By Suzanne Herel

WILMINGTON, Del. — PJM stakeholders rejected a pair of dueling measures Thursday, leaving a new senior task force to decide whether to reconsider a formula key to calculating nonperformance penalties under the new Capacity Performance rules.

The sector-weighted votes capped more than an hour of heated discussion at the Markets and Reliability Committee that included allegations of political maneuvering and a call for one member to be sanctioned for “ad hominem attacks.”

The debate was sparked by the proposed charter of the Underperformance Risk Management Senior Task Force (URMSTF), an item that had been approved by lower committees with little to no discussion, despite months of controversy over the problem statement that created the group. (See PJM Generator Risk Proposal Faces Resistance.)

In recent task force meetings, however, some members had raised the question of whether the RTO was using an unrealistic number in figuring its performance assessment hour (PAH) charge rate. They worried it would artificially lower penalties in the new regime, under which generators are eligible for bonus payments and exposed to financial penalties depending on their performance. Lowering the penalties, some members argued, would weaken generators’ incentive to perform under the new market model.

Thus ensued speculation over whether such a discussion fell within the task force’s scope.

Calpine Offers Problem Statement

Fearing that the issue might be determined to be beyond the group’s mandate, David “Scarp” Scarpignato of Calpine brought a problem statement to the MRC to ensure the formula would be discussed somewhere.

“PJM had suggested that maybe it could be covered under the” task force, Scarp said. “I had indicated that I wasn’t sure that was the group to cover it because they seem intent on reducing the incentives for performance.”

According to the problem statement, informed by data from the Independent Market Monitor, “The current PAH number used in the denominator of the nonperformance charge rate does not reflect the expected number of PAHs as intended. The use of 30 hours is not adequately supported. The average of the RTO-wide PAH in the last three years was 14 hours, including the 30 hours in delivery year 2013-2014 that resulted primarily from January 2014, an outlier year.

“Too low of an expected PAH value avoids confronting capacity resources with the intended nonperformance disincentives under CP philosophy.”

The penalty nonperformance charge rate is the net cost of new entry ($/MW-day) multiplied by 365 days and divided by the 30-hour PAH value. Thus, if the value were reduced from 30 hours to 14, the penalties would more than double.

Scarp said that he had raised this issue at the last task force meeting.

“People talked at least five minutes about what’s in the scope and out of scope with this charter. There were varying opinions. People for the most part wanted to go past managing the risk and talk about the penalties you’d be exposed to. … If the group is looking at risk, it can’t be only one side, to make CP weaker.”

If the task force is limited to hedging risk, he said, its charter might as well be called the “reduce the CP effectiveness proposal.”

Incentives Key to CP

Dan Griffiths, executive director of the Consumer Advocates of PJM States, said it was important to guard performance incentives.

“If the incentives are, in fact, less, we feel like we are losing ground here,” he said. “That’s the only thing [consumers] got out of this — it’s in the interest of consumers to have strong incentives.

“You can’t quintuple the actual rate, but there is a discussion to be had here.”

Mitigating Risk for Generators

On the other side of the debate was Bob O’Connell on behalf of PPGI Fund A/B Development, who authored the problem statement that begat the task force. PPGI is the parent company of Mattawoman Energy, which is building a combined cycle plant near Brandywine, Md., in Prince George’s County.

O’Connell introduced the initiative in October, saying CP allows companies with multiple generators to offset poor performance with over-performing units but does not allow after-the-fact offsets, such as bilateral trades, that could help smaller generators. (See Generators Seek to Reopen PJM Capacity Performance Rules.)

At Thursday’s meeting, he proposed a motion to put off reassessing the PAH charge rate formula until after PJM has submitted an annual informational filing mandated by FERC in approving the charge rate. It was seconded by Jason Cox of Dynegy.

Countered Scarp: “Putting this off into limbo is a terrible thing to do to a fellow stakeholder, and something I have never done.” He accused O’Connell of using “procedural moves to prevent voting on this order” and being “disingenuous,” which elicited a call from O’Connell to have him sanctioned for “ad hominem attacks.” Committee Chair Suzanne Daugherty did not formally act on his request.

Breaking a Rule of Thumb

Indeed, most members prefaced their comments by saying as a rule of thumb, they do not oppose problem statements. It’s highly unusual for them to be rejected.

But after O’Connell’s measure failed with slightly less than 49% approval, members also voted down the Calpine problem statement, which was endorsed by slightly more than 44% of the votes.

Members subsequently approved the task force charter by acclimation.

The votes cut across sector lines, with generators split on the issue but more favoring O’Connell’s motion. The only sector to unanimously support Calpine’s initiative was the End-Use Customers (albeit with one abstention).

Jason Barker of Exelon had provided the “second” needed for a vote on the problem statement.

“The data shows quite strongly that 30 hours … is vastly overstated,” Barker said.

He joined Scarp in criticizing his colleagues for “procedural shenanigans and weak arguments” and encouraged them to put aside politics, saying that no one got everything they wanted out of the CP construct. “Let’s be honest around the table,” he said.

FERC Has Spoken

Some members said they were hesitant to revisit the issue because FERC had approved the charge rate using the 30 PAH hours.

Although the commission approved the 30-hour proposal as a “reasonable approximation of the upper bound” of hours during which PJM is likely to experience emergency actions, it also required the RTO to submit informational filings for five years evaluating the impact of the 30-hour assumption on resource performance. “We also encourage PJM, as it gains more experience under its new capacity construct, to reassess the assumed number of performance assessment hours and file with the commission if it believes a revision is warranted,” the commission said.

Scarp noted that FERC’s order hasn’t stopped stakeholders from questioning other aspects of the ruling, including operating parameters and seasonal capacity. The 30 hours, he said, is an error.

Carl Johnson, of the PJM Public Power Coalition, said, “We do not like to oppose a problem statement — that’s how we got to move forward with the URMSTF and seasonal capacity. But in this particular case, we’re talking about something so specific that FERC gave us a directive on.”

He referenced PJM’s recent experience spending months hammering out consensus on a ramp rate for the CP product, only to have FERC reject it.

“I’m not inclined to use our time on this,” he said. “I don’t want to spend time taking things to them that aren’t going to go anywhere.”

Susan Bruce, of the Industrial Customer Coalition, agreed that the charge rate was a core issue of CP, but she said it was just one and hesitated to approve re-evaluating it without looking at others.

“If you say we can’t talk about those other components, I think it’s a conversation to be had in a vacuum,” she said.

Scarp responded, “If you think that there are other numbers that are incorrect, I’m happy to look at them. I am not redesigning CP in any way. I’m probably one of the few people in the room who has never tried to redesign CP.”