Stakeholders last week challenged PJM over use of a “quick fix process” to deal with incorrect capital recovery factor (CRF) values in the Tariff that resulted from federal tax code changes.
At Tuesday’s Market Implementation Committee meeting, Jeff Bastian, PJM senior consultant in market operations, provided a first read of the problem statement and issue charge addressing the value of CRFs used to calculate the avoidable project investment rate (APIR), a component of the net avoidable cost rate (ACR) of a resource.
The net ACR sets a resource’s market seller offer cap as well as the minimum offer price rule (MOPR) floor price, depending on which is applicable to the resource. Attachment DD of the Tariff includes tables of CRF values that resources can use to calculate either figure. The tables were established in 2007 as part of the Tariff.
The Independent Market Monitor notified PJM in a letter Dec. 4 that the CRF values do not reflect current federal tax law. The Monitor said the tables should have been updated in 2018 and must be changed before the next capacity market auction takes place in May. (See PJM Sets BRA for May 2021.)
PJM issued a statement Dec. 7 to members saying it understood the Monitor’s concerns but also appreciated the need for stakeholder input before making Tariff changes. Stakeholders were updated on the issue at the Markets and Reliability Committee meeting on Dec. 17. (See “Capital Recovery Factors,” PJM MRC/MC Briefs: Dec. 17, 2020.)
The RTO has proposed to address the CRF issue as part of a quick fix process in which the MIC simultaneously approves the issue charge and the proposed Tariff revisions at the meeting Feb. 10. It is proposing to update the values of the CRF table in Attachment DD to reflect the tax rates and depreciation provisions of current federal tax law.
The proposed CRF values would become effective with the 2023/24 Base Residual Auction (BRA) scheduled for December, Bastian said. PJM had concerns that seeking an earlier effective date could lead to further delays of the already postponed 2022/23 BRA, with deadlines related to that auction looming this month.
Bastian said PJM is proposing to review CRF values on a schedule consistent with the quadrennial review of key auction parameters.
Paul Sotkiewicz of E-Cubed Policy Associates offered an objection to using the quick fix process to deal with the CRF issue. Sotkiewicz said he didn’t see a need for a “fast-track solution” since PJM is not looking to use the new values in the 2022/23 BRA.
He added that the CRF value calculations lack transparency and that PJM is going from one stated set of values to another “under the guise of changing tax laws.” He said the RTO should provide the formulas and all the inputs used in determining the values.
“I think we need to have a more thoughtful and considered discussion between the members, PJM and the IMM just to provide clarity and transparency,” Sotkiewicz said.
Erik Heinle of the D.C. Office of the People’s Counsel said he shared Sotkiewicz’s concerns about fast-tracking the CRF issue and that the concerns were “very reasonable.”
Heinle also expressed concerned about such a delayed response to a tax law that was passed three years ago, calling it a “collective failure” among PJM and stakeholders.
“I feel like we’re a little bit behind the ball of where the tax code is,” he said.
Bastian said Heinle made “fair points” and added that the CRF value update would have been caught earlier had it been part of the quadrennial review.
Monitor Joe Bowring said the table changes should be fast-tracked — and that the process doesn’t actually require a stakeholder process at all.
“The Tariff is wrong; we’ve known it’s wrong for quite some time, and there’s no reason to leave it wrong,” Bowring said.
He also disagreed with the notion that leaving the table wrong will reduce confusion in the 2022/23 BRA, which he said should also use the updated values. He added that not making the change is likely to increase uncertainty of the outcome of the BRA and could lead to challenges at FERC because the Tariff is “demonstrably wrong.”
MOPR Changes Endorsed
Members unanimously endorsed manual revisions to conform with recent FERC-ordered rule changes in the minimum offer price rule (MOPR) and forward-looking net energy and ancillary services (E&AS) offset calculation.
Bastian reviewed updates to Manual 18: PJM Capacity Market, including two recent changes to the redline language resulting from stakeholder discussions.
The first change is a previously unmapped region of the Ohio Valley Electric Corp. (OVEC) Zone, which is now mapped to the Columbia-Appalachia TCO fuel pricing point for the purpose of establishing the net E&AS offset for the zone. The OVEC Zone was also mapped to the AEP-Dayton Hub for determining the forward hourly locational marginal pricing.
The second change includes new language in section 5.4.5.5(A) that clarifies that a seller’s financial accounting statements should serve as the primary form of evidence for use of an asset life more than 20 years.
Bowring said the redline language in Manual 18 did not appear to be consistent with PJM’s statement on the financial accounting statements and added more confusion than clarity on the issue. The FERC order was “a bit ambiguous” about the accounting issue, and it’s unclear how financing could be used in the definition of the life of the asset that hasn’t been financed by a third party (ER20-2046). (See FERC Rejects PJM Stakeholder EOL Proposal.)
Bastian said PJM believes the language is consistent with the FERC order.
“What we’re trying to clarify is that the financial documents are the primary source of evidence, but there are other forms that can be provided,” he said.
The manual revisions now go to the MRC for endorsement at its meeting on Jan. 27.
PRD Credits Disposition
Stakeholders unanimously endorsed a proposed solution package addressing the disposition of price-responsive demand (PRD) credits. In a follow-up non-binding poll, the package received 91% support over maintaining the status quo.
Pete Langbein, manager of demand side response operations, reviewed the Baltimore Gas and Electric proposal addressing the PRD credits disposition issue.
PJM’s settlement rules call for revenues associated with PRD to be credited to the load-serving entity for an area and do not address the roles of electric distribution companies (EDCs) or curtailment service providers (CSPs). Meaning some LSEs are paid for PRD service supplied by EDCs and CSPs. PRD providers represent retail customers that have the capability to reduce load in response to prices. (See “PRD Credits Disposition,” PJM MRC/MC Briefs: Dec. 17, 2020.)
Langbein said an increasing share of PJM’s load is responsive to changing wholesale prices because of the implementation of dynamic and time-differentiated retail rates and utility investment in advanced metering infrastructure. Several EDCs cleared PRD as a capacity resource for the first time for the 2020/21 delivery year.
“At the end of the day, this is all about having the PRD provider actually receive the PRD bill credit,” he said.
Langbein went over the redline changes in the Operating Agreement, Manual 11 and Manual 18. He also addressed the matrix for PRD credits disposition.
PJM plans to submit a filing to FERC by early March and have a response by early May. The RTO intends to settle the issue before it receives PRD registrations. Langbein said the changes will simplify how those registrations are done.