The Markets and Reliability Committee overwhelmingly approved revised methodology that will limit external generation resources in next year’s base capacity auction to 6,200 MW ­– a 17% drop from the volume of imports that cleared in May’s auction.

The proposal, which will also set five import zones with their own limits, won 87% support in a sector-weighted vote, sending it on to the Members Committee for a final vote next week.

Impact Uncertain

The change will put upward pressure on capacity prices. How much it will help generators inside PJM, who have been hurt by the fall in capacity prices resulting from competition from both imports and demand response, is unclear.

In response to a question from Susan Bruce, representing the PJM Industrial Customer Coalition, PJM Executive Vice President for Markets Andy Ott said he believed the import limit will be “smaller magnitude in dollars” than a demand response proposal that members rejected yesterday. The DR proposal would add about $1 billion a year in capacity costs according to PJM’s simulations. (See related story PJM Wins One, Loses One on Capacity Market Changes)

In response to a later question from the Maryland Public Service Commission’s Walter Hall, Ott gave a response that seemed to undercut that certitude, saying “We do not have an estimate, nor could we get an estimate, as to the import limit” impact.

There are a number of variables that could affect future clearing prices, including the strength of the economy and the volume of demand response. DR offers dropped 27% in May from the 2012 auction. A rebound in DR offers next year could at least partially offset the import restriction.

Import Growth

The new methodology grew out of concerns that PJM might lack sufficient transmission capacity to accommodate its growing volume of capacity imports. Cleared imports grew from about 3,000 MW to more than 4,500 MW in 2009-2012 before more than doubling to nearly 7,500 MW this year.

Based on current assumptions for 2018, PJM’s First Contingency Incremental Transfer Capability (FCITC) is 9,700 MW. Because 3,500 MW of the import capability must be reserved for the Capacity Benefit Margin, the cap on imports clearing in the BRA would be 6,200.

The new rules set both overall limits and individual limits for five “external source zones.” Generators in the five zones will compete against each other until the individual caps or the overall limit is hit.

External generators with firm transmission that commit to providing capacity in future auctions and have pseudo-ties allowing PJM to control their dispatch will not count against the limits as long as total imports don’t exceed the total firm service that has been granted for that delivery year.