By Suzanne Herel

PJM rejected most of the criticism of its Capacity Performance proposal in comments filed late Friday, but dropped its proposed change in the method for determining the capacity obligations of load-serving entities.

“Based on the comments received … PJM proposes instead to discuss that issue further with stakeholders and report back to the commission in one year on the results of those discussions,” PJM wrote in a filing with the Federal Energy Regulatory Commission (EL15-29). PJM noted that the allocation of LSEs’ capacity obligations does not need to be resolved before the May 2015 RPM Base Residual Auction.

PJM also conceded merit to an assertion by the PJM Utilities Coalition (American Electric Power, Dayton Power and Light Co. , FirstEnergy and East Kentucky Power Cooperative) that there is a problem with a “one-year price” for a multi-year investment in generation.

“PJM did not propose any Tariff changes in the Dec. 12 filing on this issue and does not propose any now. However, given the additional costs of serving as a Capacity Performance resource, the possibility for new environmental rules to require even more investment in existing generation facilities and the commission’s recent approval of an expansion for the new entry pricing available in ISO-New England, the time may be ripe to revisit this issue,” it said.

PJM asked FERC to respond to the coalition’s concerns by directing PJM to explore with stakeholders the subject of new entry pricing and multi-year pricing. PJM would report back to FERC on the issue no later than December.

More than 60 entities filed comments and protests in response to PJM’s proposal, which would increase the reliability expectations of capacity resources with a “no excuses” policy. It is expected to result in both larger capacity payments and higher penalties for non-performance. (See States, LSEs Skeptical, Utilities Split Over Capacity Performance.)

In their comments and protests, states and LSEs were skeptical about the need for a major overhaul, while generators were split over elements they liked and others they said must be changed.

PJM defended its changes to force majeure provisions, which some generators described as unduly punitive.

“Strong performance incentives are a vital part of the solution to poor resource performance,” it said.

“The governing principle of this new approach is very simple and very conducive to innovation and efficiency: resources that exceed expectations will receive higher compensation; those that fall short of expectations will relinquish revenue and face a threat of net payments.”

PJM noted that FERC received equally strong arguments that the proposed charge levels are too high and too low.

“As shown in the Dec. 12 filing, this part of PJM’s proposal closely tracks the structure, and much of the details, of the approach recently approved for ISO-New England,” it said.

PJM also responded to a number of public interest groups who said that renewable, energy efficiency and demand response resources would be disadvantaged in the new structure, saying “the actual suppliers of renewable and energy storage resources recognize that PJM’s proposal to permit intermittent storage, demand response and energy efficiency resources (‘Intermittent/Storage/DR/EE’) to combine their capabilities offers a workable pathway for these resources to qualify as Capacity Performance resources. Parties also recognize that the ability of these resources to receive revenues for superior performance provides a new revenue stream that does not exist under today’s capacity construct.”

As for those who objected to the proposal as a reaction only to last year’s polar vortex, PJM pointed to “deficiencies and disincentives” in the current Tariff relating to resource performance, including a “very weak” non-performance charge.

“The polar vortex provided a dramatic demonstration of these adverse effects. But the shortcomings in the current resource performance rules would still be there, and would still require correction, even if there had been no polar vortex,” it said.

PJM requested that FERC approve the changes by April 1.