By Michael Brooks and Rich Heidorn Jr.
Fourteen coalitions representing more than 80 stakeholders submitted briefing papers to the PJM Board of Managers Tuesday on the RTO’s Capacity Performance proposal. Eight of the groups generally opposed the proposal while six were generally supportive.
The largest group, with 19 members, is the Transition Coalition, which focused its comments on the impact of the proposed changes on delivery years 2016/17 and 2017/18.
There are two groups representing load interests and seven representing generators, including ones for gas-fired units, hydropower and pumped storage, renewables and independent power producers.
Other coalitions formed around project finance interests, storage developers and companies specializing in energy efficiency and demand response.
Nine stakeholders joined both the Transition Coalition and an additional coalition, including Dominion’s Virginia Electric and Power, which claims membership in three groups.
The Board of Managers will decide on the final proposal submitted to the Federal Energy Regulatory Commission.
Below is a description of each coalition, the name of its spokesperson and a summary of its briefing paper, listed in order of the size of the coalition.
TRANSITION COALITION
Members: 19 members and groups, including the PJM Industrial Customer Coalition, and more than a dozen cooperatives and other load-serving entities (see chart)
Spokesperson: Michelle Gardner, NextEra Energy Power Marketing
The coalition said the proposal would impose $7.9 billion in additional costs to load for delivery years 2016/17 and 2017/18, providing a windfall to generators that cleared auctions for those years and already qualify as CP resources or have already taken steps to improve performance since the winter.
It said the proposal would violate FERC’s order on ISO-NE’s winter incentives, in which the commission said additional payments should not be made “to incent resources to make the same fuel procurement decisions they would have made, and been compensated for, absent the program.”
The coalition also said implementing all of the proposed changes in time for the 2015 Base Residual Auction was too rushed.
The group proposed spending $200 million to $600 million for winter-only improvements.
“PJM has not demonstrated that Capacity Performance would have a material impact on system operations during the Transition Delivery Years,” the group said. “PJM has not presented any evidence showing how paying more to resources that already have capacity obligations (many of which meet the Capacity Performance requirements) will translate into increased security in its control room.”
LOAD COALITION 2 (Load-Serving Entities)
Members: 11 members and groups, including the PJM Public Power Coalition and the Public Power Association of New Jersey
Spokesperson: Carl Johnson, PJM Public Power Coalition
The coalition said that PJM has made good progress on most of the reliability problems from last winter without the need for a market overhaul and that it shouldn’t seek such broad changes in such a short time frame.
The big problem, the challenge of gas-electric coordination, is being addressed by FERC, the coalition said. Thus PJM should await commission action before directing generators to make significant investments.
The coalition urged PJM to continue discussion through 2015, rather than rush a potentially flawed product that may have unintended consequences. It also said that while there would never be a consensus among all PJM stakeholders, more time would allow members “to resolve what we can and enable [FERC] to focus on resolving our differences.”
RENEWABLE COALITION
Members: American Wind Energy Association, Citizens for Pennsylvania’s Future, Community Energy, E.ON Climate & Renewables, EDP Renewables, Everpower Commercial Services, Iberdrola Renewables, Infigen Asset Management, Rock Island Clean Line, SunEdison, Union of Concerned Scientists
Spokesperson: Ryan Leonard, Iberdrola
The Renewable Coalition criticized PJM for overreacting to last winter and warned that the proposal will have unintended consequences for renewable resources. It said that billions were invested in wind and solar resources with the expectation that they would return capacity revenues based on performance during a fixed and known time period, as opposed to being available year-round. It urged PJM to protect renewable capacity that had already cleared in this year’s BRA.
The coalition also said that PJM should take more time to discuss and work on the proposal given the EPA’s proposed carbon emission rules will likely increase the need for more renewable resources.
CONSUMER COALITION (Load Coalition 1)
Members: PJM Industrial Customer Coalition, the Delaware Public Service Commission and public advocates for Delaware, D.C., Illinois, Indiana, Kentucky, Maryland, New Jersey, Ohio, Pennsylvania and West Virginia
Spokesperson: Susan Bruce, PJM Industrial Customer Coalition
The group called the proposal “a far-reaching overhaul of the PJM capacity construct that is far too costly and not justified in its current form.”
“The Consumer Coalition believes the abrupt overhaul contemplated by the CP Updated Proposal, as currently constructed, will adversely affect consumers by sharply increasing the cost of capacity with questionable additional reliability benefits and further restricting demand-side participation. PJM staff has failed to show that such drastic changes are warranted or, if warranted, that these changes are the correct changes. Adding to the Consumer Coalition’s concerns is the extremely short timeframe that has greatly limited the opportunity for stakeholder review.”
GAS GENERATORS COALITION
Members: Competitive Power Ventures, Dynegy, Essential Power, Invenergy, Moxie Energy, Northampton Generating Station, Panda Power Funds, Rockland Capital, Tenaska, Veolia Energy
Spokesperson: M.Q. Riding, Essential Power
The Gas Unit Owner’s Coalition generally praised the changes PJM made in its revised proposal. The coalition supports a number of changes included in the proposal, such as the elimination of the Short-Term Resource Procurement Target and “a reasonable and proactive transition for DR out of PJM’s supply mix.”
The coalition also supported PJM’s idea that clearing prices reflect long-run marginal costs. But it urged PJM to include language in the proposal that “unequivocally states that offers reflective of long-run marginal costs are permissible and not the subject of enforcement investigations.”
The coalition criticized PJM’s penalty structure for generators whose RPM prices fail to mirror long-run marginal costs. It proposed that PJM set the maximum penalty at 150% of the CP product clearing price and eliminate the shortage hours pricing penalty. “This construct is optimal because supply would be subject to a single penalty rate that is not dependent on scarcity events, while also recognizing that risk should be tangibly linked to revenue opportunity,” the coalition said.
The coalition also criticized PJM’s definition of outside management control events as too restrictive.
ADVANCED ENERGY MANAGEMENT ALLIANCE
Members: AEMA, Clear Choice Energy, EnergyConnect, EnerNOC, Enerwise, MidAtlantic Power Partners, Opower, Texas Retail Energy
Spokesperson: Bruce Campbell, EnergyConnect
The AEMA Coalition said the proposal would effectively eliminate demand response from the market. It called on PJM to remove new non-performance penalties on DR, noting the recent changes on the resource.
“It is manifestly unjust and unreasonable to move the goal posts yet again to now categorically exclude customers that have proven reliable and made investments to support PJM system reliability,” it said. It proposed increasing the limit on the amount of Base Capacity DR permitted, saying that the proposal adds “what effectively amounts to an anticompetitive cap on DR.”
The coalition also questioned the timing of the proposal. It said PJM should wait until directed by FERC to respond to the uncertainty resulting from the EPSA decision and FirstEnergy’s complaint over DR participation in wholesale markets (EL14-55).
The coalition also said that the proposal would eliminate renewables from the market, as coal, natural gas and nuclear are the only resources that would be able to meet the proposal’s standards for year-round, 24/7 dispatch. Instead, the coalition suggested focusing market changes on resources that failed to perform during the polar vortex.
ENERGY EFFICIENCY COALITION
Members: EMC Development, Encentiv Energy, EnergyConnect, greeNEWit, Juice Technologies, Keystone Energy Efficiency Alliance, Piedmont Environmental Council, Union of Concerned Scientists
Spokesperson: Tom Rutigliano, EMC Development
The Energy Efficiency Coalition’s main complaint with the proposal is that energy efficiency resources, normally handled by electric distribution companies, would be limited to participating in the reliability pricing model auctions through LSEs.
Because PJM’s measurement and verification process is so complicated and technical, requiring each LSE to administer its own EE program would increase costs and deter LSEs from making the investments needed, the coalition predicted. The group said this raises “the classic problem of why LSEs should pay their customers to use less of their product.”
The coalition said PJM is needlessly linking EE to the EPSA ruling when it only concerned DR.
Finally, the coalition also criticized the Enhanced Liaison Committee process PJM is using to redesign the capacity market. The coalition said that EE is too detail-oriented and technical to be handled by anything but a deliberative rulemaking process by stakeholders before it goes before the Board of Managers.
ENERGY STORAGE COALITION
Members: AES, Demansys, Energy Storage Association, Piedmont Environmental Council, RES Americas, S&C Electric, Union of Concerned Scientists, Viridity Energy
Spokesperson: Tom Rutigliano, Demansys
The Energy Storage Coalition broadly agreed with PJM’s treatment of energy storage in the proposal, but it said it wanted PJM to provide more details and better define storage’s requirements for participating in the market.
The coalition urged PJM to begin a stakeholder process for developing cost-based offer rules for storage, specifically ones that allow for variable intraday costs. It also said that PJM should treat storage’s physical limitations, such as start-up time, similar to how it treats other resources.
CENTRAL SUPPLIERS COALITION (Generation Coalition 2)
Members: AEP, Dayton Power, FirstEnergy, Duke, EKPC, IMG Midstream, PPL
Spokesperson: Dana Horton, AEP
This coalition represents capacity mostly located in PJM’s Rest of Market zone. These companies contend that suppliers in the zone have not been adequately compensated since PJM put its RPM in place.
It asked PJM to add a multi-year pricing mechanism and to change the penalty structure to one based on market revenue rather than net cost of new entry. Without these revisions, the companies said they will oppose the proposal.
GENERATION COALITION 1
Members: NRG, Dynegy, Topaz Power Marketing, Northampton Generating Station, Invenergy
Spokesperson: Neal Fitch, NRG
The coalition generally supports PJM’s Capacity Performance product and was pleased by the RTO’s revisions. However, the companies are concerned about the long-term costs associated with the infrastructure needed to meet PJM’s standards. These investments include operational and equipment improvements for cold-weather performance and increases in on-site fuel storage. The companies said these can only be justified if PJM, and FERC, approve a pricing scheme “that allows generators to fully reflect their long-run operational, maintenance, investment and risk costs into their bids.”
The companies are also concerned about the risk of non-performance penalties.
HYDRO-PUMPED STORAGE COALITION
Members: American Electric Power, American Municipal Power, Virginia Electric and Power, Brookfield Energy Marketing, Olympus Power
Spokesperson: Dennis O’Donnell, Olympus Power
The group says proposed changes to the calculation of unforced capacity (UCAP) threatens the viability of hydro resources, which it said were not contributors to the capacity shortage experienced last winter. “Unlike gas generators that were not able to generate any energy, hydro generators did generate as expected. In some cases hydro generators exceeded expectations,” the coalition said.
It requested that PJM retain certain OMC codes that the RTO is discontinuing in the proposal and revise them to be hydro-specific. For example, the code for “Flood” would be revised to mean “high water conditions,” while “Other miscellaneous external problems” would be changed to “Debris.” OMCs are excluded when PJM calculates a unit’s UCAP.
The coalition said PJM should cap the penalty exposure for pumped storage at 10 hours in order to fully value these resources.
“Given PJM’s load profile, the value of flexibility over 10 hours greatly exceeds the value provided by extending operation past 10 hours at a lower, fixed capacity level (i.e., running in a manner similar to less flexible resources) … While PJM has stated that they would try to limit pumped storage runs to 10 hours, they make no promises and have stated that if PJM wants pumped storage longer than 10 hours, the penalty exposure extends to whatever that duration happens to be. This uncertainty is both inconsistent with optimal use of pumped storage and creates a lack of clarity that will cause unnecessary derating of pumped storage facilities due to penalty risk.”
The group also asked PJM to revise its Tariff to allow LSEs to use pumped storage for peak shaving and reducing the LSE’s capacity obligation. “An LSE willing to take peak shaving performance risk with its pumped storage resource should not be constrained to just the capacity market as the vehicle to derive value from the pumped storage resource.”
PROJECT FINANCE COALITION
Members: Competitive Power Ventures, Moxie Energy, Panda Power Funds
Spokesperson: Nate Rushing, CPV
The Project Finance Coalition mostly supports the proposal, but it expressed concern that generators would be forced to pay unreasonably high penalties in a short amount of time. It suggested that instead of paying penalties, non-performing resources should be required to simply forfeit capacity revenue. Additionally, the coalition feels the “stop-loss” provision in the revised proposal, which caps the amount a non-performing resources can be penalized, does not go far enough.
“These penalties could easily cause a default under lending agreements and jeopardize the project’s continued viability to operate, having adverse impacts not just on the project but on PJM’s reliance on that project to operate to meet PJM’s needs,” the coalition said. It proposed an alternative stop-loss cap and echoed other coalitions’ calls for penalties to be tied to revenue and not net CONE.
IPP COALITION
Members: LS Power, Homer City Generation, Tenaska Power
Spokesperson: Tom Hoatson, LS Power
The IPP Coalition generally supports the revised proposal. The coalition also supports PJM’s efforts to introduce the product as soon as possible to prevent a recurrence of last winter.
However, the coalition cautioned against implementing the proposal before the RTO fixes the mechanisms that will transition its members into the new market structure. The coalition said that the proposal fails to take into account the investment and improvement costs that have already been incurred in response to last winter for the transitional delivery year. “As a result, the proposed transition mechanisms will result in the procurement of excess capacity at a higher cost to consumers,” the coalition said.
Similar to other generation coalitions, the IPP Coalition wants it made clear that companies will be able to recover their investments.
GENERATION COALITION 3
Members: Calpine, Exelon, PSEG
Spokesperson: Jason Barker, Exelon
The coalition also broadly supports the proposal. The companies want PJM to make sure that the penalties in the proposal are adequate enough to incentivize investment in cold-weather improvements. They expressed support for a proposal that PJM initially put forth in an Aug. 20: the RTO would institute a requirement that CP resources be able to perform 16 hours per day for three consecutive days under extreme weather conditions. This would ensure only reliable generators offer a CP product.
This coalition supports the penalty based on net CONE, but it also suggested that generators be penalized further when they knowingly fail to make investments in firm-fuel supply or capital improvements.
FINANCIAL INSTITUTIONS COALITION
Members: Morgan Stanley, BTG Pactual Commodities, J. Aron.
Spokesperson: Harry Singh, J. Aron.
No briefing paper was submitted by this group.
Next Steps
On Nov. 4, the coalitions will make oral presentations to the PJM board at an “Enhanced” Liaison Committee meeting at the Cira Centre in Philadelphia. The meeting will be teleconferenced for PJM members and state commission and FERC representatives, but no members of the public or the media will be permitted and none of those who attends is permitted to talk about what transpired.
