UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION. PJM Interconnection, LLC ) Docket No. ER

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION PJM Interconnection, LLC ) Docket No. ER MOTION TO INTERVENE AND COMMENTS OF THE AMERICAN PUBLIC POWER ASSOCIATION In accordance with the Commission s August 19, 2010 Combined Notice of Filings #1 1 and Rule 214 of the Commission s Rules of Practice and Procedure, 18 C.F.R , the American Public Power Association ( APPA ) moves to intervene and comment in the above-noted docket. In support of its motion and comments, APPA states as follows: I. APPA s INTERESTS APPA is the national service organization representing the interests of not-forprofit, publicly owned electric utilities throughout the United States. More than 2,000 public power systems provide over 15 percent of all kilowatt-hour ( kwh ) sales to ultimate customers, and do business in every state except Hawaii. Public power systems own about 10 percent of the nation s electric generating capacity, but purchase nearly 70 percent of the power used to serve their ultimate consumers. Collectively, public power systems serve 45 million people Fed. Reg. 52,521 (August 26, 2010).

2 Many APPA members obtain wholesale power supplies and transmission service from Commission-regulated public utilities under rate schedules and tariffs on file with this Commission. In many regions of the country, these transmission providers and power suppliers are now Regional Transmission Organizations ( RTOs ), including the PJM Interconnection, LLC ( PJM ). APPA has therefore had a long-standing and strong interest in the rates, terms and conditions of service applicable to transmission of bulk electricity in interstate commerce and sales for resale of electric power provided by RTOs such as PJM. In March 2006, APPA undertook an advocacy campaign (known as the Electric Market Reform Initiative, or EMRI ) to highlight concerns with RTO-run centralized markets and to advocate improvements to them. More recently, APPA issued in February 2009 its proposed Competitive Market Plan ( CMP ) for reforming RTO-run centralized markets. 2 One of the goals of the CMP is to reduce speculative opportunities for financial-only market participants. CMP at 6. APPA noted that [t]he layering on of new markets has created such a level of complexity that highly sophisticated entities have a built-in advantage in participating in RTO markets. Such complexity also impairs transparency and makes the task of market monitoring more difficult. Id. at 9. APPA has also intervened (or attempted to intervene) in a number of dockets 3 to express its strong concern about questionable activities of RTO market participants that appear to have no legitimate commercial purpose, but that do create profits for the See, e.g., In re Edison Mission, Docket No. IN ( High-offer bidding strategy); New York Independent System Operator, Docket ER ( Lake Erie loop flow ); PJM Interconnection, LLC v. Accord Energy, LLC, Docket No. EL ( Tower Companies ); New York Independent System Operator, Inc., Docket No. ER (Submission of high offer bids by generators needed for reliability purposes). 2

3 entities engaging in them profits that come at the expense of end-use consumers. APPA has been disheartened by the Commission s failure to protect consumers from the adverse financial impacts of such activities. In many instances, this is because the Commission finds the transactions at issue have been openly placed as an economic response to price signals and [do] not constitute a fraudulent device, scheme or artifice. New York Independent System Operator, 128 FERC 61,049 at P 3 (2009). II. COMMUNICATIONS APPA requests that service in this proceeding be made upon, and communications directed to, the following: Susan N. Kelly Senior Vice President of Policy Analysis and General Counsel American Public Power Association 1875 Connecticut Avenue, N.W., Suite 1200 Washington, D.C skelly@appanet.org Elise Caplan EMRI Coordinator American Public Power Association 1875 Connecticut Avenue, N.W., Suite 1200 Washington, D.C ecaplan@appanet.org III. MOTION TO INTERVENE AND COMMENTS On August 18, 2010, PJM filed in the above-noted docket proposed revisions to its Operating Agreement and its Open Access Transmission Tariff ( OATT ) ( Tariff Filing ). PJM states that the proposed revisions would eliminate a possibility for market participants to game the allocation of marginal loss surplus revenues by modifying a provision of the Operating Agreement concerning the allocation of the marginal loss revenue surplus and eliminating the requirement to obtain transmission service for Up-To 3

4 Congestion bids. Transmittal Letter at 1. PJM notes that the proposed revisions are intended to serve as a temporary solution to prevent market participants from manipulating the PJM Energy Markets in violation of 18 C.F.R. 1c.2 while PJM and its stakeholders continue to discuss whether there are better solutions to address the issue. PJM therefore seeks expedited treatment of its filing and asks the Commission to issue an order effective September 17, Id. APPA, as noted above, has become increasingly concerned over the past two years about the Commission s ongoing failure vigorously to police RTO markets and to discipline market participants that engage in activities that may comport with the letter of an RTO s tariff, but have no discernable commercial purpose except to make money for the participants engaging in them. The Lake Erie Loop Flow case is but one prior example of such behavior. At the time the Commission issued its decision in that docket, finding that it would not order disgorgement or take other action against the entities engaging in the transactions at issue, APPA was made aware that even certain generator/marketing organizations were dismayed by the outcome, because it made it more difficult for policy advisors within those organizations to argue to their traders that the company should not engage in such practices. Similarly, when the Commission s Enforcement staff issued its investigative report in the Keyspan case, 4 finding, among other things that KeySpan s and Astoria s offering behaviors in the in-city ICAP market were unaffected by their swaps and, given the unique circumstances presented by the ICAP market and its history, were done pursuant to legitimate business purposes (Staff 4 Enforcement Staff Report: Findings of a Non-Public Investigation of Potential Market Manipulation by Suppliers in the New York City Capacity Market, Docket Nos. IN and EL , dated February 28, 2008 ( Staff Report ). 4

5 Report at 3), the response in some parts of the industry bordered on incredulity. It took the Department of Justice to prosecute the conduct at issue, and to enter into a settlement with Keyspan requiring disgorgement of even a small portion of the excessive dollars consumers paid as a direct result of the behavior at issue. 5 Because this docket represents yet another instance of RTO market participants taking advantage of complex RTO market rules to earn unjustified revenues at the expense of electric consumers, APPA is intervening once again to advocate for timely and effective Commission action to protect electric consumers. It is therefore appropriate for the Commission to grant APPA s motion to intervene, with all rights appurtenant to that status. APPA commends PJM for acting quickly once the activities at issue were brought to its attention, although the fact that neither the PJM market monitoring unit nor PJM itself spotted the conduct at issue in the first instance raises its own set of concerns and questions. (PJM notes in its Transmittal Letter (at 5) that its investigation was started when two market participants contacted PJM to advise that they noticed unusual activity occurring with respect to transmission service reservations on the PJM Open Access Same-Time Information System. ) Moreover, APPA will not speak to the most efficient and effective methodology to put an end to the practice, understanding that PJM supports implementing the method in its filing as a temporary measure and forming a stakeholder group to examine the situation, while the market monitor has another proposed solution. APPA will leave it to those intervenors (including APPA members) that operate in the PJM footprint and are 5 United States v. Keyspan Corporation, Civil Case No. 10 CIV 1415 (SDNY), Proposed Final Judgment and Competitive Impact Statement, reprinted at 75 Fed. Reg. 9,946 (March 4, 2010). 5

6 better versed in the intricacies of PJM s markets and market rules to opine on the preferred solution. Instead, APPA intervenes and files comments in this docket to exhort the Commission not to treat this matter as another business as usual instance of market participants playing RTO market rules like a fine violin to extract dollars at the expense of Load-Serving Entities ( LSEs ) and the consumers they serve. Even assuming arguendo that the entities engaging in this practice did not technically violate PJM s then-existing OATT, they unjustly and unreasonably raised costs to other market participants, chiefly LSEs and the consumers they serve. The time has come for the Commission to act under the Federal Power Act ( FPA ) to protect consumers from the adverse impact of such unjust and unreasonable practices by ordering, at a minimum, disgorgement of the proceeds of such market activities. The Commission should also consider non-monetary remedies, including the barring of specific entities and personnel that engaged in the practices at issue from further participation in RTO markets. APPA was extremely pleased to see that on August 25, 2010, the Commission issued a Notice of Non-Public, Formal Investigation in PJM Up-to Congestion Transactions, Docket No. IN , 132 FERC 61,169. This notice sends the signal to the industry that the Commission s Enforcement Staff will investigate this matter. But words alone will be insufficient to dispel the impression that the Commission is soft on tariff crime. 6 The Commission needs to follow up its words with actions, and needs to do so promptly. 6 APPA was surprised and dismayed when the Commission in its March 18, 2010 Policy Statement on Penalty Guidelines, 130 FERC 61,220, stated it would assign a Base Violation Level of sixteen to violations of Reliability Standards under FPA Section 215, 6

7 WHEREFORE, APPA moves to intervene in the above-noted docket, and urges the Commission to take timely and effective action to protect the interests of electricity consumers in the PJM region, including, but not limited to, disgorgement of the revenues earned by the market participants engaging in the practices at issue. Respectfully submitted, AMERICAN PUBLIC POWER ASSOCIATION By /s/ Susan N. Kelly Susan N. Kelly Senior Vice President of Policy Analysis and General Counsel Elise Caplan EMRI Coordinator American Public Power Association 1875 Connecticut Avenue, N.W., Suite 1200 Washington, D.C (202) Fax: (202) August 27, 2010 (footnote continued from previous page) while only assigning a Base Violation Level of six to violations involving fraud, manipulation, or anti-competitive conduct and violations of rules, tariffs and orders. Id. at P 38. In APPA s view, this weighting is completely backward and highly inappropriate, given the element of intent inherently present in fraud and manipulative conduct. 7

8 CERTIFICATE OF SERVICE Pursuant to Rule 2010 of the Commission s Rules of Practice and Procedure, 18 C.F.R , I hereby certify that I have this day served the foregoing document by appropriate means (electronic mail or first-class mail) upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Washington, D.C., this 27th day of August, By /s/ Susan N. Kelly American Public Power Association 1875 Connecticut Avenue, N.W., Suite 1200 Washington, D.C