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The first posting of FAQs will be in August. The last posting of FAQs will be in the latter part of January, after bidders are registered to participate in the Auctions. From that point, questions and answers are emailed directly to Registered Bidders and are not posted to the BGS Auction website. Questions that are not from Registered Bidders or their advisors are answered strictly on a best efforts basis.

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FAQ-72

A marketer is a Qualified Bidder in the BGS-RSCP Auction. Before submitting the Part 2 Application, can this marketer ask the trading desk of a wholesaler, who is also a Qualified Bidder in the BGS-RSCP Auction, for quotes on energy blocks to be delivered to a particular zone? Could these two Qualified Bidders, in good faith, make or uphold all the certifications in the Part 2 Application for the BGS-RSCP Auction?


It is possible for the marketer to ask for quotes in a way that avoids revealing confidential information relative to its bidding strategy or regarding the Auction Process so that it can make or uphold certifications in the Part 2 Application. The marketer can ask for quotes for energy blocks only and the marketer can ask for quotes for multiple EDC zones rather than for a particular EDC. Further, the marketer can take all due care in its contact with the trading desk not to state that it is a Qualified Bidder for the auction (which would reveal confidential information regarding the Auction Process) and not to otherwise reveal confidential information, relative to its bidding strategy or regarding the Auction Process.

The marketer's preference to serve one EDC over another is considered confidential information relative to the marketer's bidding strategy under the Association and Confidential Information Rules. The fact that the marketer asks for quotes for energy blocks for multiple EDC zones, regardless of its true preferences, means that the marketer will not reveal its preference for one EDC over another. Energy is only one component of BGS-RSCP supply, and energy blocks are traded independently of the auction, so that obtaining quotes for energy blocks alone is unlikely to provide confidential information regarding the marketer’s or the wholesaler’s valuation of the auction product (see for instance, FAQ-67 for a discussion of transactions involving products other than energy blocks). It is possible that both Qualified Bidders and entities that are not Qualified Bidders in the BGS-RSCP Auction may ask for these quotes to obtain information concerning current market prices.

Please note that if the precautions above are not followed, for example because the marketer makes the request in a way that reveals a preference for one EDC over another, the wholesaler, who is also a Qualified Bidder for the BGS-RSCP Auction, would be required to disclose that it had such knowledge regarding the marketer's bidding strategy in its Part 2 Application. The marketer would have to disclose in its Part 2 Application that it had revealed such confidential information to another Qualified Bidder in the BGS-RSCP Auction. The Auction Manager would consider these disclosures in assessing whether these entities can become Registered Bidders in the auction.



11/20/2017, in Association and Confidential Information Rules.
FAQ-71

Can a Qualified Bidder enter into a unit-contingent or other generator-related transaction with another Qualified Bidder?


The Association and Confidential Information Rules and the Part 1 and Part 2 Applications ask each Qualified Bidder to make a number of certifications, including that the Qualified Bidder certify that it does not have any knowledge of confidential information relative to the bidding strategy of another bidder; that the Qualified Bidder will not disclose confidential information relative to its own bidding strategy; that the Qualified Bidder is not the purchasing party in any contract for any product that would require the disclosure of any confidential information relative to bidding strategy or confidential information regarding the Auction Process to the counterparty, or that would provide instructions to act in a way determined by the counterparty; and that no entity has agreed to defray the Qualified Bidder’s costs of participating in the auction.

The Association and Confidential Information Rules do not specifically allow or preclude specific types of transactions; see, for instance, FAQ-49, FAQ-50, FAQ-64, FAQ-65, FAQ-66, FAQ-67, FAQ-68, FAQ-69, and FAQ-70. These questions and answers are intended to help bidders better understand the certifications of the Part 1 and Part 2 Applications so that bidders are better able to reach their own determination as to whether a certification can be made. A Qualified Bidder considering a unit-contingent transaction or other generator-related transaction with another Qualified Bidder will need to determine in good faith if such a transaction would prevent the Qualified Bidder from making or upholding any of the certifications in the Part 1 and Part 2 Applications.

To the extent that such a transaction is contingent upon you, Qualified Bidder A, winning at the auction, it would reveal Qualified Bidder A’s contractual arrangements for purchasing power to serve BGS load were Qualified Bidder A to be a winner at the auction. Indeed, a Qualified Bidder’s contractual arrangements for power with a party to serve the BGS load are part of the confidential information relative to the Qualified Bidder’s bidding strategy. This means that the transaction would disclose such confidential information and that Qualified Bidder A would be unable to make or uphold all its certifications in the Part 2 Application.

To the extent that it is known to the market that Qualified Bidder A is serving default supply service load elsewhere in PJM or that Qualified Bidder A has routinely engaged in unit-contingent or generator-related transactions of the same type for these and other purposes, perhaps even with the same party, it is possible that such a transaction for a term that does not coincide with the BGS supply period would not reveal Qualified Bidder A’s sources of supply were Qualified Bidder A to win at the auction. To the extent that any of these conditions do not hold, it becomes more difficult to envision how the transaction would not reveal confidential information relative to Qualified Bidder A’s bidding strategy. Ultimately Qualified Bidder A must make this determination.



11/20/2017, in Association and Confidential Information Rules.
FAQ-70

Can a Qualified Bidder enter into a win-contingent transaction for a standard product during the auction and still uphold the certifications that it made in the Part 1 and Part 2 Applications?


No. Each Qualified Bidder in its Part 2 Application is asked to certify that it will not, at any time, disclose any confidential information regarding the Auction Process with some narrow exceptions (i.e., the Qualified Bidder may reveal such information to bidders with which it is associated as disclosed in this Part 2 Application, and to its Advisor). This is certification (13) of each of Insert #P2-1 and Insert #P2-3. The purchase of a win-contingent product, once bidding has begun but before the Board has rendered a decision on the auction results, would likely reveal confidential information regarding the Auction Process, such as the status of the Qualified Bidder’s participation in the auction and the status of the auction itself. Thus, if a Qualified Bidder entered into a win-contingent transaction, it would likely mean that the Qualified Bidder would be unable to uphold one or more of its certifications in the Part 2 Application.



11/20/2017, in Association and Confidential Information Rules.
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FAQ-69

Certification (4) in Insert #P2-1 required by the Part 2 Application reads: “PLEASE CERTIFY that you are not a party to any contract for the purchase of power that might be used as a source of supply for BGS-RSCP, and that (i) would require the disclosure of any Confidential Information (Confidential Information relative to the bidding strategy or Confidential Information regarding the Auction Process) to the counterparty under such a contract; or (ii) that would require the disclosure of any Confidential Information (Confidential Information relative to the bidding strategy or Confidential Information regarding the Auction Process) to any other party; or (iii) that would provide instructions, direct financial incentives, or other inducements for you to act in a way determined by the counterparty in the agreement and/or in concert with any other bidder in the BGS-RSCP Auction. Notwithstanding the above, you may, during negotiations prior to the BGS-RSCP Auction for contractual arrangements for power to serve BGS-RSCP load were you to be a winner at the BGS-RSCP Auction, discuss with the counterparty to such arrangements the nature of the products to be purchased, the volume, and the price at which you are willing to buy these products.” An analogous certification is found in Insert #P2-3 required by the Part 2 Application for the BGS-CIEP Auction.

We believe that the latter part of this certification, starting with “Notwithstanding the above…” may allow a Qualified Bidder to enter into some types of transaction with a party before the auction. Given the other certifications that a Qualified Bidder must make in the Part 2 Application, we assume that this party cannot be a Qualified Bidder. Can you please elaborate on this portion of the certification, including confirming that it applies only to transactions with a party that is not a Qualified Bidder, explaining the types of transactions that are envisioned, as well as providing the precautions that a Qualified Bidder should put in place to ensure that it upholds its certifications from the Part 1 and the Part 2 Applications.


You are correct in your interpretation that the portion of certification (4) quoted in your question, which states that a Qualified Bidder may, during negotiations prior to the BGS-RSCP Auction for contractual arrangements for power to serve BGS-RSCP load were the Qualified Bidder to be a winner at the BGS-RSCP Auction, discuss with the counterparty to such arrangements the nature of the products to be purchased, the volume, and the price at which the Qualified Bidder is willing to buy these products, applies only if the counterparty in question is not a Qualified Bidder in the BGS-RSCP Auction. This portion of certification (4) recognizes that a Qualified Bidder may buy in the wholesale market, from a counterparty that is not a Qualified Bidder in the BGS-RSCP Auction, products from which could be inferred information regarding the Qualified Bidder’s valuation of the BGS-RSCP Auction opportunity or interest in one EDC over another. This exception does not apply to purchases from another (selling) Qualified Bidder as such purchases would mean that the other (selling) Qualified Bidder would have confidential information relative to the bidding strategy of the (purchasing) Qualified Bidder. This exception only applies before the auction as any such negotiation from the time at which the auction begins to the time at which the Board renders a decision on the auction results would reveal confidential information regarding the Auction Process. Transactions after the Board has rendered a decision on the auction results are not within the ambit of the Association and Confidential Information Rules (see, for instance, FAQ-61 and FAQ-68).

While the Qualified Bidder may discuss with the counterparty to an arrangement the nature of the products to be purchased, the volume, and the price at which it is willing to buy these products, the Qualified Bidder should take all measures to ensure that the counterparty will keep such information strictly confidential. Further, such a transaction, or the negotiations toward such a transaction, should reveal no confidential information regarding the Auction Process beyond the possible inference that the Qualified Bidder is participating in the auction. The Qualified Bidder should consider putting in place confidentiality agreements that would prevent the counterparty from providing information possibly revealed during negotiations to any other entity or that would prevent the counterparty from inadvertently revealing to the Qualified Bidder confidential information that it may have about another Qualified Bidder. The Qualified Bidder should also take all due care to reveal the minimum amount of information and only in the context of negotiations of contractual arrangements for power to serve load won at the auction were it to be a winner, and only in the context of discussions with the counterparty as to the nature of the products to be purchased by the Qualified Bidder, the volume of any such products, and the prices of such products.

Transactions with a party that is not a Qualified Bidder based on negotiations as described above and with the safeguards discussed above, may allow the Qualified to make and uphold all certifications of the Part 2 Application even if the products transacted do not have realistic and feasible uses in addition to supplying load for BGS-RSCP load, or even if the products transacted constitute a product that is substantially informative of a bidder's valuation of the opportunity for serving BGS-RSCP load.

Such transactions could include, for example, the purchase of a load-following product coincident with the term of the supply period. Such a transaction could reveal confidential information relative to the Qualified Bidder’s bidding strategy, as a load-following product may be a non-standard product that would substantially inform as to the Qualified Bidder’s valuation of the BGS-RSCP product for an EDC, and the safeguards discussed above are important in ensuring that the Qualified Bidder can continue to abide by its certifications even if it engages in such negotiations and transactions with a party that is not a Qualified Bidder. Such transactions could include an arrangement that is contingent on the Qualified Bidder winning supply obligations in the auction and the Board approving the auction results. All care must be taken so that such an arrangement or the negotiation toward such an arrangement reveals no confidential information regarding the Auction Process beyond the possible inference that the Qualified Bidder is participating in the auction.

We emphasize that the transactions and negotiations discussed in answer to this question apply before the auction (i.e., before bidding begins) as any such negotiation during the auction or immediately after (that is, prior to the Board rendering a decision on the auction results) could reveal confidential information regarding the Auction Process.



11/20/2017, in Association and Confidential Information Rules.
FAQ-68

You have stated that the Association and Confidential Information Rules may constrain the transactions that a Qualified Bidder makes. Are the Association and Confidential Information Rules applicable to transactions before, during, and after the Auction Process?


It is clear that any type of transaction negotiated and executed after the Board has rendered a decision on the auction results cannot possibly influence the auction outcome or the competitiveness at the auction. These transactions are not within the purview of the Association and Confidential Information Rules and such transactions would not violate certifications made in the application process. (Please note, however, that bidders do make undertakings that extend beyond the time at which the Board renders a decision on the auction results; for example, bidders do undertake not to disclose confidential information regarding the Auction Process. Please consult the Association and Confidential Information portion of the Auction Rules to review the time period during which each certification must hold.)

It is also clear that transactions during the auction are most likely problematic. A bidder that makes all certifications in its Part 2 Application undertakes not to reveal the status of its participation in the auction at any time. Furthermore, a Qualified Bidder undertakes not to take any action that would undermine the certifications that it made in the Part 2 Application. Any transaction made during the auction would need to avoid revealing the bidder’s continued participation in the auction, any confidential information relative to the bidder’s strategy, or any confidential information regarding the Auction Process. We find it difficult to see how any transaction during the auction, other than the purchase and sale of standard traded products that the parties would trade in the normal course of business (see, for instance FAQ-49, FAQ-50, FAQ-54, FAQ-57, and FAQ-66), would allow the Qualified Bidder to continue abiding by all its certifications.

Transactions before the auction may or may not prevent a Qualified Bidder from making or upholding all certifications in the Part 2 Application. As emphasized in FAQ-49 and FAQ-50, the Association and Confidential Information Rules do not provide a list of permitted or prohibited transactions as a given transaction may in one context allow the bidder to make all certifications, while the same bidder may be unable to make one or more certifications with respect to the same type of transaction in another context. One consideration is whether the counterparty is also a Qualified Bidder. For additional information, see, for instance, FAQ-64, FAQ-65, FAQ-66, FAQ-67, FAQ-69, FAQ-70, and FAQ-71.



11/20/2017, in Association and Confidential Information Rules.
FAQ-67

Can a Qualified Bidder in the BGS-RSCP Auction sell to, or buy from another Qualified Bidder in the BGS-RSCP Auction shaped energy, load-following products and/or basis products? Is it correct to assume that, as long as neither Qualified Bidder is required to disclose confidential information (relative to its bidding strategy or regarding the Auction Process), and as long as neither Qualified Bidder provides inducements for the other Qualified Bidder to act in the BGS-RSCP Auction in a way that it has determined, these two Qualified Bidders will, in good faith, be able to make all the certifications required by the Part 2 Application for the auction in which they are participating?


Your question assumes that a sufficient test of whether a bidder will, in good faith, be able to make all certifications in the Part 2 Application, is whether the transaction requires disclosure of confidential information (relative to bidding strategy or regarding the Auction Process), and whether the transaction includes provisions that induce a Qualified Bidder to act in a pre-determined way in the auction. This assumption is false; although this test is relevant, it is not sufficient to determine whether a bidder will, in good faith, be able to make the certifications of the Part 2 Application.

Certainly, if Qualified Bidders were party to a transaction that required a Qualified Bidder to disclose confidential information, or that would induce a Qualified Bidder to behave in a pre-determined way in the auction, then almost certainly the Qualified Bidders would be unable to make all certifications in the Part 2 Application. However, even if the Qualified Bidders were parties to a transaction that did not require a Qualified Bidder to disclose confidential information and that did not provide inducements for a Qualified Bidder to behave in a pre-determined way in the auction, a Qualified Bidder may well not be able to make some of the certifications from the Part 2 Application. A Qualified Bidder should evaluate whether it can make each and every certification and it should not conclude that it can make those certifications simply because it has not been a party to a transaction that requires the disclosure of confidential information and/or because it has not been a party to a transaction that provides inducements for a Qualified Bidder to act in a pre-determined way.

Recall that a Qualified Bidder in the BGS-RSCP Auction will be asked to make the following certifications:

  • The Qualified Bidder will be asked to certify that it is not a party to any contract for the purchase of power that might be used as source of supply for BGS-RSCP, and that would require the disclosure of confidential information to the counterparty under such a contract or to any other party, or that would provide instructions, direct financial incentives or other inducements for the BGS-RSCP Bidder to act in a way determined by the counterparty in the agreement and/or in concert with any other bidder in the BGS-RSCP Auction.
  • The Qualified Bidder will be asked to certify that it does not have any knowledge of confidential information relative to the bidding strategy of any other Qualified Bidder in the BGS-RSCP Auction.
  • The Qualified Bidder will be asked to certify that it will not disclose confidential information relative to its own bidding strategy except to bidders with which it is associated, to its Advisor, and to its financial institution. The BGS-RSCP Bidder may, however, during negotiations of contractual arrangements for power to serve BGS-RSCP load were it to be a winner at the BGS-RSCP Auction, discuss with the counterparty to such arrangements the nature of the products purchased, the volume, and the price at which it is willing to buy these products.
  • The Qualified Bidder will be asked to certify that, except for information publicly announced by the Auction Manager or the Board, it will not disclose any information it has regarding the Auction Process, including any round results and the status of its participation in the BGS-RSCP Auction, with any party except its Advisor and bidders with which it is associated.
  • The Qualified Bidder must certify that, other than entities with which it is affiliated, and other than bidders named in the Part 1 Application as parties with whom the Qualified Bidder has entered into a bidding agreement, joint venture for the purpose of bidding in the auction, bidding consortium, or other arrangement pertaining to bidding in the auction, no party has agreed to defray any of its costs of participating in the BGS-RSCP Auction, including the cost of preparing the bid, the cost of any financial guarantees, the cost to be paid upon winning a tranche, and any other participation cost.

Please note that all statements where a bidder is asked to certify that it will not disclose confidential information, the bidder is asked to certify that it will not disclose this confidential information to any other party; these statements are not limited to asking the bidder to certify that it will not disclose confidential information to other Qualified Bidders.

You ask about certain specific types of transactions. Please note that all transactions require a case-by-case consideration of whether the parties to the transaction that are Qualified Bidders will be able to make the certifications of the Part 2 Application; see, for instance, FAQ-49, FAQ-50, FAQ-54, and FAQ-68.

Transaction of a shaped product may or may not impede the ability of Qualified Bidders to make or uphold the certifications of the Part 2 Application. Transaction of a shaped product in isolation, with that product having a fixed price, a fixed volume and delivery pattern, along with no contingency between winning at the auction and purchasing the product, may not reveal the buyer’s or the seller’s assessment of migration risk or weather risk. A shaped product can be used not only to support a bid in the auction but it can be used outside the auction and it can be resold to another buyer in or out of the auction. A shaped product in and of itself is not sufficient to meet the supply obligations of a BGS-RSCP Supplier; several other significant components are required. Such a transaction need not reveal or provide confidential information relative to the bidding strategy, but such a transaction could reveal or provide confidential information relative to the bidding strategy. For example, if this transaction were not an isolated transaction but instead the parties were engaged in a series of transactions that included shaped products for varying delivery patterns, or if shaped products were added to other components that could be used for BGS-RSCP Supply, the totality of these transactions would most likely reveal confidential information relative to the bidding strategy of one or both parties. If the totality of the transactions reveal confidential information relative to the bidding strategy of one or both parties, it would not be possible for the bidders to make or uphold all certifications of the Part 2 Application. Each Qualified Bidder is asked in its Part 2 Application to certify that it does not have and will not obtain confidential information relative to the bidding strategy of another Qualified Bidder and that it has not and will not reveal confidential information relative to its own bidding strategy to another party. Confidential information relative to bidding strategy includes the bidder’s estimation of the value of a tranche of the various EDC systems; the bidder’s estimation of the risks associated with serving BGS-RSCP load or of serving a particular EDC; and a bidder’s contractual arrangements for power with a party to serve BGS-RSCP load were the bidder to be a winner at the auction.

Transaction of a load-following energy product, that is, one that followed actual BGS-RSCP load in some way, for example for an EDC territory, would likely impede the ability of Qualified Bidders to make or uphold the certifications of the Part 2 Application, even if the product were not a full-requirements product. Transaction of such a product would reveal a significant component of a bidder’s cost and would reveal an estimation of the seller’s risk of serving BGS-RSCP load. Such products have no or extremely limited alternative use outside of the context of the BGS-RSCP Auction. It is difficult to envision that a Qualified Bidder could transact for such a product with another Qualified Bidder and be able to make all certifications in the Part 2 Application including certifications that the bidder has not revealed confidential information relative to its bidding strategy and is unaware of confidential information relative to another Qualified Bidder’s bidding strategy. The same would be true of basis products that would be tied to the BGS-RSCP load shape in any way, or to any product for which the transaction was contingent upon the outcome of the auction.



11/20/2017, in Association and Confidential Information Rules.
FAQ-66

Suppose that a marketer has in the past purchased standard products from a generator/wholesaler. Suppose that both the marketer and the generator qualify in the same BGS Auction (either the BGS-RSCP or the BGS-CIEP Auction). Can the marketer continue purchasing standard products (e.g., 7x24 blocks of energy) from the generator after they have both qualified to bid in the same auction without contravening the applicable Association and Confidential Information Rules? Will these two Qualified Bidders, in good faith, be able to make all the certifications required by the Part 2 Application for the auction in which they are participating?


Two bidders that have qualified for the same auction and that meet in the course of conducting ordinary business (e.g., the trading of standard energy products such as 7x24 blocks of energy) do not contravene the Association and Confidential Information Rules simply through the ordinary conduct of business. Each of these Qualified Bidders will have to certify to the fact that it does not have any knowledge of confidential information relative to the bidding strategy of the other Qualified Bidder, or any other Qualified Bidder for the same auction. A standard product can be used not only to support a bid in the auction but it can be used outside the auction and it can be resold to another buyer in or out of the auction; furthermore, a standard product in and of itself is not sufficient to meet the supply obligations of a BGS-RSCP Supplier or of a BGS-CIEP Supplier. As such, the transaction of a standard product does not reveal confidential information relative to bidding strategy.

However, bidders that meet in the course of ordinary business should take particular care not to discuss anything relative to their bidding strategy in the auction or auctions in which they are participating.



11/20/2017, in Association and Confidential Information Rules.
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FAQ-65

Can a marketer qualified for the BGS-CIEP Auction contract with a generator/wholesaler, who is also qualified for the BGS-CIEP Auction, for the generator/wholesaler to supply certain ancillary services (i.e., those that need not be purchased from PJM, such as ancillary services of schedule 3, voltage regulation) and Renewable Energy Credits (“RECs”) tied to the volume of BGS-CIEP load should the marketer win at the BGS-CIEP Auction? Is this permissible given that the marketer will not purchase capacity or energy from the generator in connection with BGS-CIEP supply? Could these two Qualified Bidders, in good faith, make all the certifications in the Part 2 Application for the BGS-CIEP Auction?


No, they could not. Any contractual arrangements for both certain ancillary services and RECs tied to the volume of BGS-CIEP load should the marketer be a winner at the auction would reveal confidential information relative to the marketer's bidding strategy. The products together account for most requirements that a BGS-CIEP Supplier must meet and that involve price risk. For energy, the EDC pays the BGS-CIEP Supplier the zonal real-time locational marginal price, and the BGS-CIEP Supplier does not generally face price risk for energy. For capacity, the BGS-CIEP Supplier pays the price from the Reliability Pricing Model (“RPM”), which is known before the auction begins. A generator that is qualified for the BGS-CIEP Auction and that sells a contract to cover the variable ancillary services and RECs needed to serve BGS-CIEP to a marketer that is also qualified for the BGS-CIEP Auction, has knowledge of confidential information relative to the bidding strategy of the marketer. The generator would not be able to certify that it does not have any knowledge of confidential information relative to the bidding strategy of another Qualified Bidder. The marketer may not be able to certify that it does not have any knowledge of confidential information relative to the bidding strategy of the generator if it has acquired knowledge of the generator's estimation of the risks associated with serving BGS-CIEP load through the transaction. Further, the marketer would not be able to certify that it has not disclosed confidential information relative to its own bidding strategy to another Qualified Bidder in the BGS-CIEP Auction.



11/20/2017, in Association and Confidential Information Rules.
FAQ-64

Can a marketer, who becomes a Qualified Bidder in the BGS-RSCP Auction, purchase full-requirements supply to serve a particular zone should it win at the BGS-RSCP Auction from a generator/wholesaler, who is also a Qualified Bidder in the BGS-RSCP Auction? Could these two Qualified Bidders, in good faith, make all the certifications in the Part 2 Application for the BGS-RSCP Auction?


No, they could not. The contractual arrangements with the generator for supply to serve full-requirements BGS-RSCP load should the marketer be a winner at the auction would reveal confidential information relative to the marketer's bidding strategy. There is no other use (or market) for full-requirements BGS-RSCP supply other than bidding in the BGS-RSCP Auction; further, the product is sufficient to meet virtually all supply requirements of a BGS-RSCP Supplier. Thus, a generator that is qualified for the BGS-RSCP Auction and that sells full-requirements supply for BGS-RSCP to a marketer that is also qualified for the BGS-RSCP Auction, has knowledge of confidential information relative to the bidding strategy of the marketer. The generator would not be able to certify that it does not have any knowledge of confidential information relative to the bidding strategy of another Qualified Bidder. The marketer may not be able to certify that it does not have any knowledge of confidential information relative to the bidding strategy of the generator if it has acquired knowledge of the generator's estimation of the risks associated with serving BGS-RSCP load or of serving a particular Electric Distribution Company (“EDC”) through the transaction. Further, the marketer would not be able to certify that it has not disclosed confidential information relative to its own bidding strategy to another Qualified Bidder.



11/20/2017, in Association and Confidential Information Rules.
FAQ-63

If two entities enter into a bidding agreement, joint venture for the purpose of bidding in the auction, bidding consortium, or other arrangement pertaining to bidding in the auction (an “Arrangement”), are these entities associated? If entities are associated with each other, are these entities automatically considered to be part of an Arrangement?


There is no necessary relationship between associations and an Arrangement with respect to the auction.

If two entities participate in an Arrangement, they are not necessarily associated. For two entities to be associated with one another, some degree of relationship through the corporate structure of the two entities is necessary. Separate entities that have no corporate ties could participate in an Arrangement to submit bids in the auction, each providing separate resources or expertise for participating in the auction (e.g., financial support from one entity and trading expertise from another). In that case, the entities participate in an Arrangement but they are not associated.

If two entities are associated, they are not necessarily part of an Arrangement. It is possible that two entities that are affiliated (and thus associated) would not know of each other’s plans to participate in the auction. Such entities may not be able (because one of the entities is regulated, for example) or may not be willing to collaborate in the submission of bids in the auction. In that case, the entities are not part of any sort of Arrangement but they are nevertheless associated.



11/20/2017, in Association and Confidential Information Rules.
FAQ-62

Is it true that if two entities enter into a bidding agreement, joint venture for the purpose of bidding in the auction, bidding consortium, or other arrangement pertaining to bidding in an auction ("Arrangement"), if this Arrangement is disclosed in the Part 1 Application, and if the Auction Manager qualifies the entities under the Arrangement, then these entities can communicate freely regarding their bidding strategy as well as regarding any other matter related to that auction?


That is correct.



11/20/2017, in Association and Confidential Information Rules.
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FAQ-61

Do the certifications of the Part 1 and Part 2 Applications that involve undertakings by bidders not to reveal confidential information when seeking quotes and making arrangements for BGS Supply cease to apply once the auction is completed?


No. The time period during which these certifications apply does not end when the auction is completed.

For instance, in its Part 2 Application, a Qualified Bidder undertakes not to disclose confidential information relative to its own bidding strategy, and undertakes to uphold this certification until the Board renders a decision on the auction results. The certification extends beyond the time at which the auction closes. The Board approves the auction results up to two business days after the close of the BGS-RSCP Auction or after the close of the BGS-CIEP Auction, whichever closes later. Obtaining quotes or making arrangements for BGS Supply when the auction is completed may affect a bidder’s ability to uphold this certification. See, for instance, FAQ-72 and FAQ-73, as well as all other questions and answers in the Transaction and Hedging Section of this document.

Please note further that certifications concerning confidential information regarding the Auction Process hold beyond the Board approval of the auction results. Please consult the Association and Confidential Information portion of the Auction Rules to review the time period during which each certification must hold.



11/20/2017, in Association and Confidential Information Rules.
FAQ-60

If a bidder must provide details on its sales as a BGS Supplier and on its offers as a Registered Bidder in the BGS Auctions to comply with a governmental requirement or inquiry, would this be considered a violation of the certifications made under the Association and Confidential Information Rules?


Once the auction has been concluded, if the Board approves the auction results, the Board may choose to release information regarding final auction prices and the names of the winners. The Association and Confidential Information Rules state that, at that point, a BGS Supplier may itself release information regarding the number of tranches it has won and the territories that the winner will be serving. Such details regarding your sales as a BGS Supplier may be released under the Association and Confidential Information Rules.

The offers that you presented as a Registered Bidder in the BGS Auctions are confidential information regarding the Auction Process. A bidder undertakes not to disclose confidential information regarding the Auction Process from the time of submission of the Part 2 Application. However, it would not be considered a violation of the certifications if you were to provide these in order to comply with a governmental requirement or inquiry as long as you designate the information as confidential and that you use your best efforts to seek to protect the information from release by the governmental authority and from being subject to release under any applicable open records statutes. The Auction Manager would also appreciate, but does not require, notification that such information has been requested of you.



11/20/2017, in Association and Confidential Information Rules.
FAQ-59

We are a Registered Bidder in a BGS Auction. We are also a public company subject to the disclosure rules established by the Securities and Exchange Commission (“SEC”). We are concerned about what we can and cannot say regarding the BGS Auction for purposes of our SEC disclosures. Can you provide guidance regarding what can and cannot be said while still upholding our certifications from the Part 1 and Part 2 Application?


In your Part 1 Application, you agreed not to disclose that you are a Qualified Bidder. In your Part 2 Application, you agreed not to disclose that you are a Registered Bidder (see, for instance, FAQ-49, FAQ-50, FAQ-54, and FAQ-57).

There are ways in which auction participation could be revealed absent an explicit statement that you are intending to bid in the auction. Doing so could violate certifications that you have made in the Part 1 and Part 2 Applications. What you may be able to say for purposes of your SEC disclosure without violating certifications in the Part 1 and Part 2 Applications depends on your other business activities and your overall business outlook.

To the extent that you own significant generation in PJM, the marketing of which would be materially affected by the auction, providing factual information about the auction would not be unusual and it would not necessarily reveal that you are participating in the auction. A generation owner in PJM would be expected to have an interest in the BGS Auctions given that the auctions may create a demand for forward power products. These products need not be sales made at the auctions, but could be anything including sales of standard products to bidders or third-party suppliers. The auctions could thus be material to such an entity, even if it were not participating in the auctions. For such an entity to include in its SEC filings public factual information about the auctions or to refer to previously disclosed information about the auctions, would not, if carefully done, reveal that the entity is a Qualified Bidder or a Registered Bidder. It should be clear to readers of such information that whether or not the entity is a bidder, the BGS Auctions could have an effect on the entity's business outlook. Such a release of information, if carefully done, need not violate any certification.

At the other end of the spectrum, an entity that has no significant presence in PJM and that included in its SEC filings information about the auctions may well be viewed as using the filing to communicate that it is participating in one or both of the BGS Auctions. Such an entity may be violating the certification that it will not reveal that it is a Qualified Bidder or Registered Bidder in one or both of the BGS Auctions.



11/20/2017, in Association and Confidential Information Rules.
FAQ-58

Does a Registered Bidder violate the certifications of the Association and Confidential Information Rules made in the Part 1 and the Part 2 Applications by revealing whether it has won in a BGS Auction (and if so, the number of tranches it has won) once the Board has approved the results?


No, this would not be a violation of those certifications.

Once the auction has concluded, if the Board approves the auction results, the Board may choose to release information regarding final auction prices and the names of the winners. The Association and Confidential Information Rules state that, at that point, a winner may itself release information (only) regarding the number of tranches it has won and the territories that the winner will be serving. The Association and Confidential Information Rules state that, at that point, a losing bidder may itself release information (only) regarding the fact that it participated in the auction.

The Registered Bidder may not make such a disclosure prior to the Board having approved the auction results.  Winners and losing bidders otherwise continue to be bound by all certifications from the Association and Confidential Information Rules that extend beyond the Board decision on the auction results.  Please consult the Association and Confidential Information Rules portion of the Auction Rules to identify which certifications must be upheld beyond the Board decision on the auction results.



11/20/2017, in Association and Confidential Information Rules.
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FAQ-57

Can a Qualified Bidder publicly announce during the Auction Process that it is participating in one or both of the BGS Auctions? Can a Qualified Bidder discuss its participation in the Auction Process with anyone?


No, once an entity has completed the Part 1 Application for a BGS Auction, this entity cannot announce that it is participating in a BGS Auction. In its Part 1 Application, the entity certifies that upon becoming a Qualified Bidder, it will not disclose information regarding the list of Qualified Bidders, including the identity of any one Qualified Bidder. This prohibits the Qualified Bidder from announcing or revealing to anyone that it is itself a Qualified Bidder, since this would reveal the identity of a Qualified Bidder.

In its Part 2 Application, the Qualified Bidder certifies that upon becoming a Registered Bidder, it will not disclose information regarding the list of Registered Bidders, including the identity of any one Registered Bidder. This prohibits the Registered Bidder from announcing or revealing to anyone that it is itself a Registered Bidder, since this would reveal the identity of a Registered Bidder.

Furthermore, an entity cannot discuss its participation with anyone while the auction is on-going. In its Part 1 Application, the entity also agrees to the Auction Rules. At that point, the entity agrees that as a Qualified Bidder, it will not disclose any confidential information regarding the Auction Process. Confidential information regarding the Auction Process explicitly includes the status of a bidder’s participation in the auction. There are only narrow and specific exceptions to this principle; namely, the Qualified Bidder may discuss confidential information regarding the Auction Process with an Advisor, or with bidders with which it is associated (as disclosed in its Part 2 Application).



11/20/2017, in Association and Confidential Information Rules.
FAQ-56

Is an entity that becomes a Registered Bidder for a BGS Auction but does not participate in that auction still bound by its certifications in the Part 1 and Part 2 Applications?


Yes. An entity that receives a Notification of Qualification acquires Qualified Bidder status and retains this status until the end of the Auction Process. Similarly, an entity that receives a Notification of Registration acquires Registered Bidder status and retains this status until the end of the Auction Process. There is no possibility to rescind or change this status. This means that an entity that becomes a Qualified Bidder and that does not submit a Part 2 Application is bound by all the certifications it has made in the Part 1 Application. Similarly, an entity that becomes a Registered Bidder is bound by all the certifications it has made in the Part 1 and Part 2 Applications, regardless of whether the Registered Bidder subsequently participates in the auction.

Please review the certifications in the Part 1 and Part 2 Applications for more details and in particular for the time period during which these certifications must remain in effect.



11/20/2017, in Association and Confidential Information Rules.
FAQ-55

Suppose that an entity submits a Part 1 Application for the BGS-RSCP Auction, qualifies as a bidder, and then changes its status to a supplier by not filing the Part 2 Application. Can you confirm that the entity in question is then no longer in the ambit of the Association and Confidential Information Rules, and that this scenario presents no issues of compliance with the Association and Confidential Information Rules?


No, your view is incorrect. This scenario presents important issues of compliance with the Association and Confidential Information Rules.

Please note that an entity that submits a Part 1 Application in the BGS-RSCP Auction, if successful, becomes a Qualified Bidder. Status as a Qualified Bidder cannot be rescinded or changed after the Auction Manager has provided the entity with the Notification of Qualification and has provided the entity with the confidential information that is available only to Qualified Bidders in the BGS-RSCP Auction. There is no such thing as a "supplier" status, no possibility to change status from a Qualified Bidder to a supplier, and no possibility to rescind status as a Qualified Bidder (see, for instance, FAQ-56).

If an entity – call it Party A – submits a Part 1 Application for the BGS-RSCP Auction, qualifies as a bidder, and does not subsequently submit a Part 2 Application, Party A need not make certifications in the Part 2 Application, including certifications from the Association and Confidential Information Rules. But this does not mean that Party A is not in the ambit of the Association and Confidential Information Rules. Party A must continue to abide by its certifications made in the Part 1 Application.

Furthermore, other Qualified Bidders in the BGS-RSCP Auction that do submit a Part 2 Application are also asked to make certifications, including certifications from the Association and Confidential Information Rules. In making these certifications, other Qualified Bidders must consider the list of all Qualified Bidders, and this list of Qualified Bidders includes Party A. This means that any Qualified Bidder in the BGS-RSCP Auction that has negotiated or negotiates supply arrangements specific to BGS-RSCP supply with Party A and that submits a Part 2 Application will most likely be unable to attest that it does not have any knowledge of confidential information relative to the bidding strategy of another Qualified Bidder (namely, Party A). Furthermore, a Qualified Bidder that submits a Part 2 Application may, as a result of interactions with Party A, be unable to attest to any one of the following:

  • it is not associated with another Qualified Bidder;
  • it has not entered into any agreement with another Qualified Bidder regarding bids at the auction;
  • it is not a party to any contract for the purchase of power that might be used as source of supply for BGS-RSCP, and that (i) would require the disclosure of any confidential information (confidential information relative to the bidding strategy or confidential information regarding the Auction Process) to the counterparty under such a contract; or (ii) that would require the disclosure of any confidential information (confidential information relative to the bidding strategy or confidential information regarding the Auction Process) to any other party; or (iii) that would provide instructions, direct financial incentives, or other inducements for the bidder to act in a way determined by the counterparty in the agreement and/or in concert with any other bidder in the auction; 
  • it does not have any knowledge of confidential information relative to the bidding strategy of any other Qualified Bidder;
  • it has not disclosed confidential information relative to its bidding strategy;
  • no party has agreed to defray any of its costs of participating in the auction; and
  • it will not disclose any confidential information regarding the Auction Process.

Every Qualified Bidder with which Party A wants to negotiate a supply arrangement is faced with not being able to make all certifications, with the need to make information disclosures, and with the possibility of being subject to any remedies as determined by the Auction Manager, which include not being able to participate in the BGS-RSCP Auction. The potential problem is not avoided by negotiating after the Part 2 Application has been submitted. If such an arrangement is negotiated after the Part 2 Application is submitted, a Qualified Bidder with which Party A negotiates a supply arrangement is faced with being unable to uphold the certifications made in the Part 2 Application and is subject to sanctions (see, for instance, FAQ-49, FAQ-50, and FAQ-53).

The scenario you present therefore raises a number of important issues with respect to compliance with the Association and Confidential Information Rules for any BGS-RSCP Bidder negotiating with Party A. If Party A did not submit a Part 1 Application and did not become a Qualified Bidder, although each Qualified Bidder must take due care to uphold certifications in the Part 1 and Part 2 Applications (see, for instance, the discussion in FAQ-50), the same issues may not arise.



11/20/2017, in Association and Confidential Information Rules.
FAQ-54

The Part 2 Application states:

“Completion of the following certifications signifies:

• your agreement not to take any action during the period to which each certification applies that might affect the accuracy of the certifications; and

• your acknowledgement that you do not know of or cannot reasonably anticipate, at the time of this Part 2 Application, any event(s) that might cause these certifications to become untrue during the period to which each certification applies.”

What if a certification becomes untrue, but not as a direct consequence of an action taken by the applicant?


The applicant is subject to sanctions if a certification it makes becomes untrue. The certifications are designed so that the applicant should either know or be able to control whether the certification stays true during the period to which a certification applies. There is no exception from sanctions if a certification becomes untrue, even if an action taken by the applicant is not the proximate cause.

In weighing the appropriateness of a sanction, we would expect that the Board would consider whether the applicant should have reasonably been aware of the possibility of the event that caused the certification to become untrue, as well as the nature of the relationship between the applicant and the party whose action caused the certification to become untrue.



11/20/2017, in Association and Confidential Information Rules.
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FAQ-53

What would happen to a bidder that had made all the certifications of the Association and Confidential Information Rules in the Part 1 and Part 2 Applications and that had been found subsequently to have violated one or more of these certifications?


Sanctions can be imposed for such a violation. These sanctions include loss of all rights to serve any BGS Load won in the auction, forfeiture of the Pre-Auction Letter of Credit, liquidated damages of $100,000, action under state or federal laws, debarment from participation in future BGS Auctions, prosecution under applicable state and federal laws, or other sanctions that the Board may consider appropriate. The Auction Manager will make a recommendation to the Board on a possible sanction and the Board will make the final determination.



11/20/2017, in Association and Confidential Information Rules.

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