By Suzanne Herel

2015 was a year of change for PJM, which said goodbye to CEO Terry Boston, ushered in its new Capacity Performance product and awarded its first competitively bid transmission projects under FERC Order 1000.

Capacity Performance undoubtedly will be in the headlines again in 2016 under new CEO Andy Ott, previously executive vice president of markets. The new year also will see policymakers dealing with cost allocation for new transmission, the future of demand response and potential FERC rulings on financial trading and transmission planning.

That work will take place against the backdrop of a continuing fuel shift. For the first time in 2015, natural gas passed coal as the fuel used to generate the most electricity, thanks to the cheap bounty uncapped in the Marcellus Shale.

Morningstar analyst Jordan Grimes says the RTO, which retired 9.8 GW of coal-fired generation last year, could see as much as 18.5 GW of gas-fired combined cycle units come online through 2019.

Grimes said the new generation will have some of the lowest prices in the PJM dispatch stack after wind, nuclear and hydro and is unlikely to set marginal prices often during on-peak hours. “The combined cycles will displace some coal generation, but at the margin it will be displacing less efficient gas units. This gas-on-gas competition means coal will actually be on the margin more often,” Grimes wrote. “Coal plants amortizing costs over a shorter time period, MATS compliance and less energy revenue should encourage coal plants to raise offers with their new pricing power on the margin.”

Effective March 31, PJM will move its deadline for day-ahead energy offers up 90 minutes to 10:30 a.m. ET to ensure gas units have time to procure fuel before the revised 2 p.m. ET timely nomination deadline for gas. (See PJM, NYISO, ISO-NE Gas Scheduling Filings OK’d.)

After a long debate, PJM members voted to raise the energy market offer cap to $2,000 to ensure that gas-fired generators can recover their costs when prices spike during extreme conditions, like those seen during the 2014 polar vortex. (See PJM Members OK $2,000/MWh Energy Market Offer Cap.)

Capacity Performance

It was unusually high generator outages during the polar vortex that also gave rise to the controversial new Capacity Performance model, designed to strengthen reliability by giving bonuses to over-performing generators and assessing heavy penalties on those that fail to perform.

The new year will bring PJM its first operational experience under the new rules. PJM will have about 95 GW of Capacity Performance resources for the 2016/17 delivery year beginning June 1.

Transition auctions to add the upgraded product cleared at $134/MW-day (2016/17) and almost $152 (2017/18). (See PJM Transition Auction Means Reprieve for Exelon Nukes.)

The 2018/19 Base Residual Auction — the first BRA to include the product — saw prices rise 37% to $165/MW-day in most of the RTO, while the ComEd zone broke out at $215 and Eastern MAAC hit $225.

UBS predicts prices will dip to about $100/MW-day for the 2019/20 delivery year and $153/MW-day for 2020/21. The analysts said changes to PJM’s load forecasting methodology — aimed at correcting several years of overly bullish projections — “largely [undo] the upside” from CP. (See “Load Forecast to Include Distributed Solar” in PJM Markets and Reliability Committee Briefs.)

Bidding behavior could be affected by FERC rulings on PJM’s market rules.

Last month, PJM asked FERC to rule by Feb. 1 on its Capacity Performance compliance filings and outstanding rehearing requests (ER15-623, EL15-29). PJM said it is trying to avoid “operational challenges” that could result from uncertainty over when PJM’s dispatch decisions will result in a capacity market seller being exposed to non-performance charges.

“Some resource owners have told PJM they will turn to self-scheduling (or self-dispatching) and operate at maximum output to avoid non-performance charges,” PJM wrote. “This clearly is an anomalous result which is contrary to the goals of Capacity Performance as a tool to enhance operational performance and system reliability.”

Changes also could result from a problem statement approved by stakeholders in December to consider widening force majeure rules and expanding ways for generators to minimize underperformance penalties by netting them against over-performing generators. (See “Ways to Mitigate Risk in CP Market to be Studied” in PJM Markets and Reliability Committee Briefs.)

Despite the increase in prices under Capacity Performance, FirstEnergy and American Electric Power have asked Ohio regulators to approve proposals to essentially reregulate 6,300 MW of their generation. PJM filed testimony last week expressing concerns over the impact of the proposals on the wholesale markets. (See PJM Seeks Changes to AEP, FirstEnergy PPAs.)

Order 1000 Projects

The PJM Board of Managers ended the year by approving $490 million in transmission projects proposed in response to FERC Order 1000 competitive solicitations.

In July, it finally greenlighted its first Order 1000 project, a stability fix for the Salem and Hope Creek nuclear reactors on New Jersey’s Artificial Island. The approval of the project, which followed a controversial two-year selection process, almost immediately spawned a new dispute as officials in Maryland and Delaware complained that they were being billed for virtually all of the $146 million price tag. The cost allocation issue will be the focus of a FERC technical conference scheduled for Jan. 12. (See FERC Questions Fairness of Artificial Island Cost Allocation.)

Transmission Planning, UTCs, FTRs

PJM stakeholders will be spending a lot of time with FERC in 2016:

• Reply comments are due Jan. 15 in FERC’s inquiry into PJM’s local transmission planning process, the subject of a technical conference in November. (See PJM TOs Defend Jurisdiction at FERC Conference.)
• PJM traders are awaiting a FERC order telling them whether up-to-congestion trades will be charged uplift and made subject to PJM’s financial transmission rights (FTR) forfeiture rule (EL14-37). In opening the Section 206 docket in 2014, the commission said it would rule within five months after it receives comments following a technical conference. The conference was held Jan. 7 and comments were due May 29. That put FERC on schedule for a ruling by the end of October, but there has been no word from the commission so far. (See Monitor at Odds with PJM, Marketer over FTR Forfeiture Rule.)
• Last week, the commission ordered a technical conference on PJM’s proposed changes to its FTR allocation rules. (See related story, FERC Orders Technical Conference on PJM FTR Rule Changes.)
• 2016 also could see action by FERC to address issues over PJM’s seam with MISO. In February, the commission said it was considering intervening and ordered the RTOs to provide status reports on eight unresolved seams issues (AD14-3). (See Impatient FERC Hints at Action on PJM-MISO Seams Disputes.) Commission staff have attended three PJM/MISO joint stakeholder meetings since.

PJM stakeholders also are anxiously awaiting the Supreme Court’s ruling on an appellate court order that voided FERC’s jurisdiction over DR. With one justice having recused himself, the court could split 4-4, leaving the ruling standing and PJM scrambling to adjust to the impact on its capacity market. (See FERC Jurisdiction over DR in Peril as Supreme Court Splits.)

The court also will review lower court rulings throwing out state-issued contracts Competitive Power Ventures won to build combined cycle plants in Maryland and New Jersey. (See SCOTUS Agrees to Hear Md., NJ-FERC Subsidy Case.)

New Faces and Retirements

In addition to the departure of Boston, the RTO also said goodbye to board member William Mayben, who retired after eight years. South Carolina engineer Terry Blackwell was elected to serve out the remainder of Mayben’s term. Going forward, the board announced, members will be ineligible for re-election once they either turn 75 or have served five terms. (See New PJM Board Member Elected, Re-election Eligibility Changed.)