PJM filed its proposed capacity market revamp Friday, saying the changes would improve reliability and incentivize resource development while ensuring market forces control costs.

The filing lays out the tariff revisions the Board of Managers outlined last month following conclusion of the critical issue fast path (CIFP) process. (See PJM Board Releases Outline of Capacity Market Changes.)

“These proposed capacity market reforms will help PJM do what we do best — operating markets that attract critical investment in the resources we need to keep the lights on,” PJM Vice President of Market Design and Economics Adam Keech said in an announcement of the filing. “Maintaining enough resources that can support reliability [is] crucial to PJM’s ability to serve demand through the transition to a less carbon-intensive grid.”

The slate of changes the board directed was divided into two filings: one (ER24-98) concerns the market seller offer cap, which market sellers are eligible to receive capacity performance (CP) bonus payments and forward energy and ancillary service revenues.

The second filing (ER24-99) encompasses the remaining changes, including a shift to the marginal effective load carrying capability, an accreditation framework PJM said reflects the actual capacity value that resources provide. It also increases the granularity of risk modeling and tightens testing requirements for capacity resources. The filing also includes changes to the fixed resource requirement framework to align with the Reliability Pricing Model.

Comments on the filings are due Nov. 3.

During the Oct. 4 meeting of the Market Implementation Committee (MIC), PJM Senior Counsel Chen Lu said staff were weighing splitting the proposed changes into two filings to mitigate the risk of components seen as riskier sinking the whole proposal. (See “PJM Reviews Board of Managers CIFP Letter,” PJM MIC Briefs: Oct. 4, 2023.)

The RTO said the current tariff language concerning how resources include the cost of the risk of nonperformance charges — capacity performance quantified risk (CPQR) — lacks clarity, resulting in disputes among PJM, market participants and the Independent Market Monitor.

The proposal would add a provision stating that CPQR values can be included in offers when supported by documentation and review from an independent third party. While it would not change the CPQR review and approval process, PJM argued that adding third party review would give more certainty regarding which components are “consistent with actuarial practices used in this industry.”

The proposal would not change the penalty rate for generators that don’t live up to their capacity obligations during an emergency; however, it would base the annual stop-loss limit on the Base Residual Auction (BRA) clearing price. Currently, both are derived from the net cost of new entry.

The filing would also limit the eligibility of CP bonus payments — which go to resources that overperform during a PAI and are paid out of the CP penalties — to cleared capacity resources. “Noncommitted capacity resources, non-capacity resources and imports not associated with committed pseudo-tied external resource would not be eligible,” the filing said.

Although the proposed stop-loss would reduce the total penalties generators could face for failing to perform, the filing argues that the tightened triggers for initiating a PAI will maintain the incentive to ensure performance.

PJM argued that the capacity resources coming online now have different characteristics that change the daily and seasonal periods with the highest risk. The December 2022 winter storm also revealed shortcomings in its current approach to modeling thermal generation. The RTO said natural gas resources that lack on-site storage are vulnerable to common-mode outages should production sites or transportation falter. Such problems contributed to resource outages during Elliott and the 2014 Polar Vortex.

“The resources coming online have different operating characteristics and vulnerabilities than those they are replacing. Additionally, recent operating experiences, particularly in the winter periods, such as Winter Storm Elliott, have demonstrated that current modeling approaches focused on peak load conditions and average performance do not fully capture all of the risks that impact resource adequacy needs and resource performance,” PJM said.

PJM’s new approach to risk modeling would include a longer weather lookback — starting in 1993 — which it expects will shift some risk into the winter.

“PJM and the PJM board thank stakeholders for their focused consideration of market reforms designed to support resource adequacy and grid reliability,” said PJM CEO Manu Asthana. “The grid is evolving, and our markets must also adapt to facilitate the energy transition without sacrificing reliability.”