PJM, power generators argue about plant deactivation notices

Monitoring Analytics LLC, acting in its capacity as the Independent Market Monitor for PJM Interconnection, moved on Sept. 13 at the Federal Energy Regulatory Commission to defend PJM’s plan for generator deactivation requests and notices.

Monitoring Analytics was responding to pleadings from power generating companies filed Aug. 30 in response to revisions to the PJM Open Access Transmission Tariff (OATT) to change the deadline for submission of Reliability Pricing Model (RPM) must offer requirement exception requests for resources that are expected to be deactivated prior to or during the relevant Delivery Year, proposed by PJM on Aug. 9.

Notable is that the vast majority of deactivations now occurring in the PJM region are of coal-fired facilities that generators are shutting due to new federal air emissions requirements and an ongoing switch to cheaper, newer, gas-fired resources.

The purpose of RPM’s three‐year forward design is to allow competition from new generating resource entries to help establish competitive and efficient prices. The Aug. 9 proposal helps facilitate competition by providing notice of the location of likely deactivations prior to the deadline for new entrants to enter the planning queue, the monitor said. New entrants cannot participate in the RPM Auction if they have not entered the planning queue. “The current deadline serves to create an anticompetitive barrier to entry in the PJM capacity markets,” the monitor added.

“Allegations raised by and on behalf of owners of incumbent generation that the proposal is unduly burdensome, unduly discriminatory or deficient on other grounds are misplaced and unsubstantiated, and should be rejected,” the monitor said. “The August 9th Proposal should be approved and made effective in time for the 2017/2018 Base Residual Auction (BRA) which will take place in May 2014.”

Among other things, the monitor said that the protesting generation owners misstate the issue and fail to explain why moving the deadline for requesting an exception to the must offer requirement from mid January (120 days prior to the BRA) to Dec. 1, has a significant impact on incumbent generators and why the positive impact on competition does not outweigh any impact on incumbent generators. Each of the generation owners’ arguments apply equally to the mid January deadline as to the Dec. 1 deadline and thus provide no support for the claims that the December deadline is unreasonable, the monitor said.

Duke Energy Ohio argues that “no real justification has been supplied for moving the final, firm deactivation notification date for the BRA from January to December.”

The monitor responded: “To the contrary, the justification is explicitly to permit new entrants to compete in the BRA. Retaining the deadline in January creates an anticompetitive barrier to entry by preventing new entrants from replacing the deactivating resource. Duke ignores that fact that the original proposal by PJM and the IMM was to have the firm deadline be September 1, which would have permitted potential entrants two months to prepare to enter the planning queue by the October 31 deadline. The December 1 date for a firm deactivation decision was a compromise that combined preliminary notification of all retirements by zone on September 1 which provides enough information to new entrants to permit them to meet the planning queue entry deadline, with final notification on December 1 which provides extra time for existing generation owners to reach a final decision.”

Also, the monitor noted that the PJM rules require a generation owner to provide only 90 days notice of a deactivation (including a retirement or mothball) to PJM and the Market Monitor, and the Aug. 9 proposal does not change this. “This proceeding concerns the notice that an owner must provide to PJM and the Market Monitor in order to avoid the must offer requirement in the next RPM Auction based on physical unavailability due to deactivation,” the monitor wrote. “A resource failing to meet this deadline and not receiving a waiver from FERC must submit an offer. Failure to meet this deadline does not prohibit deactivation after 90 days notice.”

Public transparency about power plant deactivations also an issue

The Aug. 9 proposal establishes two deadlines, a Sept. 1 deadline that results in posting deactivation MW “on a zonal basis” without disclosing the owner, and a Dec. 1 deadline that confirms the deactivation and publicly identifies the resource and owner. Despite this compromise intended to address resource owner concerns, the power providers complain that the ability in some cases, “even though indirect and perhaps speculative,” to deduce the identity of the resource and owner creates a “potentially significant problem.”

The monitor responded: “Deactivation may create public relations issues for a resource owner, but these are not market issues. Information on resources that are deactivating is not information that needs to be kept confidential in order to protect the market. To the contrary, this information facilitates competition. Owners’ concerns about public relations issues associated with deactivations do not take priority over the need to ensure resource adequacy at competitive prices. The August 9th Proposal appropriately reflects efforts by PJM and the IMM to accommodate owners’ interests without unduly compromising its purpose.”

The monitor also wrote: “If the incumbent generators had no deadline, they could postpone notifying the market until it is too late for potential entrants to compete, including waiting until the end of the auction week. In fact, generation owners have engaged in exactly such behaviors, which is one of the reasons for the current deadlines in the tariff. It is also a reason to have a deadline which permits potential entrants to compete, meaning at least two months prior to the October 31 planning queue deadline.”

The monitor was responding to filings made by: Duke Energy Ohio; FirstEnergy Service Co.; various NRG Energy (NYSE: NRG) companies, including NRG Power Marketing LLC and GenOn Energy Management LLC; and the PJM Power Providers Group.

The FirstEnergy companies said in their Aug. 30 brief: “The FirstEnergy Companies request that the Commission reject PJM’s proposal, as it perpetuates and exacerbates the uneven playing field between Existing Generation Capacity Resources and Planned Generation Capacity Resources, and between Existing Generation Capacity Resources and Demand Resources as well. PJM’s proposal unjustly and unreasonably seeks to move the deadline for economic Deactivation decisions necessary to avoid RPM commitments back an additional four months. Under PJM’s proposal, after a one-year transition period, owners of Existing Generation Capacity Resources will need to make the difficult decision to deactivate a unit nearly three years and eight months prior to the Delivery Year to avoid exposure to millions in penalties for the failure to deliver. However, Planned Generation Capacity Resources and Demand Resources will have critical additional time and better information in the form of planning parameters and other market intelligence upon which to base their decisions to offer into the three-year forward Base Residual Auction (‘BRA’). PJM’s proposal simply does not treat Existing Generation Capacity Resources comparably with other Capacity Resources and must be rejected on this basis.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.