PJM proposes new limits on capacity imports into its region

PJM Interconnection, which has in recent years become a net importer of capacity into its operating region instead of a net exporter, has revised its rules covering imported capacity and is asking for a quick Federal Energy Regulatory Commission approval of those rules.

PJM on Nov. 29 filed with FERC revisions to the Reliability Assurance Agreement among Load Serving Entities in the PJM Region (RAA) and the PJM Open Access Transmission Tariff to recognize limits on the amount of capacity from external resources that PJM can reliably import into the PJM Region.

Similar to PJM’s current recognition of the practical limits on capacity transfers between zones and areas within PJM, the Tariff revisions will embed in the Tariff a methodology to determine for each forward capacity delivery year the practical limits (which could change each year, just as the intra-PJM transfer limits change each year) on capacity transfers across external PJM interfaces.

PJM proposed to begin employing these new “Capacity Import Limits” in PJM’s next three-year forward Base Residual Auction, for which PJM is required to post all governing parameters by Feb. 1, 2014. PJM therefore requested with FERC that the revisions become effective on Jan. 31, 2014, which is more than 60 days after the date of the Nov. 29 filing.

The Nov. 29 filing addresses a gap in the reliability rules concerning PJM’s RPM forward capacity market. Since RPM’s inception in 2007, the forward auctions have recognized locational constraints that limit the delivery of capacity within PJM. “To date, however, the RPM auctions have not recognized the locational constraints that limit the delivery of capacity to PJM from areas outside of PJM,” PJM noted. “This is a significant shortcoming, because RPM always has been designed and intended to promote reliability by identifying and pricing physical attributes of the system, thus making the cost of those physical limitations apparent to the market.”

The potentially adverse reliability consequences of failing to recognize the limits on capacity imports have been highlighted by recent events, PJM said.

  • First, the PJM forward auctions have seen a substantial increase in the quantity of capacity offered from external generation—up by 80% in one year alone and more than tripling since 2008.
  • Second, PJM has experienced curtailment of firm transmission by surrounding systems numerous times in the past few years (several times each month, on average). With more external generation being offered as capacity for PJM Region loads, and with curtailment of firm transmission a possibility for any of these external resources, PJM said it must fill the gap in its current rules and recognize the underlying reliability constraints on delivery of capacity into PJM when clearing the RPM auctions.

PJM rules don’t currently address import limits

Currently, PJM does not include capacity import limits in its RPM auction clearing rules. Instead, it addresses this issue only by reviewing requests for firm transmission service into PJM. But transmission requests may not be resolved until long after the external resource offers and clears in an RPM auction, PJM pointed out. Consequently, an external resource that clears an RPM auction, but fails to secure firm transmission on satisfactory terms, will not qualify to be available to PJM in the Delivery Year as a capacity resource.

Furthermore, external resources whose offers clear an RPM auction but do not accurately reflect the cost of delivering capacity into PJM suppress RPM capacity prices, with tangible adverse reliability consequences. PJM has seen thousands of MW of generation capacity resource retirements after each of the last three years’ BRAs as generation owners assess the viability of their plants in light of changing environmental requirements and suppressed capacity prices. That has been especially true of coal-fired plants.

“Suppressed RPM auction prices, resulting from capacity, such as external generation, that does not meet the capacity resource deliverability requirement before the Delivery Year, can induce physical resources to retire,” PJM said. “The result is a net loss of installed physical capacity due to resources retiring while external resources that cleared the auction but later do not obtain firm service never becomes PJM resources.”

PJM’s procedures for reviewing and approving firm transmission requests do not address the risk that firm transmission may be curtailed by third-party systems. However, resource adequacy must be held to a higher standard, PJM said, and should consider and attempt to mitigate the risk that a capacity resource, on which loads depend for service during peak periods or emergencies, will not be delivered because intervening transmission was curtailed.

The Nov. 29 filing addresses those risks by integrating consideration of capacity import limits in the RPM auctions in essentially the same way FERC has already approved for considering internal constraints between Locational Deliverability Areas within PJM (known as Capacity Emergency Transfer Limits); to wit, an annual redetermination of the capacity transfer limits implemented through a tariff-specified method, and then use of the limit as a locational constraint in the RPM auction. PJM’s proposed Capacity Import Limit also confronts the risk of curtailments by third-party systems, by avoiding the unrealistic assumption that external system operators will always redispatch generation in order to preserve (rather than curtail) firm transmission for the PJM external Capacity Resource.

In the last planning year before PJM implemented RPM, i.e., June 1, 2006 to May 31, 2007, the PJM Region was a net exporter of 2,616 MW of capacity. Since RPM was implemented, the PJM Region has become a net importer of capacity. The quantity of external resources clearing RPM Auctions and becoming PJM Capacity Resources has steadily increased during the years RPM has been in effect.

Capacity import offers have had a sustained upward trend and jumped significantly in the most recent BRA held in May 2013 to procure capacity for the 2016-2017 Delivery Year. From the May 2012 BRA to the May 2013 BRA, capacity import offers increased by over 80%, to 8,412 MW in the May 2013 BRA.

PJM said it recognizes that some resources that are physically outside the PJM region do not give rise to reliability concerns. The RPM Auctions presently do not recognize (at the time of the auction) the limits on the ability of the transmission system to support firm transmission of external resources into the PJM region and do not recognize the risk that an external resource committed to help meet PJM’s resource adequacy may have its energy deliveries to PJM curtailed under a TLR-5 event. The proposed Capacity Import Limit directly addresses both of these risks, and will integrate recognition of those risks into the capacity auctions so that reliability can be accurately priced—which is of course the very purpose of the Reliability Pricing Model, PJM argued.

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.