February 25, 2024
FERC Approves 1st PJM Proposal out of CIFP
Manu Asthana, PJM CEO
Manu Asthana, PJM CEO | © RTO Insider LLC
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FERC approved PJM's proposal to rework several areas of its capacity market centered around aligning how resources’ capacity contributions match up to system risk analysis.

FERC on Jan. 30 approved a PJM proposal to rework several areas of its capacity market centered around aligning how resources’ capacity contributions match up to system risk analysis (ER24-99). 

The order greenlights PJM’s proposal to accredit all resources, except energy efficiency, using a marginal effective load-carrying capability (ELCC) framework and use the hourly probabilistic modeling at the heart of ELCC to calculate the RTO’s capacity needs through the Reserve Requirement Study (RRS). It also adds additional generation capability testing requirements to assess whether generators can meet their capacity performance obligations and whether resources that have not started for a month are able to properly synchronize to the grid and operate according to their parameters. (See PJM Files Capacity Market Revamp with FERC.) 

The proposal is one of two that the RTO filed following last year’s Critical Issue Fast Path (CIFP) process. The other (ER24-98) carries a Feb. 6 deadline for action on proposed changes to PJM’s market seller offer cap. (See “PJM Steams Ahead with CIFP Filing Timeline After FERC Deficiency Notices,” PJM MIC Briefs: Dec. 6, 2023.) 

FERC said that the new approach would allow PJM to capture how resources may perform during a wider range of system conditions, namely the sort of correlated outages experienced during extreme winter weather and the diminishing reliability benefit of “highly correlated resources such as solar and short-duration storage.” 

“PJM’s marginal ELCC capacity accreditation framework reasonably values resources’ capacity based on their expected incremental contribution to resource adequacy across reasonably anticipated load, weather and resource availability scenarios given the expected resource mix,” the commission said. “We find that PJM’s proposal will allow its markets to better value the ability of individual resources to address tight system conditions and emergencies, as well as resource adequacy challenges associated with correlated resource outages and an evolving resource mix.” 

While several protests took issue with the marginal ELCC approach, arguing that it relies on an assumed resource mix before generators have cleared the auction, the commission stated that such ex ante analysis has always been part of the Reliability Pricing Model, and the improvements to the accuracy of accreditation values under ELCC outweighs any disparities between the estimated and actual resource mix. 

Vistra, American Municipal Power and Ørsted argued that PJM’s explanation of how ELCC values would be calculated was vague and that additional information is needed in the tariff revisions, rather than future manual revisions.  

CIFP

PJM Board of Managers Chair Mark Takahashi | © RTO Insider LLC

The Independent Market Monitor and several generators protested PJM’s proposal to add a dual-fuel resource ELCC class, arguing that its qualification requirements are vague and unsupported, and that recognizing the reliability benefit of resources with backup fuel without also creating a new generation class for gas-fired generation with firm fuel contracts is discriminatory. 

Calpine commented that the changes were not overly complex, though it also argued that complexity should not be a reason to reject a market design. It compared the use of loss-of-load probability models to how market participants estimate future hourly energy prices. 

FERC determined that PJM’s proposal to remove generators that fail to provide dual-fuel capability after attesting that they meet the qualifications from the ELCC class, as well as the potential for referral to FERC enforcement, was adequate to address concerns that generators could claim capabilities that they could not deliver. The commission also stated that PJM had demonstrated that it could measure the reliability benefit of resources that maintain an on-site alternative fuel that can allow them to operate for two consecutive 16-hour periods, whereas the definition and benefit of a firm fuel contract remains ambiguous. 

The proposal also effectively lowers the maximum penalty generators can be assigned in a year for failing to meet their performance obligations during performance assessment intervals (PAIs). The current annual stop-loss limit is based on the net cost of new entry (CONE), which PJM stated current results in a $135,000/MW-year stop-loss limit it believes is disproportionate to the revenues a generator can receive through the capacity market. Based on the $18,250/MW-year clearing price, PJM said the stop-loss limit is 7.5 times higher than annual market revenues. 

The change to the stop-loss calculation swaps the 1.5 times net CONE component with 150% of the Base Residual Auction (BRA) clearing price. PJM said that the swap would continue to result in a maximum penalty larger than annual revenues without being overly punitive. 

The commission rejected arguments from Vistra and Constellation Energy that tying the stop-loss limit to future auction outcomes makes it difficult for market sellers to calculate the Capacity Performance quantified risk (CPQR) component of their market offers, as they would have to estimate the final clearing price in advance. It noted that market sellers already forecast several values ahead of the auction, including energy and ancillary service revenues, expected unit performance and the number of PAIs expected in the delivery year. 

PJM’s proposal also revised the deficiency charges that fixed resource requirement (FRR) entities are assessed if they fail to procure adequate capacity prior to the BRA. The RTO argued that low capacity prices have created an incentive for FRR entities to pay the deficiency charges, which are based on clearing prices, rather than meet their own reliability needs. It also implements a four-year transition period to provide additional time for FRR entities to adjust to the new ELCC accreditation and a longer lead time for capacity planning. 

Commissioner Allison Clements released a partial concurrence and dissent, stating the proposal would address growing reliability risk that does not correspond with meeting peak loads. But she argued that the commission erred in rejecting a protest from the Advanced Energy Management Alliance and clean energy associations that the changes to accreditation and the RRS render the demand response performance window unjust and unreasonable.  

Clements wrote that the commission should initiate a show-cause order to examine the “clear mismatch between PJM’s existing demand resource availability window and its new understanding of system risk. PJM should be required to either adjust the availability window to reflect its new understanding of risk, or else demonstrate why its proposed changes have not rendered the current availability window unjust and unreasonable or unduly discriminatory.” 

Capacity MarketDemand ResponsePJMResource Adequacy

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