PJM on Wednesday presented a preliminary proposal to overhaul its capacity market to the Resource Adequacy Senior Task Force.

The proposal aims to address the core reliability concerns the Board of Managers shared in its February letter invoking the Critical Issues Fast Path (CIFP) process. (See PJM Board Initiates Fast-track Process to Address Reliability.) A more formal package of specific revisions will be unveiled during the “stage one” CIFP meeting March 29.

PJM also presented the problem statement and issue charge laying out the RATF’s work. Under the issue charge’s roadmap, stakeholder proposals will be developed through the second stage, followed by their finalization in the third stage.

The RTO said its proposal would revise several market structures related to risk modeling, performance assessment and testing, resource accreditation and market power. The approach to risk modeling would shift to a reliability metric based on expected unserved energy (EUE), expand the dataset used with a longer historical lookback of 50 or more years, and consider temperature when modeling forced outages.

Walter Graf, PJM | FERC

PJM’s Walter Graf said the current methodology over-accredits certain resources compared to their contribution to the grid during high-stress periods, which results in the amount of capacity in the variable resource requirement curve being artificially inflated. This could lead to depressed clearing prices and a stronger retirement signal for some units.

The proposal suggests switching to marginal accreditation, though Graf said PJM is open to alternatives such as marginal reliability impact. It would also consider resources’ past availability throughout different weather and load patterns and would bring demand response into the effective load-carrying capability (ELCC) accreditation model.

To account for the most severe winter weather, PJM proposes to set more stringent winterization requirements above the minimums mandated by NERC. For resources that cannot meet those standards, two options were presented: to create a “winter disqualification” by which they would receive no obligation and compensation for the season, or an “annual disqualification” that would prohibit their participation in the capacity market outright.

Several stakeholders questioned how the greater consideration of seasonal weather would affect resources’ capacity ratings and whether the effort suggests a need for a seasonal product. Graf said PJM is envisioning an annual commitment with a seasonal differentiation mindset.

PJM is also considering four options for performance interval assessment (PAI) triggers, including maintaining the status quo, limiting triggers to exclude pre-emergency actions and warnings, during operating reserve shortages, and an amalgamation of the three that would include a minimum number of hours that would be assessed each year.

Pat Bruno of PJM said the second and third option would improve how PAIs reflect capacity emergencies and could incentivize more output, with the downfall of having fewer assessment hours. The fourth option would address that by expanding the hours looked at outside PAIs to include the hours with the tightest operating reserve margins to ensure that there are at least 30 assessment hours each year.

Part of the goal with the changes is to reflect the role PJM has in scheduling resources and potentially excuse those not dispatched from Capacity Performance penalties. Bruno gave the example of having an hourly baseline at night reflecting the lower output of solar resources to allow them to be exempt from penalties.

Stakeholders Pivot Proposals to CIFP

Several stakeholder packages already being drafted by the RASTF will also be reworked into the CIFP process.

Independent Market Monitor Joe Bowring presented an overview of the package he plans to bring before the group that centers on eliminating extreme penalties from the capacity market and focusing on incentivizing generators to perform during emergencies. It would define the amount of capacity a generator can offer as its installed capacity multiplied by its modified equivalent availability factor (EAF) and would only allow that capacity to be paid for when it is available by hour. He argued the approach would treat intermittent and thermal resources comparably and eliminate the asymmetric treatment created by PJM’s application of ELCC.

“The Capacity Performance design has strayed from the basic principles of a capacity market design by incorporating energy market shortage pricing in the capacity market through the PAI concept,” Bowring said. “That does not and cannot work as demonstrated by the experience of [December’s] Winter Storm Elliott. The goal of the IMM proposal is to return to capacity market basics and re-establish a workable capacity market design that does not create the type of administrative and settlements crisis created by Winter Storm Elliott.”

All generation would be subject to the must-offer requirement under the Monitor’s proposal, which would also require capacity resources to have firm fuel or dual fuel, and to test frequently.

Though he applauded PJM’s proposal to switch to marginal accreditation from the current average approach, Bowring also said he believes ELCC will provide incorrect market signals and prove impossible to implement as the marginal value of intermittent resources rapidly declines as penetration increases.

“You [will] come to the point where you have a relatively low capacity value, but your obligation remains at your full maximum facility output,” he said.

E-Cubed Policy Associates outlined a proposal that would use a multi-seasonal capacity market design, with overarching annual participation requirements, as well as sub-seasonal requisites. Sub-annual auctions would be held to procure capacity for the seasons, using a modified demand curve based on the amount cleared in the annual auctions. It would also utilize a unit-specific market seller offer cap, with no default values calculated by PJM.

A proposal from the Eastern Kentucky Power Cooperative (EKPC) would create two reserve target standards and an hourly accreditation model based on modeling installed capacity available during target conditions. Base level capacity would be based on expected hourly system needs under normal conditions and focus on maximizing availability. Insurance level capacity would be modeled on extreme load scenarios and qualified based on dispatchability, firm fuel and the ability to operate during extreme conditions.

The EKPC proposal also called for the stakeholders to consider changes to the energy market to address gas fuel security issues by allowing multiday commitments. The single largest cause of generator outages during Elliott, according to PJM presentations to the Market Implementation Committee, was fuel unavailability for gas generators, with one reason discussed being the multiday nomination process pipeline operators use not being aligned with the daily commitments used by PJM.

Auction Delay Discussion Continues

Stakeholders also continued discussions over whether future Base Residual Auctions should be delayed to allow any capacity market changes to be effective sooner. Two alternative auction schedules presented by PJM include keeping the 2025/26 BRA scheduled for June 2023 but delaying the following two auctions by sixth months, or delaying the 2025/26 auction to May 2024 and delaying the following three by sixth months. (See PJM Stakeholders Debate Capacity Auction Delays.)

Several state consumer advocates and regulators said they’re opposed to any delays, with Morris Schreim, senior adviser to the Maryland Public Service Commission, saying it could be the first time PJM has sought a delay not related to a FERC remand or action, suggesting that auction parameters were not just and reasonable.

“This would really be … the first time PJM ever on its own volition purposely delayed an auction,” he said.

LS Power’s Marji Philips supported delaying the 2025/26 auction, which she said is necessary to ensure fair price signals that will keep resources needed for reliability from retiring early. She said that rather than asking stakeholders for guidance, PJM should be taking leadership and pushing for a delay itself.

“The idea that resources will continue to come in and stay on the system and maintain reliability … is not a well grounded financial analysis of how plant owners participate in the market,” she said.

Bowring opposed delaying the auctions, noting that most of the required work in preparing for the 2025/26 auction had already been completed by resource owners and the IMM. He also responded to assertions that capacity market prices are too low and that auction delays will permit a design with higher prices.

“Capacity market prices are not too low and they are not too high. Generation owners offered the prices they wanted for the period of Winter Storm Elliott, without any effective market power mitigation, and the market clearing prices reflect those offers. Total energy, ancillary services and capacity market net revenues are what matters. Energy market net revenues have increased significantly, and resources are generally covering their avoidable costs. See the State of the Market Report for the details,” he said. (See PJM Monitor: Rise in Fuel Costs Led to Record-high Prices in 2022.)