UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Transcription

1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Calpine Corporation, Dynegy Inc., Eastern ) Generation, LLC, Homer City Generation, ) Docket Nos. EL L.P., NRG Power Marketing LLC, GenOn ) Energy Management, LLC, Carroll County ) Energy LLC, C.P. Crane LLC, Essential ) Power, LLC, Essential Power OPP, LLC, ) Essential Power Rock Springs, LLC, ) Lakewood Cogeneration, L.P., GDF SUEZ ) Energy Marketing NA, Inc., Oregon Clean ) Energy, LLC and Panda Power Generation ) Infrastructure Fund, LLC, ) ) v. ) ) PJM Interconnection, L.L.C. ) ) PJM Interconnection, L.L.C. ) ER ) ER ) PJM Interconnection, L.L.C. ) EL ) (Consolidated) ) REQUESTS OF PJM INTERCONNECTION, L.L.C. FOR CLARIFICATION AND REHEARING PJM Interconnection, L.L.C. ( PJM ), pursuant to section 313 of the Federal Power Act ( FPA ) 1 and Rule 713 of the Federal Energy Regulatory Commission s ( Commission ) procedural rules, 2 seeks rehearing and clarification of the Commission s June 29, 2018 order in this proceeding. 3 Specifically, PJM seeks clarification, or in the 1 16 U.S.C. 825l(a) C.F.R Calpine Corp. v. PJM Interconnection, L.L.C., 163 FERC 61,236 (2018) ( June 29 Order ). Capitalized terms not defined herein shall have the meaning as contained in the PJM Open Access Transmission Tariff ( Tariff ), the Amended and Restated Operating Agreement of PJM Interconnection, L.L.C. ( Operating (Cont d... )

2 alternative rehearing, that variants or elements of PJM s Capacity Repricing Proposal 4 could be incorporated in a just and reasonable approach to addressing the impact of state subsidies on PJM s capacity market. PJM also seeks rehearing of the Commission s factual finding that the Capacity Repricing Proposal would artificially inflate prices. In support, PJM shows as follows: I. BACKGROUND On April 9, 2018, PJM submitted the Capacity Repricing Proposal and, in the alternative, an extension of the Minimum Offer Price Rule ( MOPR ) to address supplyside state subsidies and their impact on determining just and reasonable prices in the PJM capacity market. In the June 29 Order, the Commission rejected both the Capacity Repricing Proposal and the proposed MOPR extension, but found, pursuant to FPA section 206, 5 that PJM s tariff is unjust and unreasonable because it fails to protect the capacity market from the price-suppressive impacts of out-of-market support to new and existing capacity resources. 6 However, the Commission was unable in the June 29 Order to establish a just and reasonable replacement rate and therefore instituted a paper hearing for parties to address the just and reasonable replacement rate, including a resource- (... cont d) Agreement ), or the Reliability Assurance Agreement Among Load Serving Entities in the PJM Region. 4 By Capacity Repricing Proposal, PJM refers to the set of tariff changes designated as Option A in the April 9 Filing. Capacity Repricing or in the Alternative MOPR-Ex Proposal: Tariff Revisions to Address Impacts of State Public Policies on the PJM Capacity Market of PJM Interconnection, L.L.C., ER (Apr. 9, 2018) ( April 9 Filing ) U.S.C. 824e. 6 June 29 Order at P 5. 2

3 specific Fixed Resource Requirement ( FRR ) identified by the Commission (in conjunction with an expanded MOPR) or any other proposal that may be presented. 7 II. SPECIFICATION OF ERRORS AND STATEMENT OF ISSUES PJM specifies the following errors and issues in accordance with Commission Rule 713(c)(2): 8 To the extent the Commission does not confirm, as requested below, that variants or elements of the Capacity Repricing Proposal could be part of a just and reasonable replacement rate, that would be error, given that the June 29 Order stated that it acted on that proposal only as submitted; made only preliminary findings on a replacement, and allowed consideration of any other proposal in the paper hearing. Motor Vehicle Mfrs. Ass n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) ( Motor Vehicle Mfrs. ); Black Oak Energy, LLC v. FERC, 725 F.3d 230, (D.C. Cir. 2013); and The Commission erred in finding that the Capacity Repricing Proposal would artificially inflate clearing prices. See Motor Vehicle Mfrs., 463 U.S. at 43; Tenneco Gas v. FERC, 969 F.2d 1187, 1214 (1992). III. ARGUMENT A. The Commission Should Confirm that, Notwithstanding Its Rejection of PJM s Capacity Repricing Proposal, Variants or Elements of that Proposal Could Serve as a Source for Possible Remedies to the Current Tariff Provisions that the Commission Found Unjust and Unreasonable. PJM strongly supports the Commission s finding that changes are needed to PJM s Tariff, because the existing terms fail[] to protect the integrity of competition in the wholesale capacity market against unreasonable price distortions and cost shifts caused by out-of-market support to keep existing uneconomic resources in operation, or 7 Id. at P C.F.R (c)(2). 3

4 to support the uneconomic entry of new resources. 9 As the June 29 Order makes clear, this finding is amply supported by the record in the proceedings regarding PJM s April 9 Filing and the Calpine complaint in Docket No. EL Having found, under FPA section 206, that the existing Tariff is unjust and unreasonable for failing to protect against price suppression due to out-of-market support for uneconomic resources, the Commission now must find and establish a replacement rate. As PJM prepares its paper hearing submission, and seeks input from stakeholders, PJM will ensure that its submittal meets the objectives set by the June 29 Order. The Commission can well appreciate, however, the issues in this area are complex; it remains unclear if the resource-specific FRR concept will solve the very problem that the June 29 Order so clearly identified and seeks to remedy. The Commission rejected PJM s Capacity Repricing Proposal as a result of Commission concerns on certain design elements of that proposal. By this filing, PJM does not challenge that rejection, and instead seeks only to ensure that the June 29 Order does not unduly limit the design elements available to the Commission as it determines just and reasonable tariff terms that address both the problems identified in the June 29 Order with the current market rules, and the concerns identified in that order with PJM s proposal as submitted. Given that the June 29 Order stated that the Commission s findings on a possible solution were only preliminary, 11 and given that there are no simple solutions in this challenging area at the intersection of state and federal interests, the Commission should 9 June 29 Order at P See e.g., id. at PP 5-6, See June 29 Order at PP 157,

5 clarify that its rejection of Capacity Repricing as filed does not bar PJM or other stakeholders from presenting aspects of the Capacity Repricing Proposal design elements (but not necessarily the full proposal) as one part of a broader solution to remedy the unjust and unreasonable situation found by the Commission. 12 Indeed, the June 29 Order can reasonably be read as allowing consideration of at least some variant of Capacity Repricing or using certain elements of that proposal in a newly submitted package responsive to the Commission s directives. The June 29 Order confine[s] [its] finding [that the Capacity Repricing Proposal is unjust and unreasonable] to PJM s Capacity Repricing proposal, as submitted, as a stand-alone solution. 13 This implies that variants of the Capacity Repricing Proposal from the specific proposal submitted, or deployed not on a stand-alone basis, but as part of other changes, remain viable for possible adoption in a final order. Similarly, the June 29 Order states that the Commission is initiating a paper hearing to address the just and reasonable replacement rate for PJM s existing MOPR, including the [resource-specific FRR] proposal identified above, or any other proposal that may be presented. 14 Thus, the June 29 Order clarifies that the just and reasonable replacement rate could include any other proposal that may be presented To be clear, PJM does not seek rehearing in order to refile the Capacity Repricing Proposal. Rather, PJM seeks only confirmation (and failing that, rehearing) that the June 29 Order does not preclude particular elements of that proposal from being part of an overall just and reasonable replacement for the existing MOPR terms that the Commission has found unjust and unreasonable. 13 June 29 Order at P Id. at P Id. 5

6 However, given the June 29 Order s rejection of the Capacity Repricing Proposal, clarification is warranted. Elements of, or some variant of, capacity repricing, should remain within the realm of possible just and reasonable solutions. And, if the Commission finds such a new proposal which may borrow elements of capacity repricing just and reasonable, it should confirm in its final order 16 that nothing in the June 29 Order bars adoption of such a proposal. To the extent the Commission declines to make this clarification, and only in such case, PJM seeks rehearing of any broader reading by the Commission on the viability of elements of capacity repricing in a new proposal responsive to the June 29 Order. B. The Commission Should Grant Rehearing of the June 29 Order s Finding that Capacity Repricing Artificially Inflates Clearing Prices. While PJM is electing not to seek rehearing of much of the June 29 Order s treatment of the Capacity Repricing Proposal, PJM seeks rehearing of the Commission s finding in its June 29 Order that PJM s Capacity Repricing Proposal artificially inflates the capacity market clearing price to compensate for the participation of resources receiving out-of-market support in the PJM capacity market. 17 That finding is incorrect and unsupported; the Commission should reconsider that finding on rehearing. That finding, if read broadly, could pose an unintended barrier to other yet-to-be submitted alternatives designed to restore the price to levels they would have been but for the subsidy. Indeed, a broad ruling that any such action to restore prices to their competitive 16 PJM of course has no objection if the Commission wishes to provide this clarification as part of the paper hearing process. The focus of this pleading is less on what parties may submit than on what the Commission may consider. 17 June 29 Order at P 64. 6

7 levels absent the subsidy artificially inflates the capacity market clearing price could equally apply to the Commission s support of a broad MOPR and thus is inconsistent with the Commission s finding that a broad MOPR represents an acceptable mechanism to ensure that prices are just and reasonable. Simply put, repricing a below-cost offer to a competitive level does not artificially inflate prices, whether done under a MOPR (which the Commission has often approved) or under PJM s Capacity Repricing Proposal. In both cases, the offer is increased to the level of a price submitted by a seller that covers its resource s going-forward costs solely with PJM market revenues. 18 The Commission often has held that a price based on avoidable costs and expected PJM market revenues is a competitive offer, and that clearing prices reflecting such offers are just and reasonable. 19 The end result of such an approach, if applied to a subsidized offer, should approximate the competitive outcome had there been no subsidy. The Capacity Repricing Proposal proposed exactly that approach to determine a competitive price level for a subsidized resource. PJM s Capacity Repricing Proposal 18 See April 9 Filing at See, e.g., PJM Interconnection, L.L.C., 135 FERC 61,022, at PP 122 ( [A] sell offer would be permissible when such offer is consistent with the competitive, cost-based, fixed, nominal levelized, net cost of new entry were the resource to rely solely on revenues from PJM-administered markets. ), 155 ( [A] competitive offer, and a reasonable offer floor, would approximate the seller s incremental cost, a reasonable offer floor for a long lead time resource would be substantially below its full construction cost (net of market energy revenues). ), order on reh g, 137 FERC 61,145, at P 205 (2011) ( For a competitive market like [the Reliability Pricing Model] to function as intended, i.e., to ensure that capacity prices will elicit new entry when new capacity is needed, offers submitted into PJM s capacity auctions must accurately reflect avoidable net costs. ); PJM Interconnection, L.L.C., 119 FERC 61,318, at P 138 (2007) ( A competitive seller of capacity is expected to bid its avoidable costs or the costs it would not incur if it does not commit to supplying capacity in the delivery year. ). 7

8 also proposed to use that competitive price in the same way it is used in PJM s preexisting MOPR: the competitive price is inserted in the supply stack and determines the clearing price only if the offer is infra-marginal or marginal. 20 If the repriced offer lands on the part of the supply curve that is beyond (to the right of) the Variable Resource Requirement ( VRR ) Curve, it is not reflected in the clearing price. 21 If the repriced offer lands on the part of the supply curve under or on the VRR Curve, then it helps set the clearing price. Stacking competitive offers by price, and setting the clearing price at the intersection of that supply curve with the VRR Curve, is exactly how PJM s capacity market is designed to operate. 22 Therefore, resetting the subsidized offer to a competitive level, and allowing it to set the clearing price (or not) based on its relative level compared to the rest of the supply stack, is in no way an artificial inflation of the clearing price. PJM s Capacity Repricing Proposal was expressly intended to accommodate state resource programs by ensuring that the subsidized resource is credited as capacity, even if its repriced competitive offer exceeds the clearing price. That changes the identity of the cleared resources, but it does not inflate the clearing price. Specifically, by guaranteeing that a qualifying subsidized resource is credited as capacity, the Capacity Repricing 20 The mitigation mechanism applied in MOPR to subsidies was adopted in the Capacity Repricing Proposal. The proposals really differ only in that a subsidized resource under the Capacity Repricing Proposal is essentially recognized as a capacity resource before an auction clearing price is established (considering the mitigated offer from the resource). Under MOPR, the auction clearing price is established (again considering the mitigated offer from the resource), but under this construct the subsidized resource will obtain a capacity commitment only if its mitigated offer economically clears. 21 See April 9 Filing at See, e.g., PJM Interconnection, L.L.C., 117 FERC 61,331, at P 16 (2006) ( The auction clearing model will set prices based on locational constraints, the submitted supply offers, and a Variable Resource Requirement Curve. ). 8

9 Proposal created the possibility of displacing a seller whose offer would otherwise clear (because the offer is below the recalculated clearing price). Yet, even though the displaced seller in that scenario would not receive a capacity commitment, that seller s infra-marginal offer would still determine the clearing price. 23 In other words, the clearing price and cleared quantity would be the same whether a subsidized offer was set to a competitive level using MOPR or Capacity Repricing. All that would differ would be which resources make up the cleared quantity. PJM does not contest the Commission s concern with the impact on resources that would have cleared but for the insertion of the subsidized resource. But the resulting price (as opposed to the resource mix) is not, in and of itself, artificially inflated. Therefore, the June 29 Order s finding that the Capacity Repricing Proposal artificially inflates the clearing price 24 is contrary to fact, and contrary to the Commission s prior orders finding that MOPR (which on this point operates in the same way as the Capacity Repricing Proposal) helps ensures just and reasonable clearing prices. While the Commission should never allow a demonstrably incorrect finding to stand, 25 such correction is especially essential here, as the Commission has not yet determined a remedy for the existing tariff terms it has found unjust and unreasonable because they allow price suppression from below-cost offers. Repricing of offers to a competitive level repeatedly has been accepted as a remedy for price-suppressive offers. 23 See April 9 Filing at 64, Figure June 29 Order at P Tenneco Gas v. FERC, 969 F.2d at 1214 ( [A] FERC order neglectful of pertinent facts on the record must crumble for want of substantial evidence. So too here we conclude that FERC s refusal to come to grips with Ozark s rebuttal evidence is irreconcilable with the Commission s responsibility to support its decisions with substantial evidence. ). 9

10 PJM recognizes that the June 29 Order questioned the proposal s impact on which resources are credited as capacity and the price a subsidized resource should receive. Those questions aside, the Capacity Repricing Proposal does result in clearing prices that are based on competitive offers. Accordingly, as the Commission evaluates just and reasonable replacement terms in the paper hearing, it should not allow an errant factual finding to stand as an obstacle to considering (and adopting) reasonable solutions that include elements of the Capacity Repricing Proposal. IV. CONCLUSION June 29 Order. PJM requests that the Commission grant clarification of and/or rehearing of the Respectfully submitted, /s/ Paul M. Flynn Jennifer Tribulski Paul M. Flynn Associate General Counsel Ryan J. Collins PJM Interconnection, L.L.C. Wright & Talisman, P.C Monroe Blvd G Street, N.W., Suite 600 Audubon, PA Washington, D.C (610) (202) Jennifer.Tribulski@pjm.com flynn@wrightlaw.com collins@wrightlaw.com Craig Glazer Vice President Federal Government Policy PJM Interconnection, L.L.C G Street, NW, Suite 600 Washington, DC (202) Craig.Glazer@pjm.com Dated: July 30, 2018 Attorneys for PJM Interconnection, L.L.C. 10

11 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Washington, D.C., this 30th day of July /s/ Ryan J. Collins Ryan J. Collins Attorney for PJM Interconnection, L.L.C.