December 21, 2018
`
`The Honorable Neil Chatterjee, Chairman
`The Honorable Cheryl LaFleur, Commissioner
`The Honorable Kevin McIntyre, Commissioner
`The Honorable Richard Glick, Commissioner
`The Honorable Bernard McNamee, Commissioner
`
`U.S. Federal Energy Regulatory Commission
`888 First Street, N.E.
`Washington, D.C. 20426
`
`By e-mail and e-filing
`
`Re: Calpine Corporation, et al. v. PJM Interconnection, L.L.C., Docket No. EL16‐49‐000;
`PJM Interconnection, L.L.C., Docket No. ER18‐1314‐000, et al.; PJM Interconnection, L.L.C.,
`Docket No. EL18‐178‐000 (consolidated)
`
`Dear Chairman Chatterjee and Commissioners LaFleur, Glick, McIntyre, and McNamee,
`
`On December 6, a group of merchant owners and developers of generation wrote the Federal Energy
`Regulatory Commission (“Commission”) asking the Commission to disregard its recognition in the June
`29, 2018 order that state policy goals ought to be accommodated.1 Aside from its procedural flaws2, the
`letter avoids one fundamental truth about markets: they exist to meet consumers’ needs. Markets do
`not exist to guarantee a return on merchant investments, and certainly do not exist to protect merchant
`plant investors from market risks.
`
`The undersigned entities comprise a broad and diverse group of publicly and cooperatively owned
`electric utility, industrial customer, and environmental organizations. We support competitive
`wholesale electricity markets, and we also recognize that this is a time of significant change and re-
`examination of the role of these markets in a transforming power system. We disagree with the claims
`made in the December 6 letter and offer a vision of competitive wholesale power markets that would
`continue to attract investment and benefit customers.
`
`The undersigned entities have different positions on certain state policies. However, we agree that
`states and locally governed utilities have the authority to make resource choices, and that it is not the
`role of the Regional Transmission Organization (RTO) to shield market participants from the effect of
`those policies. The authors of the December 6 letter, on the other hand, request the Commission to
`mandate “markets” that instead produce prices that pretend certain resources do not exist and require
`consumers to buy capacity from certain merchant power plants even though that capacity may not be
`needed given the level of state and local resource procurement. Such efforts to shield suppliers from
`the effect of state policies only results in additional costs to customers that are not just or reasonable.
`
`The Commission’s series of orders accepting and modifying PJM’s Reliability Pricing Model (RPM) did not
`create a federal “regulatory compact” that new generators would be able to recover their costs through
`PJM’s markets regardless of intervening events. Instead, the Commission’s policy of relying on wholesale
`
`
`1 163 FERC ¶ 61,236
`2 The letter is effectively an untimely rehearing request made in disregard of Rule 713 (18 CFR 385.713)
`requirements.
`
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`market competition placed investment risk on investors and not on consumers. Resource procurement
`through self-supply or pursuant to public policy goals is one of many risks that investors absorb in
`markets.
`
`Wholesale market rules should respect state and locally governed utility policies and resource choices
`without making customers pay twice for the same service. While it is clearly the Commission’s
`responsibility to determine that the rate for wholesale power sales is just and reasonable, the
`Commission and the courts have long held that a market-based rate where supply and demand meet
`can be just and reasonable if market power is absent or mitigated. No buyer-side market power has
`been demonstrated by any of the parties in this investigation. “Accommodating” state and local utility
`policies by forcing customers to face the risk of paying once for the capacity obtained pursuant to state
`and local policies and again for resources allowed to clear in wholesale markets does not result in just
`and reasonable rates. It will deter states and utilities from joining or remaining in FERC-jurisdictional
`electricity markets, and therefore harms competition.
`
`For true market competition to occur, wholesale customers and suppliers should be able to come
`together and transact as they choose through bilateral contracts. It is not the RTO/ISO’s job to second-
`guess the resource and contracting decisions of load-serving entities and eligible wholesale electric
`customers to buy or self-supply the types of resources and services they select, and for their chosen
`length of time. Nor should the RTO/ISOs continue to shift the rules in a manner that serves only to
`increase revenues for one set of sellers. Long-term bilateral contracts can be beneficial for both
`wholesale customers and energy suppliers and should be fully accommodated inside and outside
`regions with RTO-operated markets. Bilateral contracts are a key part of competitive wholesale
`electricity markets, as they are in every other competitive sector of the economy. For these reasons the
`Commission recommended that the RPM rules incorporate a workable mechanism “to accommodate
`resources that receive out-of-market support, and mitigate or avoid the potential for double payment
`and over procurement.” Any reform of RPM adopted in this proceeding should provide customers and
`load-serving entities with a means of choosing the resources they desire, or that they are required by
`states to procure as a means to pursue policy goals.
`
`The Commission has an opportunity to establish rules that allow for true wholesale markets where the
`market operators can focus on their core mission of reliable and efficient grid and market operation,
`states can address environmental and other public policy objectives, and investors face the risks
`inherent in competitive markets and are incented to invest in the types of resources desired by
`customers, while addressing the need for resource adequacy.
`
`
`Respectfully submitted,
`
`
`Susan N. Kelly
`President and Chief Executive Officer
`American Public Power Association
`
`John P. Hughes, President and Chief Executive Officer
`Devin Hartman, Incoming President and CEO
`Electricity Consumers Resource Council (ELCON)
`
`John Di Stasio
`President
`
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`Large Public Power Council
`
`Jay Morrison, Vice President, Regulatory Affairs
`Randolph Elliott, Senior Director, Regulatory Counsel
`National Rural Electric Cooperative Association
`
`Tom Rutigliano
`Senior Advocate, Sustainable FERC Project
`Natural Resources Defense Council
`
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