EquiPower protests PJM proposal on changes in capacity market

EquiPower Resources Corp. was among several parties lodging recent protests at the Federal Energy Regulatory Commission over a PJM Interconnection proposal for major changes in its Reliability Pricing Market (RPM) designed to encourage the availability of more backup power during extreme weather events like last winter’s polar vortex.

PJM proposes to create two capacity products—a base capacity product (BC) and a capacity performance product (CP). “While EquiPower applauds PJM’s sense of urgency in dealing with reliability issues following the polar vortex winter of 2013/14, the manner in which the reforms are being proposed is rushed and will produce unintended adverse consequences absent Commission action,” said EquiPower in its Jan. 20 protest filing at FERC.

EquiPower, through its subsidiaries and affiliates, owns and operates a generation fleet of approximately 8,500 MW, including more than 3,600 MW consisting of coal, oil, and gas generation located in the PJM balancing authority area.

“PJM’s timeline seeking to have the CP Proposal in place by the 2015 Base Residual Auction (‘BRA’) this May is aggressive,” said EquiPower. “The PJM Tariff and Operating Agreement provisions needed to implement the CP Proposal were not filed with the Commission until December 12, 2014, and comments were not due until January 20, 2015. Yet generator owners were required to submit requests for exception to offer as CP resources and detailed cost data related to offer caps with PJM and the Independent Market Monitor (‘IMM’) by January 11, 2015.

“This timing has not provided anywhere near sufficient time for generator owners and operators to evaluate and develop project improvements, conduct necessary technical, environmental, and economic analyses to determine the feasibility and cost of such potential improvements or pursue other potential alternatives to increase fuel supply stability and flexibility in order to provide CP. Such work must be completed in order for generator owners to prepare and submit data and offers that are accurate.

“Since PJM is seeking to increase the level of operational availability of its fleet of generators, it must provide owners and operators adequate time to develop, engineer and implement the wide range of potential necessary improvements or alternative arrangements (e.g., installing freeze protection, purchasing products to provide more secure, flexible gas delivery where available, permitting and building additional fuel interconnections, permitting and installing dual fuel capability, etc.).

“The requirements for providing CP are especially challenging for units that have historically operated as peakers, since they must have increased dispatch flexibility (e.g., available on one hour notice around the clock) beyond the improved cold weather reliability expected of traditional base load resources. These flexibility requirements can only be met through more involved unit upgrades and/or coordinated development of new flexible fuel supply products with individual gas pipelines or local distribution companies. Generator owners and operators could not reasonably be expected to complete the requisite analyses prior to the January 11 deadline (i.e., in less than a month over the holidays) required to appropriately reflect the risks and rewards associated with this drastic modification to the obligations expected of resources participating in capacity market for the May 2015 BRA.

“Without adequate time to adapt, clean and efficient gas-only peaking units, which are critical to system reliability (especially in the summer) and heavily dependent on capacity revenues in order to stay online, may have been forced to seek an exception to the must offer requirement for CP. If significant amounts of generation capacity, including traditional peaking capacity, sought an exception simply because adequate time was not permitted for them to become able to make the representations that PJM is seeking when a CP offer is made, there could be a glut of BC resources (and a dearth of CP resources) that could result in extremely low clearing price for BC resources for the 2018/19 Delivery Year.

“These very low prices could force peaking generators into financial distress and potentially premature retirement, which could lead to reliability issues for PJM, particularly given the demonstrated need for these gas-only generators—especially during the summer peaks and in order to provide ramping capability required to support increasing amounts of intermittent renewable resources and the region’s environmental objectives.

“EquiPower is particularly concerned that unintended consequences could extend into the summer months as peaking units try to manage compliance with CP and are faced with potentially inadequate revenues from BC. As such, the Commission should direct PJM to institute a floor price for BC resources for the 2015 BRA for the 2018/19 Delivery Year. This floor price should be set at a value equal to the average clearing prices in each LDA for the last three BRAs. Such a floor price will ensure that resources that can qualify for CP once solutions are developed (but did not have adequate time to develop such solutions prior to January 11, 2015) to collect sufficient revenues to remain in the market until they have enough time to find a way to qualify. Absent such a protection, EquiPower is concerned that PJM will be uneconomically and inefficiently pushing generation capacity out of the market in this rush to implementation.”

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.