by 2024, less than a quarter of its projected 15.1 Bcf/d increase in production.

The Southeast’s demand growth will exceed its projected 3.1 Bcf/d increase in production, but its existing pipeline infrastructure — originally built to carry gas from the Gulf of Mexico to other regions — and pipeline projects capable of carrying 13 Bcf/d should be able to handle the imports. The region currently imports more than 5 Bcf/d.

There are 200 major industrial projects proposed for the Southeast, including a methanol plant envisioned for Louisiana. That guarantees that the pipelines will get built, Smead said. “It’s not being left to the [electric] utilities to pay for it all.”

Break-Even Prices Down

Meanwhile, producer break-even prices have fallen below the levels assumed in the Bentek study, which projects North American production growth of 26 Bcf/d by 2024.

“We’re running into studies now that are indicating between big increases in efficiency and the gas coming forward with oil production … that producer break-even prices are really closer to $2.50 to $3 [per MMBtu], meaning production growth just keeps on going,” Smead said.

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PJM Operating Committee Briefs

PJM began voluntary winter testing of infrequently used generators last week, one of the RTO’s efforts to avoid the high level of forced outages last January.

“We had some units fail to start,” PJM’s Dave Schweitzer said. “That justifies this testing.”

The testing is open to units that have not run in the prior eight weeks, including dual-fuel units that have run only on their primary fuel during that time.

Some units that were initially nominated to participate were eliminated when they were called on to produce energy during November’s cold snap, Schweitzer said.

In a related matter, PJM said it expects to allow generators to begin testing in January on software revisions allowing them to update fuel costs intraday and to enter data on dual-fuel capabilities and operational restrictions.

Synchronized Reserve Performance Up with Increased Penalties

pjm operating committeeTier 2 synchronized reserve resources have shown a big improvement in performance since PJM initiated tougher non-performance penalties in January.

Demand-side resources have provided 86% of assigned megawatts during synchronized-reserve events that lasted more than 10 minutes so far in 2014, up from 62% in 2013.

Generation resources showed an even bigger year-over-year improvement, to 89% in 2014 from 59% in 2013.

Since 2007, generation resources had achieved 80% or better performance only twice before. The connection between performance and the increased penalties is less clear for demand resources, which hit 85% in 2011 and 100% in 2012.

Both resource types also showed big year-over-year improvements for events lasting less than 10 minutes. For all events, demand resources provided 74% of assignments, up from 63% in 2013.

Generator performance rose to 77% from 55%, with combined-cycle units more than tripling their performance from 49% to 163%, once again the best among all generation types. Combined-cycle units’ performance had fallen by half between 2008 and 2013. (See CC’s Synchronized Reserve Performance Drops.)

PJM increased non-performance penalties effective Jan. 1 after determining that the previous rules — written when SR calls occurred about every three days — had lost their effectiveness as the calls became less frequent.

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Powhatan Renews PR Campaign as FERC Readies Enforcement Action

By Ted Caddell

The Gates brothers have returned to their battle stations.

In October, hedge fund twins Rich and Kevin Gates stopped talking to the press and pulled down a website detailing their battle against the Federal Energy Regulatory Commission Office of Enforcement — a sign many saw as an indication that they were seeking a settlement over FERC market manipulation allegations.

Yesterday, the site was back up again. The decision to reactivate the site was spurred, according to Kevin Gates, by a Dec. 5 notice that FERC is about to move on to the next step — civil prosecution.

“We were hoping to move on with our lives and focus on other matters” when they decided to deactivate their website in October, Gates said Monday. “Then we got this letter, which seems to suggest that FERC would not let us move on.”

Gates steadfastly denied that any settlement with FERC was ever in the works. “There were never any settlement discussions,” he said. “We were just tired, and wanted to get on with our lives.”

The letter from FERC attorney Steven C. Tabackman indicated that the agency would make a public release about the investigation sometime after Dec. 10.

Gates is convinced it is going to be an order to show cause.

An order to show cause is the probable next step in the enforcement process, announcing a formal proceeding against the subject of an investigation, according to the FERC website explaining its enforcement process.

In August, the day after Bay was sworn in as commissioner, FERC staff issued a notice of alleged violations accusing the brothers and their partners in Powhatan Energy Fund of engaging in “manipulative” up-to-congestion trades in PJM in 2010. (See PJM UTC Case Likely Headed to Court After FERC Notice.)

At the time, Kevin Gates vowed to fight on.

On Oct. 21, FERC issued a notice that Commissioner Norman Bay was recusing himself from the Powhatan case. Bay headed up the FERC enforcement office when the investigation started. Shortly after that notice was published, the Gates brothers took down their site.

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Model Change Results in Lower Load Forecast for PJM

By Suzanne Herel

PJM is reducing its load forecast for 2018 by 2.6%, due in part to a temporary change in modeling that aims to address over-forecasting in recent years.

Acknowledging criticism that its forecasts have overestimated economic growth and failed to capture energy efficiency and behavioral changes that have dampened demand, PJM officials will use a “binary variable” to reduce next year’s forecast.

“There are things outside our model that our model is not picking up,” PJM’s Andrew Gledhill told the Planning Committee last week in a briefing on its draft load forecast.

Before applying the variable, PJM was projecting a 1.5% reduction in its 2018 summer peak load compared with the projection it made last year.

In addition to reducing the forecast for summer 2018 — the delivery year for next year’s capacity auction — the draft report reduces the summer peak load forecast for 2015 by 4,716 MW (-2.9%).

Peak load for 2020, the next Regional Transmission Expansion Plan (RTEP) study year, was cut by 4,152 MW (-2.5%) versus last year’s projection.

The workaround is a short-term fix. A more comprehensive solution is undergoing testing and expected to be implemented next year. (See Planning Committee Briefs: PJM Seeking Improved Load Forecasts.)

Economist James Wilson, a consultant to consumer advocates, questioned the use of the binary variable, saying it overcorrects in the short term and results in too high a rate of growth in later years. “It’s not a very good approach,” he said.

PJM Vice President of Planning Steve Herling said the debate would soon be moot. “I’m less concerned about the long-term implications of [this year’s fix] because we’re not going to be doing it next year,” he said.

Wilson also questioned why forecasters continue to add years to their historical period instead of dropping some of the earlier years.

Wilson said the first four years of PJM’s 1998-2014 historical base was a period when peak demand was growing in about a 1-to-1 relationship with growth in PJM’s economic variable, an elasticity that hasn’t been seen since and which may not return because of increased energy efficiency and demand response.

“A better way to move the forecast in the right direction would be to drop some of those now-anomalous early years from the forecast period,” he said.

Gledhill said the data from those previous years remains valid. “When you start shortening the estimation period, you’re shortening the period where you can measure how load reacts to economics,” he said.

Direct Energy’s David “Scarp” Scarpignato backed Wilson’s argument. “Something’s changed that’s making that data way-back-when less useful in the forecast,” he said. “Do you really want more data points if some of the data points are garbage?”

Herling said a final forecast report will be presented by the end of this month.

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Electric and Gas Industries Remain Divided on Gas Day Start Time

By Michael Brooks

gas day
(Click to zoom.)

The electric and natural gas industries remain divided over the start of the gas day, nine months after federal regulators proposed changing the start time from 9 a.m. CT to 4 a.m. CT.

On March 20, the Federal Energy Regulatory Commission issued a Notice of Proposed Rulemaking proposing the change to better align it with electric operations (RM14-2). The commission gave the North American Energy Standards Board six months to reach consensus among its gas and electric industry stakeholders. (See FERC: Six Months to Move Gas, Electric Schedules.)

But NAESB reported in September that the two sectors remained split, with the gas industry resisting any change in the start time.  When the comment period on the NOPR closed at the end of November, there was no evidence of any change in the stalemate.

Thus it will be up to FERC to decide whether to change the start time over the gas industry’s objections.

Whether Chairman Cheryl LaFleur has the votes to force a change is unclear. The commission approved the NOPR on a 3-1 vote with LaFleur, Commissioner Philip Moeller and former Commissioner John Norris in support. Commissioner Tony Clark dissented, saying he wanted to give the industries more time to reach consensus before FERC “put its thumb on the scale” in favor of a change.

Since then, the panel has added Commissioner Norman Bay and Arkansas regulator Colette Honorable has been nominated to replace Norris. (See related story, FERC Nominee Honorable Gets Bipartisan Support at Senate Hearing.)

In their comments, stakeholders from both industries were largely supportive of other modifications proposed by NAESB.

Besides changing the start of the gas day, FERC proposed moving the deadline to schedule gas for the Timely Nomination Cycle from 11:30 a.m. CT to 1 p.m. CT and increasing the number of intraday cycles from two to four. NAESB’s proposals were similar: it proposed the same start time for the Timely Nomination Cycle, but it suggested moving the end time from 4:30 p.m. CT to 5 p.m. CT. NAESB also added one extra intraday cycle to the proposal, instead of FERC’s two.

But the standards board was unable to bring the two industries to an agreement regarding the gas day, with electric favoring the earlier gas-day start time so it more closely aligns with the electric day, and gas saying the time change is unneeded and may be disruptive to gas markets.

Battle Lines Remain in Place

In its late September filing detailing its modifications, NAESB said that stakeholders on the Gas Electric Harmonization Committee had narrowed 13 proposals to four, each containing identical cycle schedules but different gas-day start times.

“Despite forum participants casting over 13,000 votes on 56 different motions, no single proposal gained the supermajority support required of both [electric and gas] quadrants to reach consensus on a single proposal,” NAESB said.

The board instead left the start time question up to FERC, submitting a proposal with the provisions that had common agreement while replacing all references to the start time in the standards with a question mark.

While some stakeholders suggested minor alterations to NAESB’s proposed cycle schedules, they each fell into one of two camps when it came to the gas day start time.

“Changing the start of the gas day is unnecessary to achieve the commission’s objectives in this proceeding and could create unintended adverse consequences to the natural gas industry,” said the Natural Gas Council, which represents companies in all segments of the gas supply chain. In comments filed late last month, the council urged FERC to adopt NAESB’s proposed cycle schedules, which it said would address generators’ concerns over running out of gas toward the end of the gas day, as demand for electricity ramps up during the morning.

The council also noted the regional disparity between generators who wanted an earlier start time, with those on the West Coast siding with the gas industry in maintaining the status quo. The proposed change would mean a 2 a.m. PT start time.

“Disrupting the entire natural gas market by moving the start of the gas day would be an overwhelming undertaking,” the council said. “The commission should not require a change to the national gas day to address a problem that is more limited and regional in nature.”

RTOs, meanwhile, support the earlier start time.

“The current start of the gas operating day … requires electric generators to nominate gas over two electric days. Gas scheduled during the day-ahead Timely Nomination Cycle covers the evening peak of one electric day, and the morning electric ramp of the following electric day,” the ISO/RTO Council said in its comments. “Schedules for the second electric day, which correspond to the morning electric ramp, are not yet known when generators nominate gas. Moving the gas operating day to an earlier time would allow generators to nominate gas in the day-ahead Timely Nomination Cycle, i.e., the most liquid cycle, to cover the morning electric ramp and the evening peak of a single electric day.”

The IRC represents all nine RTOs in North America, including CAISO, which the council said also supported an earlier start time. A number of RTOs filed their own comments as supplements to the IRC’s.

“Moving the gas day to 4 a.m. CT or earlier, coupled with changing the Timely Nomination Cycle to 1 p.m. CT, will enable owners of gas-fired generators needed for the peak morning period to timely nominate and schedule gas supply to support their ability to generate electricity at the start of the morning peak,” said ISO-NE, which noted New England’s heavy reliance on natural gas and its past difficulties procuring it.

MISO and SPP also voiced their support for the earlier start time, with SPP also proposing an even later start to the Timely Nomination Cycle.

Representing Diverse Views

Some stakeholders stayed neutral in the start-time discussion, as their membership was too diverse and divided to take a position on either side of the issue.

In its comments, the Electric Power Supply Association, which represents players in both the gas and electric industries, said it supported NAESB’s modifications and that it could not support either start time because its members were divided. But it also noted that there was a broad consensus on one aspect of the start time.

“While there are EPSA members on each side of this issue in terms of the 4 a.m./9 a.m. debate, there is clear consensus that some other time between 4 a.m. and 9 a.m., or different times set for different regions of the country, is not acceptable or workable,” EPSA said.

The Edison Electric Institute, which represents U.S. investor-owned utilities, also refrained from taking a position on the gas-day, but did offer  support for NAESB’s modifications. It also urged FERC, regardless of what it decides, to “provide the necessary lead time to ensure that the changes are made in a coordinated manner that maintains the reliability of both the electric and the natural gas systems.”

EEI recommended that FERC implement the changes during a “shoulder month,” preferably in the spring, when demand isn’t as high.

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PJM Planning Committee Briefs

pjmPJM’s new graduated queue-entry cost structure has not persuaded interconnection customers to file their requests earlier, PJM officials told members last week.

About 54% of the project applications in the queue that closed Oct. 31 (AA1) came in the final month, and 43% of those came in the final week — 26% on the final day — said David Egan, manager of interconnection projects. In the previous queue, before the fee structure was changed, 47% of applications came in the final month.

“This is not workable,” said Steve Herling, vice president of planning. “It hasn’t really improved with the changes we’ve made.”

Under the new structure, the deposit for applications filed in the first four months was set at $10,000; for the fifth month, $20,000; and for the last month, $30,000.

“I’m noodling on a method to fix this. That is going to be a proposal that we bring to better allow my group to handle it,” Egan said, inviting suggestions to incent early participation. “This is creating big chunks of work, and invariably things get dropped or missed.”

Projects totaling about 30,000 MW are currently under study, with another 19,000 MW under construction. Natural gas accounts for 80% of the total. PJM received 2,376 project applications in the queue. Of that, 23% are in-service and 172 agreements were terminated.

TO/TOP Matrix

Members approved Version 8 of the TO/TOP (Transmission Owner/Transmission Operator) Matrix, the result of an annual review. The document serves as an index between PJM manuals and North American Electric Reliability Corp. standards and creates no new obligations for PJM or its members.

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Verrilli to Seek Supreme Court Review of EPSA Ruling

By William Opalka

verrilli
U.S. Solicitor General Donald Verrilli

U.S. Solicitor General Donald Verrilli will ask the Supreme Court to review an appellate court ruling voiding the Federal Energy Regulatory Commission’s authority over demand response in wholesale energy markets.

Verrilli said in a filing yesterday that Chief Justice John Roberts had granted his request to extend a Dec. 16 deadline for filing a petition for a writ of certiorari by one month. “The FERC orders that the court of appeals set aside in this case address an integral feature of the nation’s wholesale electric-power markets under FERC’s jurisdiction — the rules for participation by demand-response resources — that is of substantial importance to the proper functioning of those markets and to assuring just and reasonable rates for wholesale power,” Verrilli said in a Dec. 5 filing requesting the extension.

FERC Chairman Cheryl LaFleur welcomed Verrilli’s action. “I believe the commission’s ability to regulate demand response in wholesale electric markets is of vital importance,” she said in a statement. “Demand response contributes to reliability, sustainability and affordability of electric service.”

NEPGA Request

Verrilli’s action came last week as ISO-NE and others took sides in response to a request by generators that DR be eliminated from New England’s forward capacity market.

The New England Power Generators Association asked FERC Nov. 14 to order ISO-NE to exclude DR from the Forward Capacity Market (EL15-21). (See New England Generators: Exclude DR from Capacity Auction.)

The generators said the request was warranted by the D.C. Circuit Court of Appeals ruling that vacated FERC Order 745, which set pricing rules for DR in wholesale energy markets. The ruling, which resulted from a challenge by the Electric Power Supply Association, was also cited in a similar challenge by FirstEnergy in PJM’s capacity market.

As of Friday, nearly 40 entities had sought to intervene in the New England docket, including power generators, demand response providers, consumer and environmental advocates, utilities, state regulators and commercial customers.

ISO-NE said the generators’ request is premature. “NEPGA’s suggestion that demand response simply be removed from the capacity market fails entirely to account for the continued benefits of demand response that currently participates in the wholesale market on the supply side, and the potential for structural and tariff adjustments to reflect these continued benefits.”

The New England Power Pool Participants’ Committee said ISO-NE must follow its filed rate and that NEPGA has not sought to utilize the stakeholder process to change it.

Demand response provider CPower said NEPGA’s complaint should be denied because it will make the capacity market less competitive, resulting in higher prices.

Public Service Enterprise Group was among those filing in support of the generators, saying the commission should prevent the ninth Forward Capacity Auction clearing prices from being distorted by resources that cannot lawfully participate in the auction. Commission action would avoid having to unwind the results of FCA 9 after the auction has run, PSEG said.

NEPGA asked FERC to issue an order by Jan. 15, two weeks before ISO-NE is set to begin its next FCA on Feb. 2.

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DOJ Probing Interconnection Process in Exelon-Pepco Merger

By Ted Caddell and Rich Heidorn Jr.

dojThe U.S. Department of Justice is investigating the interconnection process in PJM’s MAAC sub-region as part of its anti-trust review of Exelon’s $6.8 billion takeover of Pepco Holdings Inc.

PJM officials said last week they had received a request for documents regarding “each proposed generating facility or planned upgrade to an existing facility (300 MW and above) that filed a request with PJM to interconnect in the MAAC sub-region of PJM in the last 10 years.”

The request came just five days after the Federal Energy Regulatory Commission approved the acquisition, without discussion or conditions, at its Nov. 20 meeting (EC14-96).

The Justice Department appears to be investigating concerns previously raised by PJM’s Market Monitor, which said transmission owners may have a conflict of interest in conducting interconnection studies on competitors’ generation.

The request covers PJM and all members involved in the interconnection process. “If you are a transmission owner or generator owner in the MACC sub-region involved in generator interconnection queue requests 300 MW and above in the last 10 years, then you are an affected member,” Dave Anders, PJM director of stakeholder affairs, wrote in an email to members.

Of the more than 1,100 projects submitted in the last 10 years, about 245 of them are 300 MW or above and about 118 are in MAAC. The department wants those documents from all parties by Dec. 16.

“We’re just sending them all of our file cabinets,” joked Steve Herling, PJM vice president for planning, when asked about the request during the Planning Committee meeting last week.

Section 7 Inquiry

The Justice Department’s notice doesn’t detail why it is seeking the documents. The demand letter notes that it is seeking the documents “in the course of an antitrust investigation to determine whether there is, has been or may be a violation of Section 7 of the Clayton Act … by conduct, activities or proposed action” of the acquisition of Pepco by Exelon.

Section 7 prohibits a merger if “the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly.”

Exelon spokeswoman Judy Rader said the company has already provided the department with documents in connection with what she called “the DOJ’s review of our proposed merger, not a separate antitrust investigation.”

Interconnection Process

As in non-RTO regions, PJM’s transmission owners conduct the studies that determine what developers will need to spend to connect their generators to the grid without causing overloads or other reliability problems. PJM manages the queue process.

“The process is complex and time-consuming as a result of the nature of the required analyses. The cost, time and uncertainty associated with interconnecting to the grid may create barriers to entry for potential entrants,” the Independent Market Monitor noted in the State of the Market report for the third quarter of 2014. “The queue contains a substantial number of projects that are not likely to be built. These projects may create barriers to entry for projects that would otherwise be completed by taking up queue positions, increasing interconnection costs and creating uncertainty.”

PJM Assistant General Counsel Steve Pincus said PJM received a data request for Exelon’s acquisition of Constellation Energy. That deal closed in 2012.

This is the first time Pincus said he was aware of the department taking interest in the interconnection process.

FERC enforcement staff has investigated interconnection processes in other regions, such as the Southeast. There, independent generators complained that vertically integrated utilities outside of RTOs were using the process to thwart competition by delaying studies and requiring excessive spending on transmission upgrades.

“We think that our process, with the RTO’s independence, addresses those issues that existed in the past,” Pincus said.

IMM Still Has Concerns

Market Monitor Joe Bowring declined to comment yesterday on the department’s inquiry. But the Monitor has been recommending since 2013 that PJM outsource interconnection studies to an independent party to avoid potential conflicts of interest.

“Currently, these studies are performed by incumbent transmission owners under PJM’s direction. This creates potential conflicts of interest, particularly when transmission owners are vertically integrated and the owner of transmission also owns generation,” the Monitor said in the third-quarter report.

“There is also a potential conflict of interest when the transmission owner evaluates the interconnection requirements of new generation which is part of the same company,” the report added.

The Monitor also recommended last year that PJM establish a review process to ensure that projects are removed from the queue if they are not viable, and that commercially viable projects advance in the queue ahead of projects that have failed to make progress.

“DOJ issues these kinds of requests from time to time in large merger cases to gather more information to complete its investigation,” Rader said. “Exelon and PHI have already provided the DOJ with our documents related to this request, and now the DOJ is asking for similar information from other parties. Exelon and PHI will continue to work cooperatively with the DOJ as it conducts its review of our proposed merger.”

Not Routine

But D.C. energy attorney Carolyn Elefant, who has 25 years of experience in federal regulatory matters, sees it as anything but routine.

“It is very unusual,” Elefant said yesterday. “It does seem unusual for the Department of Justice to go right to the transmission organization, and also I am not quite sure why the Department of Justice didn’t raise these issues” with FERC, she said.

Elefant represents the Mid Atlantic Renewable Energy Coalition, one of the interveners in the Exelon-Pepco acquisition docket, but doesn’t represent any of the parties covered by the Justice Department document demand.

“I think it is fair to say that the Department of Justice either has concerns about the acquisition or concerns about FERC’s resolution,” she said.

FERC Approval

In September, FERC issued a notice that it had given permission for staff to communicate with the department.

In its Nov. 20 order, FERC indicated it did not have any anticompetitive concerns with the Pepco acquisition. (See FERC Approves Exelon-Pepco Merger.)

Dismissing concerns of market power, possible rate climbs and suppressed competition, the commission approved the pending acquisition without discussion. Its written decision made clear it didn’t see any market issues with the acquisition, in part because Pepco holds only a negligible amount of generation. “While the commission is aware that Exelon will be a member with more assets after the merger, there is nothing in the record of this proceeding to indicate Exelon will have excessive influence over the stakeholder process or the independence of PJM.”

FERC did not immediately respond to a request for comment yesterday.