FERC/ISO Update
FERC-RELATED ISSUES
Duquesne Light’s Potential Move from PJM to MISO Delayed
In September 2007, Duquesne Light petitioned the Federal Energy Regulatory Commission (FERC) for permission to leave the PJM transmission organization and move to the Midwest Independent System Operator (MISO) transmission organization. Duquesne Light cited several reasons for its request to move from PJM to MISO, including the assertion that the cost of doing business in MISO is less than in PJM. The cost differential between PJM and MISO purportedly results from a difference in rate structures between the two ISOs for the cost of procuring capacity resources to back customer load in the Duquesne Light service territory. The utility says that it is acting in the best interest of its customers by requesting the move.
Utilities that own electric transmission systems, such as Duquesne Light, typically belong to the ISO that encompasses their service territory. Duquesne Light is unique in that its physical location is at the physical boundary between the PJM and MISO footprints.
PJM procures capacity on behalf of its load-serving members via its Reliability Pricing Model (RPM) construct whereas MISO relies on its load serving members to procure the capacity to cover their customer load on their own.
In January 2008, the FERC granted permission for Duquesne Light to make the move from PJM to MISO as long as certain conditions were met. One of the conditions is that MISO needs to have the ability to have Central Balancing Authority control over all of the transmission systems contained in its footprint. MISO recently announced that it won't have the ability to implement that service until early January 2009, thereby delaying Duquesne Light’s potential move to MISO until early next year.
Duquesne Light, who still hasn't finalized its decision to move to MISO, is required by the FERC order to give at least 60 days notice prior to making the move. The utility’s final decision is likely being delayed due to the fact that the FERC also ordered Duquesne Light and competitive suppliers in the Duquesne Light territory, including Direct Energy Business, to continue buying and paying for the capacity to back their customers through the PJM RPM model until June 1, 2011. This means that any cost reductions due to the difference in capacity rates between PJM and MISO won't be realized for more than two years.
Direct Energy Business is actively following the developments of this situation and will provide updates to customers as information becomes available.
FERC Issues Order in the RPM Buyers' Complaint
The Reliability Pricing Model (RPM) Buyers Group, consisting of various state utility commissions, industrial user groups and consumer advocates, filed a complaint with the Federal Energy Regulatory Commission (FERC) asking them to reduce PJM’s RPM prices during the transition period (2007/2008 through 2010/2011 planning year) under the claim that the prices were unjust and unreasonable.
FERC denied the request and instead ordered PJM to look at various minor improvements to the RPM auction process that might have minor impacts on future RPM auctions. FERC also ordered a technical conference on the RPM process to be held after Jan. 1, 2009 to review PJM's analysis of the proposed improvements. The May 2009 RPM auction will set the capacity prices for the 2011/2012 planning year.
Bridgeport Energy II Files Request for Waiver with FERC
Bridgeport Energy II filed a request for waiver of ISO New England's Forward Capacity Market (FMC) rules with FERC. This was in an effort to change its election in the Forward Capacity Auction, and allow it to offer capacity at a price below 0.75 times Cost of New Entry (CONE) (ER08-1571). The reason for Bridgeport II’s request was due to a stipulation in the cost-of-service peaking unit contract it was awarded by the Connecticut Department of Public Utility Control. The contract required that the full capacity of the unit clear the FCM no later than the first period in which it would be eligible. Due to a misinterpretation of the bidding rules, Bridgeport believed it could not bid below 0.75 times CONE, and thus did not do so. It was requesting the waiver in an attempt to clear the FCM. More info on the results of this can be found in the Connecticut Market Update.
FERC Approves Interim Capacity Procurement Mechanism
FERC issued an order approving Interim Capacity Procurement Mechanism (ICPM) in California, which will go in effect at the start of Market Redesign and Technology Upgrade (MRTU). Currently, the MRTU is scheduled to go live Feb. 1, 2009. ICPM is a capacity procurement backstop that prices capacity at $41/kw-yr with no peak energy rent (PER) deductions. Resources that are procured via ICPM will be subject to a 30-day minimum designation. Resources also have the option of rejecting an ICPM designation. For more info on this order, click here. For more info on the MRTU, click here.
ISO-NE and PJM Attempt to Limit or Eliminate the Use of Unsecured Credit
Two regional transmission organizations (RTOs)—PJM and ISO-NE—have been discussing whether or not to continue to allow companies such as Direct Energy to use unsecured credit in their respective markets. The discussions began due to a recent default of a market participant in the PJM market that had been using unsecured credit in the form of a parent guarantee.
Parent guarantees are just one of several forms of credit that are used in the wholesale energy markets. Other forms of credit include cash deposits and letters of credit drawn on financial institutions. Parent guarantees are favored by those entities that can use them since they are a lower cost option than posting cash or letters of credit. Direct Energy uses parent guarantees wherever possible in order to keep the cost to our customers as low as possible. Direct Energy continues to work with other market participants to retain unsecured credit as a viable option in PJM and ISO-NE. For more info on Direct Energy Business' creditworthiness, click here.
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