In a win for PJM generation owners, the Federal Energy Regulatory Commission approved a rule change that will reduce capacity imports and likely increase clearing prices.
The commission approved PJM’s capacity import limits over the objections of consumer advocates, MISO’s market monitor and others who said it will unfairly raise prices and restrict competition (ER14-503). The new rules create five export zones with a combined limit of 6,499 MW for the May Base Residual Auction, a 17% reduction from what cleared in the 2013 auction.
FERC said the limits were based on “a reasonable methodology” to address the risk that imports may be curtailed by transmission providers outside of PJM. The commission said the methodology is an improvement over the current system, in which PJM assesses import capability by evaluating individual requests for long-term transmission service.
It rejected calls from intervenors to modify PJM’s proposal, noting that the commission’s role in a section 205 proposal is to determine whether PJM’s proposal is just and reasonable, “not to determine whether alternative proposals are more or less reasonable.”
AMP, MISO Protests Rejected
The commission rejected complaints by American Municipal Power Inc. (AMP) and MISO that the proposal gave PJM too much discretion.
AMP contended PJM’s assumption that no redispatch will be provided to support firm deliveries was contrary to MISO’s practices and will result in lower limits than are necessary to address PJM’s reliability concerns.
MISO said the proposal gives PJM too much discretion in how it sets the limit. The commission said it was satisfied by PJM’s promise that it will continue to coordinate with MISO on modeling used to calculate the limits.
In January, the commission requested PJM provide additional information on how it identified the five external source zones, which will each have their own limit. (See FERC Demands More Data on Import Cap.) The commission said PJM’s response was an “adequate explanation” of its methodology.
Commissioner John Norris filed a concurring statement warning that prices could rise if PJM is overly conservative in setting the limits. “I urge PJM and its stakeholders to continue to work towards ensuring that the calculation of the capacity import limit does not unnecessarily limit the most efficient utilization of available resources,” he wrote.
Monitor’s Proposal Rebuffed
Some PJM utilities and the Independent Market Monitor had asked the commission to require that all capacity resources be pseudo-tied, have confirmed, firm long-term transmission service and be subject to the same capacity must-offer requirement as internal resources. The commission said those conditions — which PJM proposed for resources seeking an exemption from the import limits — would limit competition from external resources without enhancing reliability.
The commission also rejected a challenge by consumer advocates who said the limit should not reflect a 3,500-MW deduction for the capacity benefit margin — a reservation for imports of energy during emergencies. The commission noted that the capacity benefit margin allows PJM to operate with a smaller reserve margin, reducing its purchases in the capacity auctions.
“If the Capacity Import Limit is not reduced by the capacity benefit margin, the emergency-only reliability purpose of the capacity benefit margin could be compromised because the total quantity of megawatts of external capacity available for emergency assistance may be overstated,” the commission said.
