On February 1, 2011, PJM Power Providers Group (“P3”), an association of 12 energy suppliers in the PJM Interconnection, L.L.C. (“PJM”) region, filed a complaint against PJM at the Federal Energy Regulatory Commission (“FERC”).  The complaint, aimed at a newly-enacted New Jersey law, asks the Commission to order changes to the PJM tariff to strengthen the ability of PJM and its Independent Market Monitor to refuse “uneconomic” bids in the PJM capacity auction.  P3 requested fast-track treatment to have the tariff revisions in place by mid-April 2011, before the next Reliability Pricing Model (“RPM”) auction.

In their complaint, P3 asked for a variety of tariff revisions to strengthen PJM’s “Minimum Offer Price Rule” for RPM auctions.   The complaint asks for stricter screens for bids that are “uncompetitively low” and asks that PJM mitigate uneconomic bids upward to “100% of the nominal levelized unit-specific cost of new entry of the offering resource.”  P3 proposes to apply this revised mitigation regime to combustion turbines and combined cycle resources for the next auction and eventually to all capacity resources.  The complaint also stated that mitigation of renewable and demand response resources should be considered, but not at the present time.

The complaint stems in large part from the recent enactment of a New Jersey law that could potentially affect clearing prices in PJM’s RPM capacity auctions.  On January 28, 2011, New Jersey Governor Chris Christie signed into law Senate Bill 2381, which establishes a “long term capacity agreement pilot program” (“LCAAP”) intended to encourage construction of in-state electric generation facilities that meet certain criteria.  Under the terms of the bill, eligible generators enter into Standard Offer Capacity Agreements (“SOCAs”) with the New Jersey electric public utilities.  These public utilities then “procure 2,000 megawatts of financially settled SOCAs from eligible generators.”  An eligible generator then must bid into the RPM auction at a price and quantity that the New Jersey Board of Public Utilities (the “Board”) decides, which the complaint alleges will be zero.  The Board then orders the full recovery of costs with the electric public utilities resulting SOCAs.  The complaint alleges that bidding this amount of capacity into the RPM auctions at zero will distort price signals and artificially depress market clearing prices.

The case is likely to be closely observed because it sets up a clash between state and federal authority.

A copy of the New Jersey Law is available here.

A copy of the P3 Complaint is available at www.ferc.gov and here.