PJM files with FERC proposed tariff revisions involving resource adequacy

PJM Interconnection on Dec. 24 filed with FERC two proposed tariff revisions to address resource adequacy for the 2015/2016 delivery year.

PJM added on Dec. 24 that it filed for the tariff changes to allow it to compensate units for remaining in service past planned retirement dates for reasons other than transmission reliability issues. Currently, the tariff provides only for compensating units that planned to retire but remain in service past the retirement date to allow transmission upgrades – required by the unit’s retirement – to be completed.

“PJM is concerned about having sufficient resources during the winter of 2015/2016 given planned environmental regulation-related retirements and the record of generator unavailability last winter,” PJM added.

PJM said it is checking with generation owners to see if any retirements can be delayed – becoming reliability must run unit. To the extent that any can be, the tariff change would provide for compensation, which would be set by FERC. PJM added that the compensation also could be available to new units in the queues that might be able to accelerate their construction schedules to come online earlier, for instance, a unit scheduled to be online on June 1, 2016 that could be available in January 2016.

In both filings, PJM said that while it has secured capacity commitments for the 2015/2016 delivery year in excess of the 15.6% installed reserve margin (IRM) approved for that delivery year, recent developments have raised concerns about those resource commitments.

First, PJM added, a key portion of that capacity consists of demand resources, which were committed in accordance with PJM’s approved tariff and long-standing FERC policy, and which have performed well in prior delivery years – within the limits on demand resource availability established by PJM’s approved tariff.

The filing, PJM said, is not prompted by concern for the past performance of demand resources. Rather, PJM is concerned that the recent federal appellate decision in the matter, Electric Power Supply Association v. FERC (EPSA), as well as the pending FirstEnergy (NYSE:FE) complaint raise a risk that is difficult to quantify, but nonetheless foreseeable, that PJM might be unable to compensate those committed demand resources, or treat them as capacity resources, during the 2015 summer peak season.

PJM said that the possibility for the EPSA court’s mandate to issue next spring, with ensuing developments at FERC on the FirstEnergy complaint and on remand from EPSA, could at a minimum create considerable uncertainty in the market on the status of demand resources, and on their ultimate ability to obtain compensation, and in the worst case could effectively nullify that compensation and the associated commitments during all or part of the summer when those resources are most needed.

If those demand resource commitments – currently estimated at more than 11,000 MW – were effectively nullified before the start of the next delivery year, PJM would enter next summer with capacity significantly below the level dictated by its approved IRM. PJM also noted that that shortfall would come in a year when the region faces the greatest megawatt quantity of generation retirements, by far, of any single year in PJM’s history. As a result, there is not much uncommitted capacity remaining available to fill such a shortfall, were it to occur.

PJM added that it is not, through the filings, calling upon FERC to rule upon the application of EPSA to capacity or to predict if, or when, the EPSA mandate might issue. PJM has argued, in the context of the FirstEnergy complaint proceeding, that the demand resource commitments for the 2015 summer peak can and should remain in place, and nothing in the filing should be read as changing PJM’s view on the validity of those pre-existing resource commitments. But PJM cannot control the outcome of further developments regarding EPSA, any possible EPSA mandate, or any possible remand, or regarding FERC’s actions on the FirstEnergy complaint. Therefore, PJM added, the issues fall in the category of a risk that prudent resource planning must address.

Second, PJM said, the 2015/2016 delivery year is notable for a record level of generation retirements, mostly related to environmental regulations that take effect next spring. That context, coupled with experience last winter that highlighted a concern with performance of some committed capacity resources, raises a resource adequacy concern for the 2015/2016 winter. Specifically, if PJM were to experience conditions next winter comparable to those seen last winter, then, given the overall reduction in available generation, the region would have a negative reserve margin – for instance, a loss of load. This is not the most likely scenario, but it is a foreseeable risk, PJM added.

In one of its filings, PJM said it submits a proposed revision to Attachment DD, section 5.14 of its open access transmission tariff to allow it to enter into, and recover the costs of, capacity agreements secured outside the reliability pricing model (RPM) auctions for the specific purpose of alleviating resource adequacy concerns during the 2015/2016 delivery year. All such agreements will be subject to case-by-case review and approval by FERC under the Federal Power Act (FPA) section 205. PJM also said that it proposes an effective date of Feb. 23, 2015, for the changes.

Given the resource adequacy uncertainties for the 2015/2016 deliver year, PJM should pursue prudent measures that help minimize or mitigate the consequences of that risk. To that end, PJM added, it has begun discussions with sellers of generation resources that are not presently available for the 2015/2016 delivery year, to investigate the feasibility of making those resources available. That category includes existing generation resources that have previously announced their retirement for the 2015/2016 delivery year, and planned generation resources that are scheduled to enter service for the 2016/2017 delivery year.

PJM added that it is not necessarily looking for a full delivery year from those projects. For instance, a planned resource might provide sufficient assistance if it could accelerate its in-service date to encompass the prior winter period, while a retiring resource might provide sufficient assistance by extending its service life to encompass the subsequent summer period.

While that possible reliance on out-of-market generator agreements is somewhat similar to the program under Part V of PJM’s tariff to compensate generators that delay their deactivation date, Part V does not provide a solution for the concerns with the 2015/2016 delivery year, PJM said, adding that Part V is meant to address transmission reliability issues. Furthermore, Part V deals only with deactivations, so it does not provide a vehicle for agreements with planned resources to accelerate their in-service date.

“Consequently, to enable an additional option to, in effect, leave no stone unturned in managing the potential resource adequacy concerns with both the summer and winter periods of the 2015/2016 delivery year, PJM proposes to add to RPM a provision that recognizes that PJM can enter into out-of-market agreements for targeted capacity commitments for all or part of that delivery year, and to establish that the costs of such agreements will be recovered from load-serving entities – in essentially the same way that out-of-market ‘make-whole’ payments to capacity market sellers are currently recovered from load serving entities,” PJM said. “Each such agreement will be subject to review and approval by the commission, but to streamline that process, PJM suggests tariff language to memorialize the standards and considerations for approval of such agreements.”

In a related second change, PJM said in its Dec. 24 statement that it is seeking a waiver from a tariff requirement that it offers for sale in an incremental capacity auction previously committed capacity that is no longer required because the demand forecast has decreased. Because of the concerns about power supplies during the 2015/2016 delivery year, PJM said it does not want to release capacity it may need.

In the other filing, PJM said that it seeks a one-time waiver of a tariff provision that would, absent waiver, require it to offer to release about 2,000 MW of capacity previously committed to the PJM region for the 2015/2016 delivery year. Specifically, PJM asked FERC to waive, but solely as to the third incremental auction for the 2015/2016 delivery year, the provisions of Attachment DD, section 5.4(c)(3) that require PJM in certain circumstances to offer in incremental auctions to release prior capacity commitments. PJM asked that FERC grant the waiver before Feb. 23, 2015, which is the scheduled opening of that third incremental auction.

The release of 2,000 MW of previously committed capacity would make the region’s resource adequacy markedly worse, under a scenario where PJM also loses the ability to compensate and retain the more than 11,000 MW of demand resources that are committed for next summer. Similarly, PJM added, release of that capacity would make a scenario like that seen last winter even worse if it recurred next winter, given the high level of generation retirements expected for the 2015/2016 delivery year. 

In both filings, PJM said that while it has secured capacity commitments for the 2015/2016 delivery year in excess of the 15.6% installed reserve margin (IRM) approved for that delivery year, recent developments have raised concerns about those resource commitments.

First, PJM added, a key portion of that capacity consists of demand resources, which were committed in accordance with PJM’s approved tariff and long-standing FERC policy, and which have performed well in prior delivery years – within the limits on demand resource availability established by PJM’s approved tariff.

The filing, PJM said, is not prompted by concern for the past performance of demand resources. Rather, PJM is concerned that the recent federal appellate decision in the matter, Electric Power Supply Association v. FERC (EPSA), as well as the pending FirstEnergy (NYSE:FE) complaint raise a risk that is difficult to quantify, but nonetheless foreseeable, that PJM might be unable to compensate those committed demand resources, or treat them as capacity resources, during the 2015 summer peak season.

PJM said that the possibility for the EPSA court’s mandate to issue next spring, with ensuing developments at FERC on the FirstEnergy complaint and on remand from EPSA, could at a minimum create considerable uncertainty in the market on the status of demand resources, and on their ultimate ability to obtain compensation, and in the worst case could effectively nullify that compensation and the associated commitments during all or part of the summer when those resources are most needed.

If those demand resource commitments – currently estimated at more than 11,000 MW – were effectively nullified before the start of the next delivery year, PJM would enter next summer with capacity significantly below the level dictated by its approved IRM. PJM also noted that that shortfall would come in a year when the region faces the greatest megawatt quantity of generation retirements, by far, of any single year in PJM’s history. As a result, there is not much uncommitted capacity remaining available to fill such a shortfall, were it to occur.

PJM added that it is not, through the filings, calling upon FERC to rule upon the application of EPSA to capacity or to predict if, or when, the EPSA mandate might issue. PJM has argued, in the context of the FirstEnergy complaint proceeding, that the demand resource commitments for the 2015 summer peak can and should remain in place, and nothing in the filing should be read as changing PJM’s view on the validity of those pre-existing resource commitments. But PJM cannot control the outcome of further developments regarding EPSA, any possible EPSA mandate, or any possible remand, or regarding FERC’s actions on the FirstEnergy complaint. Therefore, PJM added, the issues fall in the category of a risk that prudent resource planning must address.

Second, PJM said, the 2015/2016 delivery year is notable for a record level of generation retirements, mostly related to environmental regulations that take effect next spring. That context, coupled with experience last winter that highlighted a concern with performance of some committed capacity resources, raises a resource adequacy concern for the 2015/2016 winter. Specifically, if PJM were to experience conditions next winter comparable to those seen last winter, then, given the overall reduction in available generation, the region would have a negative reserve margin – for instance, a loss of load. This is not the most likely scenario, but it is a foreseeable risk, PJM added.

In one of its filings, PJM said it submits a proposed revision to Attachment DD, section 5.14 of its open access transmission tariff to allow it to enter into, and recover the costs of, capacity agreements secured outside the reliability pricing model (RPM) auctions for the specific purpose of alleviating resource adequacy concerns during the 2015/2016 delivery year. All such agreements will be subject to case-by-case review and approval by FERC under the Federal Power Act (FPA) section 205. PJM also said that it proposes an effective date of Feb. 23, 2015, for the changes.

Given the resource adequacy uncertainties for the 2015/2016 deliver year, PJM should pursue prudent measures that help minimize or mitigate the consequences of that risk. To that end, PJM added, it has begun discussions with sellers of generation resources that are not presently available for the 2015/2016 delivery year, to investigate the feasibility of making those resources available. That category includes existing generation resources that have previously announced their retirement for the 2015/2016 delivery year, and planned generation resources that are scheduled to enter service for the 2016/2017 delivery year.

PJM added that it is not necessarily looking for a full delivery year from those projects. For instance, a planned resource might provide sufficient assistance if it could accelerate its in-service date to encompass the prior winter period, while a retiring resource might provide sufficient assistance by extending its service life to encompass the subsequent summer period.

While that possible reliance on out-of-market generator agreements is somewhat similar to the program under Part V of PJM’s tariff to compensate generators that delay their deactivation date, Part V does not provide a solution for the concerns with the 2015/2016 delivery year, PJM said, adding that Part V is meant to address transmission reliability issues. Furthermore, Part V deals only with deactivations, so it does not provide a vehicle for agreements with planned resources to accelerate their in-service date.

“Consequently, to enable an additional option to, in effect, leave no stone unturned in managing the potential resource adequacy concerns with both the summer and winter periods of the 2015/2016 delivery year, PJM proposes to add to RPM a provision that recognizes that PJM can enter into out-of-market agreements for targeted capacity commitments for all or part of that delivery year, and to establish that the costs of such agreements will be recovered from load-serving entities – in essentially the same way that out-of-market ‘make-whole’ payments to capacity market sellers are currently recovered from load serving entities,” PJM said. “Each such agreement will be subject to review and approval by the commission, but to streamline that process, PJM suggests tariff language to memorialize the standards and considerations for approval of such agreements.”

In a related second change, PJM said in its Dec. 24 statement that it is seeking a waiver from a tariff requirement that it offers for sale in an incremental capacity auction previously committed capacity that is no longer required because the demand forecast has decreased. Because of the concerns about power supplies during the 2015/2016 delivery year, PJM said it does not want to release capacity it may need.

In the other filing, PJM said that it seeks a one-time waiver of a tariff provision that would, absent waiver, require it to offer to release about 2,000 MW of capacity previously committed to the PJM region for the 2015/2016 delivery year. Specifically, PJM asked FERC to waive, but solely as to the third incremental auction for the 2015/2016 delivery year, the provisions of Attachment DD, section 5.4(c)(3) that require PJM in certain circumstances to offer in incremental auctions to release prior capacity commitments. PJM asked that FERC grant the waiver before Feb. 23, 2015, which is the scheduled opening of that third incremental auction.

The release of 2,000 MW of previously committed capacity would make the region’s resource adequacy markedly worse, under a scenario where PJM also loses the ability to compensate and retain the more than 11,000 MW of demand resources that are committed for next summer. Similarly, PJM added, release of that capacity would make a scenario like that seen last winter even worse if it recurred next winter, given the high level of generation retirements expected for the 2015/2016 delivery year.

About Corina Rivera-Linares 3286 Articles
Corina Rivera-Linares was TransmissionHub’s chief editor until August 2021, as well as part of the team that established TransmissionHub in 2011. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial from 2005 to 2011. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines.