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FERC Denies Sought Make-Whole Payments in PJM, But Opens Investigation of Issue

June 11, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

FERC denied make-whole payments sought by various Duke Energy generators related to their operation during the polar vortex, but opened a section 206 proceeding regarding compensation to generators in such circumstances (Docket EL14-45)

The Duke generators, which had a capacity supply obligation, has sought make-whole payments for following certain PJM dispatch instructions for the generators to be available, but PJM did not call on the units to run in real-time. At the insistence of PJM, Duke had made arrangements to procure gas under the expectation the units would be needed for dispatch, with such costs going unrecovered when the units were not dispatched

FERC denied Duke's requested make-whole payments, finding that such compensation would violate the filed rate doctrine.

Additionally, FERC said that, "we find the PJM indemnification provision should not be interpreted to guarantee reimbursement of a generator's losses on gas purchases incurred in meeting its capacity resource obligations in PJM. Fulfilling its energy market commitments are among the risks the Generation Capacity Resource has assumed, under the PJM OATT, Operating Agreement, and Reliability Assurance Agreement, when choosing to participate in the market. Given PJM's existing tariff and the current structure of PJM's capacity and energy markets, the risk of such losses should not be borne by PJM Transmission Customers pursuant to the PJM OATT's section 10.3 indemnification provision. As explained below, a Generation Capacity Resource must offer its capacity into the Day-ahead Energy Market and must operate in real time if called upon. Nevertheless, as currently provided under the PJM OATT and Operating Agreement, Duke's decision as to how to buy fuel to satisfy those obligations is left to its discretion. Guaranteeing Duke full recovery of its costs under the PJM OATT's section 10.3 would improperly reallocate the risks related to fuel procurement, and the costs associated with its choices as to when or how to procure fuel, from capacity resources like Duke to PJM customers."

"While we deny Duke's complaint, we find that aspects of PJM's current tariffs may be unjust, unreasonable, unduly discriminatory or preferential because they do not appear to allow market participants to submit day-ahead offers that vary by hour and do not appear to allow market participants to update their offers in real time, including during emergency situations," FERC said, directing that a section 206 proceeding be opened to investigate the issue.

Separately, FERC denied a similar request from Old Dominion Electric Cooperative for a make-whole payment

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