By Christen Smith

Federal regulators Tuesday approved PJM’s revisions to its market efficiency planning rules, despite protests from transmission developers that the changes will underestimate future generation needs and associated costs.

The FERC order, effective Feb. 13, approves the RTO’s updates to Section 1.5.7 of its Operating Agreement that would exclude from market efficiency planning — with exceptions — generation either with only an executed facilities study agreement (FSA) or with an executed interconnection service agreement (ISA) under suspension (ER19-562).

Change Late in RTEP Submission Cycle

The rule change comes near the tail-end of the long-term transmission planning window opened in November, which accepts proposals capable of reducing future congestion. (See PJM Market Efficiency Rules Could Slip Deadline.) Developers can submit projects through the end of February.

Under previous market efficiency rules, PJM included in-service generation and generation with either an executed ISA, an executed interim ISA for which an ISA is expected to be executed or an executed FSA. Excluding generation with executed FSAs only occurred on a case-by-case basis after review with the Transmission Expansion Advisory Committee.

The 15-year scope also projected levels of new generation and retirements. If models anticipated PJM would fall short of its reserve requirement in any of the proceeding years, the analysis would suggest transmission enhancements addressing potential congestion.

PJM said its robust capacity market, however, means the likelihood of missing reserve requirements over the next 15 years remains slim, leading to a “vast overstatement” of future generation needs and cost. The RTO’s internal analysis encompassing 1999 through 2018 concluded only 36% of generation projects with executed FSAs or ISAs under suspension reached commercial operation, compared with 70% of projects with executed ISAs or wholesale market participation agreements.

“PJM adds that including all projects either with only an executed FSA or with an executed ISA that is under suspension skews the market efficiency models towards including too much generation, which results in an unrealistic estimation of congestion,” FERC said in its ruling.

The new rules exclude such projects from the market efficiency analysis, unless a generator’s specific circumstances or forecasted system reserve margins require staff to reconsider. PJM said it will invoke this unit-by-unit process “rarely,” but always “in an open, transparent process in consultation with the TEAC, and will identify the specific generation projects based on articulable factors that justify their addition.”

Stakeholder Objections

The revisions prompted interventions from developers and the Independent Market Monitor, all of whom argue excluding the projects will underestimate generation needs and mask related costs, skewing what is considered “the best picture of generation to be added” in the eyes of all market participants, stakeholders and state commissions.

The Monitor said eliminating all the early-stage generation from the analyses threatens PJM’s even-handed approach in managing competition between transmission and generation. It also criticized the RTO for not incorporating such uncertainty into forecasts of future congestion, expected fuel costs and construction of transmission projects.

FERC dismissed the Monitor’s concerns over competition, saying that improving the accuracy of PJM’s market efficiency analysis outweighs any possible advantage the new rules may give transmission projects over generation. It also disagreed with developers who argued under-representation of generation will bias the analyses, agreeing with PJM that such changes will lead to more accurate modeling.

“While it may be worthwhile for PJM to work with its stakeholders to undertake some of the suggested analysis, the issue here is limited to whether PJM’s proposed Operating Agreement revision is just and reasonable,” FERC said. “We find that it is.”

PJM’s Brian Chmielewski will lead a special meeting of the TEAC at 10 a.m. Feb. 20 to discuss the rule changes with stakeholders.