On June 9, 2015, the Commission denied Duke Energy Corporation’s (“Duke”) complaint against PJM Interconnection, L.L.C. (“PJM”) in which Duke alleged that PJM failed to reimburse Duke for fuel PJM directed Duke to purchase so that certain gas-fired generating units would be available to run during the January 2014 polar vortex. Although it dismissed Duke’s complaint, the Commission also initiated an investigation to examine whether certain provisions of PJM’s Open Access Transmission Tariff (“OATT”) are unjust, unreasonable, unduly discriminatory, or preferential because they: (i) do not allow market participants to submit day-ahead offers that vary by hour; and (ii) do not allow market participants to update their offers in real time, including during emergency situations.
The Commission’s order explains that because Duke’s gas-fired generation facility in Dixon, Illinois (the “Lee Energy Facility”) is a “Generation Capacity Resource” under PJM’s OATT, it must be offered into the PJM Day-ahead Energy Market each operating day. According to Duke, on the morning of January 27, 2014, PJM called a Maximum Emergency Generation Alert covering the entire PJM footprint for January 28, in anticipation of record-low temperatures. Duke stated in its complaint that it initially decided not to purchase fuel for the Lee Energy Facility, in large part due to the high price of natural gas at that time. However, Duke argued that it was directed to purchase $12,456,500 worth of fuel for the Lee Energy Facility when PJM told Duke personnel that “all units need to be available” without regard to economics, because PJM was in an emergency reliability state. According to Duke, only five of the eight Lee Energy Facility units cleared the Day-ahead Energy Market, for a few hours in the morning and the evening, and PJM did not call on the units to run in real time. As a result, Duke claimed that it incurred unrecoverable losses totaling $9,843,621.
Duke subsequently sought indemnification from PJM for the unrecovered costs pursuant to section 10.3 of the PJM OATT. Duke argued that section 10.3 requires transmission customers to hold Generation Capacity Resources harmless for obligations to third parties arising out of good-faith actions to implement PJM directives related to capacity resource obligations. PJM denied the request for compensation, and Duke subsequently filed its complaint.
In its order, the Commission found that section 10.3 of the PJM OATT was not designed to indemnify Generation Capacity Resources like the Lee Energy Facility for costs associated with meeting their capacity resource obligations. Instead, the Commission ruled that Generation Capacity Resources must offer their capacity into the Day-ahead Energy Market and must operate in real time if called upon. According to the Commission, the Generation Capacity Resource has the discretion to decide how to purchase fuel to satisfy those obligations. The Commission also added that Duke’s interpretation would “guarantee cost recovery for all costs – not only fuel, but also labor or any other cost – that Duke incurs, making superfluous the tariff’s rates.”
The Commission also concluded that PJM did not issue a directive, but instead advised Duke’s operators that the reason PJM was expecting to call on the Lee Energy Facility on January 28, 2014 was for reliability reasons, and not economics. At the same time, the Commission also noted that PJM clarified to Duke that it could not be 100 percent certain that the Duke units would run.
Additionally, the Commission denied Duke Energy’s alternative request for waiver of various provisions of the PJM OATT and Amended and Restated Operating Agreement (“Operating Agreement”) in order to recover its fuel costs. The Commission found that granting such relief would violate the filed-rate doctrine and the rule against retroactive ratemaking because: (i) such cost recovery is not permitted by the PJM OATT; and (ii) ratepayers had not received prior notice of Duke’s retroactive cost recovery request, which was sought roughly three months after the events in question.
Although it dismissed Duke’s complaint, the Commission expressed concern that PJM’s OATT and Operating Agreement “fail to provide opportunities for Generation Capacity Resources like Duke to update their real-time bids to reflect changes in cost and to submit buy-back bids to reflect costs that may become sunk between the Day-ahead and Real-time Energy Markets.” Accordingly, the Commission determined that an investigation was appropriate to examine whether certain aspects of PJM’s OATT are unjust, unreasonable, unduly discriminatory or preferential.
Separately, Commissioner Moeller issued a partial dissent, arguing that Duke should have been provided with some kind of compensation, and that the matter should have, at the very least, been set for hearing and settlement judge procedures. A copy of the Commission’s order, and Commissioner Moeller’s dissent, may be found here.