The latest dispute over PJM’s bidding rules has raised the level of uncertainty in organized electricity markets. Efforts at reform have created a market structure so jumbled that it can’t produce...
Pulling An Inside Job
PJM loses luster in a squabble over market monitoring.
People ex rel. Illinois AG v. Exelon Generation Co. et al, FERC Docket EL07-47, filed March 15, 2007.)
The complaint pits the Attorney General against the state utility regulator, the Illinois Commerce Commission, and against the state’s regulatory regime in general. That’s because the Illinois commission has found officially that the auction was conducted fairly and has largely accepted the auction result.
“It was managed well,” the commission ruled last year.
“All the relevant rules were carefully followed, and there was no evidence that collusive or coordinated bidding behavior undermined competitiveness.” (See, Order Initiating Investigation, Ill. CC No. 06-0624, Sept. 14, 2006, p. 8.)
However, the state commission rejected the auction result and the implied contracts that were put up for bidding with an hourly price term. In the hourly section, suppliers bid for the right to collect a fixed-capacity charge, but with the price term for the generation supply component set to vary according to the hourly spot market price. For those contracts (which cleared at $175.35/MWh for Com Ed, and $276.19/MWh for Ameren), the commission found a fatal shortage of bidders.
According to the AG, the authority to modify the contracts would come in significant degree from the very newest interpretation of FERC’s Mobile-Sierra doctrine, which has received a lot of press recently, as handed down last year by the U.S. Court of Appeals for the 9th Circuit, most notably in the case of Pub. Util Dist. No. 1 of Snohomish County v. FERC. 471 F.3d 1053. This new version of the doctrine arguably would compel the FERC to grant a third-party request to modify a wholesale-power contract ex post facto if its terms are not “just and reasonable,” even if the “public interest” does not warrant such modification. This new interpretation has since won endorsement from the influential D.C. Circuit in NStar Elec. & Gas Corp. v. FERC , decided on March 9. In that case, the court said that the doctrine extended even to contracts signed to ensure reliability, such as where an RTO signs a “reliability must-run” deal with a producer in a load pocket.
(For background, see in this issue, “ The Mobile-Sierra Doctrine: a Return to its Statutory Roots ,” by Scott H. Strauss and Jeffrey A. Schwarz. See also, Commission Watch, “ The Mobile-Sierra Doctrine, Part Deux ,” by Stephen L. Teichler and Ilia Levitine, Public Utilities Fortnightly , March 2007.)
In Illinois, the auction returned prices of between $63 and $66 per megawatt-hour (MWh) for wholesale power supplies contracted by ComEd and Ameren for residential and small-to-medium-sized nonresidential customers, over terms running from 17 to 41 months. The auction price for a 17-month term was higher for C&I service ($90.12/MWh for ComEd; $84.95/MWh for Ameren).
Citing these clearing prices, the AG cries “foul.” She points out that the overall average clearing price of $70.14/MWh for 90 percent of all hours will run more than three times the marginal cost of producing electricity in the relevant area. She provides testimony, for example, from Stanford University Professor Jonathan Koomey, showing that marginal power production costs