Pennsylvania Bulletin

PA Bulletin, Doc. No. 01-2249

NOTICES

Investigation Order

[31 Pa.B. 6873]

Public Meeting held
November 30, 2001

Commissioners Present: Glen R. Thomas, Chairperson; Robert K. Bloom, Vice Chairperson; Aaron Wilson, Jr.; Terrance J. Fitzpatrick

Investigation Upon the Commission's Own Motion with Regard to PJM Installed Capacity Credit Markets; I-00010090

Investigation Order

By the Commission:

   At the beginning of January 2001, PJM installed capacity credit clearing prices (Installed Capacity Credits or ICAP) reported in PJM daily auction markets rose steeply and cleared at levels at or above the PJM Capacity Deficiency rate of $177.30 for nearly three months. Load serving entities serving load within the control area of PJM Interconnection, L.L.C.¹ , including electric generation suppliers serving Pennsylvania retail electric generation markets are required to have sufficient qualified capacity or credits to cover their daily obligation pursuant to the PJM Reliability Agreement § 7.4 or pay the prescribed capacity deficiency rate imposed by PJM Reliability Agreement, Schedule 11. The cost of securing capacity or capacity credits is in addition to the cost of securing or self-generating energy for eventual resale. In order to participate in the wholesale market, each load serving entity must obtain both capacity and energy, plus incur additional costs related to ancillary transmission services, required reserves and related miscellaneous costs of wholesale operations.

   On April 12, 2001, the Pennsylvania Public Utility Commission (Commission), by letter to the PJM Interconnection, L.L.C.'s Market Monitoring Unit (PJM MMU), requested PJM to provide this Commission with a report on the ICAP market, in accordance with the MMU's responsibilities prescribed by the Federal Energy Regulatory Commission² . On November 14, 2001, the Commission received a 17 page report from the PJM MMU entitled ''Report to the Pennsylvania Public Utility Commission--Capacity Market Questions--November 2001'' (Report) which concludes:

[That an unnamed entity called ''Entity 1'' in the report] ''did successfully raise the market price in the daily capacity credit market above the competitive level for a portion of the period from January 1 to April 30, 2001. The rules of the capacity market stated in the RAA did not explicitly prohibit this conduct. Nonetheless, the behavior constituted the exercise of undue market power and was inconsistent with the intended consequences of the rules . . . In the absence of those actions, the prices in the daily capacity market would have been lower.

   The Report also concludes that an increase in excess capacity within PJM as well as several subsequent changes to the PJM Reliability Agreement approved by FERC in response to filings made by the PJM Reliability Assurance Committee and PJM itself have acted to eliminate the ability of ''Entity 1'' to exercise market power and to correct the particular set of design flaws which permitted the exercise of market power identified in the Report during the January-April 2001 period. The report notes that the changes in market rules and underlying market conditions have caused prices to decline in daily, monthly and multimonthly ICAP markets, and that the capacity market ''continues to be the focus of significant attention by PJM and its members,'' but does not recommend any changes to the authority or resources of the MMU.

   The Commission views this report with the utmost seriousness and hereby initiates an investigation into the allegations contained in the report. The operation of this region's competitive wholesale markets is the bedrock upon which our competitive retail market is founded. It should be noted that to the extent that there has been an exercise of undue market power in the PJM ICAP market, there has likely been a corresponding injury to the PJM retail market both in Pennsylvania and throughout the region.

   We believe that it is necessary in the course of this investigation for the public to have an opportunity to review and comment on the PJM MMU report in order to comment on its findings and conclusions, and to supply any additional information that has a bearing on this matter. In addition, we solicit the views of the public on possible remedies for the reported conduct as well as comments whether there ought to be any modifications of our regulations at 52 Pa. Code §§ 54.121--54.122 (Competitive Safeguards). We therefore initiate and direct the Commission Law Bureau to conduct an investigation pursuant to 66 Pa.C.S. §§ 313, 314, 331, 501, 504 and 2811 into the PJM ICAP market and the allegations contained in the PJM MMU report. Therefore,

It Is Ordered That:

   1.  The Law Bureau is hereby directed to conduct an investigation into the PJM ICAP market and the allegations contained in the PJM MMU report

   2.  The PJM MMU report shall be made available to the public for inspection and on the Commission's website at http://puc.paonline.com.

   3.  The public is invited to comment on the PJM ICAP market and upon the matters discussed in the PJM MMU report, pursuant to the provisions of 52 Pa. Code §§ 1.4 and 1.37. An original and three copies of comments should be filed with the Commission on or before January 15, 2002. The contact person for this investigation is John A. Levin, Assistant Counsel, Pennsylvania Public Utility Commission, P. O. Box 3265, Harrisburg, PA 17105-3265, (717) 787-5978, e-mail: levin@puc.state.pa.us.

   4.  Filed comments which contain material representations of fact shall be accompanied by oath, affirmation or affidavit attesting to the truth of the matters asserted.

   5.  Filing of comments shall not cause the commentor to become a party to this investigation.

   6.  The Secretary shall serve a copy of this order upon the Consumer Advocate of Pennsylvania, the Office of Small Business Advocate. In addition the Secretary shall cause a copy of this order to be published in the Pennsylvania Bulletin.

JAMES J. MCNULTY,
Secretary

[Pa.B. Doc. No. 01-2249. Filed for public inspection December 14, 2001, 9:00 a.m.]

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¹PJM is a regional transmission organization which operates transmission facilities and supervises wholesale generation transactions subject to the jurisdiction of the Federal Energy Regulatory Commission. See Pennsylvania--New Jersey--Maryland Interconnection, 81 F.E.R.C. ¶  61,257 (1997), order on clarification, 82 F.E.R.C. ¶  61,068 (1998), order on reh'g, 92 F.E.R.C. ¶  61,782 (2000), appealed sub nom Baltimore Gas and Electric Co. v. F.E.R.C., Case No. 00-1460 (CA District of Columbia) and Public Service Electric and Gas Company v. F.E.R.C., Case No. 00-1457 (CA District of Columbia).

² See PJM Interconnection, L.L.C., 86 F.E.R.C. ¶  61,247, rehearing denied, 88 F.E.R.C. ¶  61,274 (1999)

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