PJM Interconnection said May 11 that it will continue its efforts to find ways to modify the generation and transmission interconnection process to minimize the uncertainty and improve the efficiency of the process to eliminate inappropriate barriers to the entry of new generation.
The RTO, in its response to its independent market monitor’s (IMM) “2011 State of the Market Report,” also said its staff recognizes that uncertainty regarding interconnection costs can cause potential new entrants to wait for better information before committing to enter into the PJM market through the reliability pricing model (RPM) base residual auction.
FERC recently approved, subject to a compliance filing, PJM’s package of interconnection queue reforms that are intended to increase the timeliness, transparency and certainty of the interconnection queue, PJM added. Furthermore, PJM also received approval, subject to a compliance filing, on revisions to its transmission planning process that will allow the RTO to identify and evaluate potential transmission system needs through sensitivity studies, modeling assumption variations and scenario planning analyses that will consider public policies.
“PJM will continue to work with the IMM and through the [regional planning process task force] and the [interconnection process senior task force] in an effort to … arrive at a stakeholder driven consensus on additional interconnection queue and transmission planning reforms to address these issues,” PJM said.
PJM also agreed with the IMM’s recommendation that PJM continue to incorporate the principle that the goal of transmission planning should be the incorporation of transmission investment decisions into market driven processes as much as possible.
The PJM market design and rules already incorporate direct consideration of market driven decisions for new transmission investment in several different ways, PJM said, noting that transmission developers may propose and submit a qualifying transmission upgrade in the RPM capacity market as a capacity resource that allows greater transfer capability into a constrained locational deliverability area. Additionally, PJM may consider economic upgrades based on the satisfaction of cost-benefit thresholds. To the extent that new generation entry into constrained locations can avoid the need for new transmission aimed at maintaining reliability, the regional transmission expansion plan can be revised to reflect these market driven investments.
PJM also said its staff understands the need for increased certainty on the status of transmission upgrades as these can alter the financial viability of new generation entrants. However, PJM added, should macroeconomic conditions change leading to lower load forecasts as they have in recent years, and/or underlying power market fundamentals such as the EPA’s Mercury and Air Toxics Standards rule, the shift in natural gas supply and prices, and increasing economies of scale in gas-fired generation, the underlying reasons and need for transmission investment may have disappeared.
In such cases, continuing to build transmission would impose costs on load that are not needed. Furthermore, PJM added, continuing with transmission investments that may have been reliability and not market driven may actually run counter to the IMM’s recommendation that transmission investments be incorporated within market driven processes.
Indeed, the IMM recommended that PJM propose modifications to the transmission planning process that would limit significant changes in the status of major transmission projects after they have been approved, thus limiting the uncertainty imposed on markets by using evaluation criteria that are sensitive to changes in forecasts of economic variables.
“Definitively delaying or canceling projects also provides certainty to potential new generation entrants into the PJM market allowing clear market-based solutions to take precedence,” PJM said.
PJM also said it disagrees with the recommendation that reliability must run (RMR) service be mandatory and retirement notices be extended from 90 days to one year, noting that it does not have the authority to order a generating unit to operate or remain in service. In most instances, generation owners generally provide much longer notice of retirement to allow for the possibility that the unit may need to be retained to ensure reliability until appropriate transmission reinforcements can be put in service, PJM said.
Among other things, PJM noted that transmission charges accounted for 7% of total wholesale power costs in 2011. PJM also said that overall, the IMM concluded that the state of PJM’s markets is good.
A PJM spokesperson told TransmissionHub May 16 that PJM has issued a response to the state of the market report for a number of years. “Going forward PJM takes into consideration the IMM’s recommendations, and, we presume, the IMM takes our response into consideration as appropriate,” the spokesperson said.