By Rich Heidorn Jr.

FERC late Tuesday rejected multiple rehearing requests on PJM’s Capacity Performance rules, but ordered the RTO to revise Tariff language regarding auction revenue rights and clarify language on several other issues, including risk premiums and “nonphysical” constraints.

The ruling, on the eve of PJM’s Base Residual Auction Wednesday, granted only one rehearing request, ordering the RTO to change its force majeure rules regarding load-serving entities’ ARRs (ER15-623, EL15-29, EL15-41).

The commission rescinded its approval of Tariff language allowing the RTO to deny financial transmission rights awards for an “unanticipated event outside the control of PJM.” The commission had agreed that PJM should have some discretion in determining when to relax a binding constraint in allocating FTRs. (FTRs can be purchased or converted from ARRs, which are allocated to network and firm point-to-point customers.)

American Municipal Power, Old Dominion Electric Cooperative and Southern Maryland Electric Cooperative complained that the change could affect LSEs’ shares of stage 1A ARRs and thus their abilities to hedge transmission costs.

The complainants said the language was different from PJM’s other force majeure changes because it applied to PJM’s obligations to LSEs rather than market participants’ performance obligations.

They argued the revised Tariff lacked any limits on PJM’s exercise of its discretion. In most cases, they added, FTR allocations will have already been made or be underway before PJM makes its decisions, leaving them facing “the prospect of an unlikely post-settlement remedy.”

FERC agreed.

“Upon further consideration, we agree that PJM has not adequately explained why its existing rules are unjust and unreasonable regarding its duties to load-serving entities as they relate to the allocation of ARRs and FTRs,” it said, ordering the RTO to reinstate “its prior just and reasonable” Tariff language.

Nonperformance Charges

The commission also required several revisions to PJM’s July 29, 2015, compliance filing in response to FERC’s June 9 order conditionally approving Capacity Performance. (See FERC OKs PJM Capacity Performance: What You Need to Know.)

One required change concerns whether a capacity resource will be subject to nonperformance charges if PJM does not schedule it solely because of operating parameter limitations in the resource’s offer.

FERC said a literal reading of the Tariff suggests that a provision exempting resources from the nonperformance charge if the resource is not scheduled through PJM’s security-constrained economic dispatch takes precedence — meaning a resource’s undelivered megawatts would not be counted as a performance shortfall even if it would otherwise be needed.

“This outcome is inconsistent with the commission’s finding in the Capacity Performance order,” it said.

It directed PJM to revise the Tariff “to make clear that, notwithstanding PJM’s determination that a scheduling action was appropriate to the security-constrained economic dispatch of the PJM region, any undelivered megawatts will be counted as a performance shortfall if such megawatts otherwise would be needed but for an operating parameter limitation specified in the market seller’s energy offer.”

Fixed Resource Requirement Phase-in

The commission also found fault with PJM’s proposal to apply the Capacity Performance rules to all fixed resource requirement (FRR) entities beginning with the 2019-20 delivery year.

FERC said the proposal to apply Capacity Performance rules to FRR entities with no ongoing five-year election commitment beginning with delivery year 2020/21 was “reasonable in concept.”

But it said its intent was that the rules would not apply to an entity that was within its initial five-year FRR commitment period when the CP order was issued, meaning an entity that first elected to use the FRR option for delivery year 2015/16 would not become subject to the rules until delivery year 2020/21.

“PJM’s proposed compliance to apply the Capacity Performance requirements to all fixed resource requirement entities beginning with the 2019/20 delivery year is therefore not consistent with the commission’s intent,” it said.

Quantifiable Risk

NRG Energy, Dynegy, Public Service Enterprise Group, the PJM Power Providers Group and the Independent Market Monitor won their requests for clarification of Tariff language regarding “quantifiable risks” of becoming a capacity resource.

The commission said it disagreed with complaints that PJM’s language narrowed sellers’ ability to include quantifiable, reasonably supported risks in their offers.

But it required the RTO to clarify that the method it described for justifying such risks was not all-inclusive “and that a capacity market seller may use other methods or forms of support for a risk premium to meet the ‘reasonably supported’ threshold.”

“The risk that market sellers face from becoming capacity resources under the new capacity market construct requires a complex calculation that depends on the company-specific nature of valuing performance risk,” the commission said.

PJM had said a risk would be considered reasonably supported “if it is based on actuarial practices generally used by the industry to model or value risk and … used by the capacity market seller to model or value risk in other aspects of the capacity market seller’s business.”

Nonphysical Constraints

FERC also said PJM went too far in requiring that gas generators seeking to qualify for consideration of “legitimate, constraints unrelated to the characteristics of the unit” — which PJM calls nonphysical constraints — must obtain the most flexible gas pipeline transportation contract.

The commission said PJM’s filing went beyond the scope of its compliance directive requiring the RTO to allow parameter limitations for operational constraints.

“PJM’s proposal also is unclear since operational constraints imposed by a gas pipeline may have little relationship to the underlying flexibility of a transportation contract, but are related to pipeline operational characteristics, and cannot be eliminated by contract term or service choice,” the commission said.

“Furthermore, we find that provision unduly discriminatory as it establishes a prerequisite applicable only to gas generators. We also agree with protesters that the language is vague and would require PJM to exercise significant discretion in determining whether a generator has obtained the most flexible contract available.”

It ordered the RTO to remove the offending language from its Operating Agreement and Tariff and to “make explicit that the revisions here do not preclude resources other than natural gas generators from establishing legitimate, nonphysical constraints.”

Bay Again Dissents

Chairman Norman Bay, who voted against the original Capacity Performance order, also opposed the latest ruling, issuing an 11-page dissent reiterating his position that the construct’s “multi-billion-dollar cost to consumers exceeds the benefits.”

“Furthermore, and equally important, the market design itself is flawed. Compensation for capacity resources is so generous, and the penalties for nonperformance are so weak, that resources can profit even if they are unable to perform when they are most needed, thereby undercutting the very purpose of the program,” he said.