Media Statements & Speeches
Commissioner Cheryl A. LaFleur Statement
May 16, 2016
Docket No. EL16-35-000
Capacity Credit for Southern Maryland Electric Cooperative, Inc.
“In today’s order, the Commission declines to exercise primary jurisdiction over a contractual dispute between Southern Maryland Electric Cooperative, Inc. (SMECO) and J.P. Morgan Ventures Energy Corporation (JPMVEC), concerning JPMVEC’s obligation to provide capacity credit to SMECO under the PJM Interconnection, L.L.C. (PJM) resource adequacy construct.1 That decision, which the order recognizes is an exercise of Commission discretion, effectively consigns SMECO to a potentially lengthy and costly court proceeding to resolve what is, in my view, a clear and easily-resolved contractual interpretation that is squarely within the Commission’s jurisdiction and expertise. As discussed below, I dissent from the order and would assert primary jurisdiction over the dispute, grant SMECO’s complaint, and find that the parties’ contract requires JPMVEC to provide SMECO with capacity credits to meet SMECO’s obligations under the RPM.
“As the order notes, in cases of contract interpretation, the Commission has concurrent jurisdiction with the courts2 and whether to exercise primary jurisdiction is a matter solely within the Commission's discretion.3 In determining whether to assert its primary jurisdiction over disputes concerning jurisdictional contracts, the Commission considers three factors: (1) whether the Commission possesses some special expertise which makes the case peculiarly appropriate for Commission decision; (2) whether there is a need for uniformity of interpretation of the type of question raised in the dispute; and (3) whether the case is important in relation to the regulatory responsibilities of the Commission.4
“I believe SMECO has demonstrated that the Commission should assert primary jurisdiction.5 First, the Commission possesses special, relevant expertise regarding the core issue in dispute, i.e., under what terms and conditions capacity arrangements that pre-date PJM’s Capacity Performance reforms convert into the new Capacity Performance construct.6 These types of transition issues were a significant, contested issue in the Capacity Performance proceedings, and ones the Commission was extensively involved in resolving.7 In my view, the Commission errs by failing to frame the dispute between these two parties in the proper context of the broader transition underway in the PJM capacity market.
“Consistent with this view, I believe it is therefore important that the Commission retain primary jurisdiction over this and any similar disputes that could arise regarding pre-Capacity Performance contractual obligations and their transition into a Capacity Performance construct. The resolution of these disputes should occur at the Commission to minimize the potential for inconsistent interpretations of common contractual language or the unintended undermining of the Capacity Performance reforms.8 Given the significance of these reforms to the reliability of the PJM system, and the central role played by the Commission in overseeing them, disputes like this are, in my view, firmly within the Commission’s regulatory responsibilities. I would therefore assert primary jurisdiction.
“Because the Commission fails to assert primary jurisdiction over the contract, it does not reach the merits of the parties’ dispute. Upon asserting primary jurisdiction, and based on the full record presented, I would grant SMECO’s complaint.
“First, it is clear that SMECO and JPMVEC entered into this contract to meet SMECO’s RPM obligations, and I believe the contract must be interpreted with this clear purpose in mind. As SMECO notes, this conclusion is reinforced by the plain language of the contract, including the Material Changes provision requiring that the parties “if permissible and practicable, cooperate in good faith to satisfy any administrative requirements necessary for the capacity sold and purchased hereunder to satisfy Buyer’s load obligations, if any.”9 Similarly, I agree with SMECO that the contract’s “Replacement Product” provision is plainly intended to ensure that SMECO gets the capacity value it has purchased to meet its RPM obligations, whether from the Brandywine unit or a replacement resource.10
“By comparison, I disagree with JPMVEC’s assertion that the contract authorizes JPMVEC to elect which form of capacity credit – Capacity Performance or Base Capacity – SMECO receives under the contract. As SMECO notes, the result of this interpretation could be that JPMVEC provides SMECO an amount of Base Capacity that exceeds the amount of Base Capacity that SMECO may use under the RPM;11 in effect, JPMVEC would read the contract to authorize it to provide unneeded capacity to SMECO at the sole discretion of JPMVEC, thereby improperly increasing SMECO’s costs of meeting its RPM obligations. I do not believe that this outcome is supported by the record.
“I believe that the plain language and clear purpose of the contract establish that JPMVEC is required to provide SMECO (1) 225 MW of capacity credit needed to meet SMECO’s RPM obligation, whether from the Brandywine unit or replacement capacity, and (2) capacity credit at least comparable to the value of the Brandywine unit if JPMVEC provides replacement capacity from a different resource. As a result, if the 225 MW Brandywine unit clears as a Capacity Performance resource, I believe that JPMVEC must provide 225 MW of Capacity Performance credit to SMECO; if the Brandywine unit does not clear as a Capacity Performance resource, JPMVEC must provide 225 MW of replacement capacity sufficient to meet SMECO’s capacity needs under the RPM.12
“Accordingly, I respectfully dissent.”
- 1 PJM’s capacity market, through which load serving entities in PJM procure capacity to meet their resource requirements, is called the Reliability Pricing Model (RPM).
- 2 E.g., Kentucky Utilities Co., 109 FERC ¶ 61,033, at PP 14-16 (2004), reh'g denied, 110 FERC ¶ 61,285 (2005); Portland General Elec. Co., 72 FERC ¶ 61,009, at 61,021 (1995).
- 3 E.g., Portland General Elec. Co., 72 FERC at 61,021-61,022.
- 4 Arkansas Louisiana Gas Co. v. Hall, 7 FERC ¶ 61,175 at 61,322, reh’g denied, 8 FERC ¶ 61,031 (1979) (Arkla).
- 5 I note that SMECO includes additional information in its answer that is relevant to the Commission’s Arkla evaluation, but that the Commission nonetheless declines to consider as a result of its rejection of that answer. So. Md. Elec. Coop. v. J.P. Morgan Ventures Energy Corp., 155 FERC ¶ 61,164, at P 18 (2016); see also SMECO Motion for Leave to Answer and Answer, Docket No. EL16-35-000, at 14-19 (filed Mar. 8, 2016). I disagree with the Commission’s decision to reject this answer and the additional pleadings submitted in this docket.
- 6 PJM Interconnection, L.L.C., 151 FERC ¶ 61,208 (2015) (Capacity Performance Order), order on reh’g and compliance, 155 FERC ¶ 61,157 (2016) (Capacity Performance Rehearing Order).
- 7 E.g., Capacity Performance Order, 151 FERC ¶ 61,208 at P 212 (requiring a phase-in of the Capacity Performance requirements for certain resources), PP 253-261 (addressing mechanisms for transitioning previously-cleared resources to Capacity Performance resources); Capacity Performance Rehearing Order, 155 FERC ¶ 61,157 at PP 149-152 (addressing rehearing arguments regarding the phase-in), PP 164-173 (addressing rehearing arguments regarding the transition mechanisms).
- 8 For example, as discussed below, JPMVEC’s interpretation of the parties’ agreement would potentially result in the procurement of excess and unneeded capacity, at increased cost to SMECO’s customers.
- 9 SMECO/JPMVEC Contract, Material Changes provision (emphasis added).
- 10 JPMVEC asserts that this “Replacement Product” provision is, in fact, a protection for the seller, not the buyer. I disagree, as the provision simply gives some flexibility to the seller in meeting its obligations to the buyer; it does not give JPMVEC the authority to effectively change those obligations by providing capacity to SMECO that has less value that capacity from the Brandywine unit.
- 11 SMECO Complaint, Docket No. EL16-35-000, at 7-8 (filed Feb. 1, 2016).
- 12 As SMECO explains, the share of its RPM obligation that must be met through Capacity Performance credit increases from 80 percent for the 2018-2019 delivery year to 100 percent for the 2020-2021 delivery year. Id. at 7. As a result, if the entire Brandywine unit did not clear as Capacity Performance for the 2018-2019 and 2019-2020 delivery years, I believe it would be permissible under the contract for a portion of the replacement capacity to be provided as Base Capacity, in proportion to SMECO’s allowable share of its RPM obligation (e.g., for the 2018-2019 delivery year, 180 MW of Capacity Performance credit and 45 MW of Base Capacity). Beginning in the 2020-2021 delivery year, JPMVEC would be required to provide a full 225 MW Capacity Performance credit.