Power companies protest PJM’s proposed changes in capacity requirements

LS Power Associates LP on Jan. 20 filed at the Federal Energy Regulatory Commission a protest to a Dec. 12, 2014 filing of PJM Interconnection proposing modifications to PJM’s Amended and Restated Operating Agreement and Open Access Transmission Tariff to address the performance of capacity resources.

“Aspects of the EL15-29 Filing will have unjust, unreasonable and unduly discriminatory results and must be rejected,” said the independent power producer. “In particular, PJM has proposed revisions to the parameter limits for resources, whereby PJM will eliminate the existing default parameter limited schedule matrix and instead establish unit-specific parameters and minimum flexibility requirements for resources ‘that are based on their physically achievable operating design characteristics,’ and ‘the design characteristics and flexibility the resource is capable of achieving.’

“PJM also proposes to establish ‘parameter limits for resources offering into its energy markets,’ whereby one asset class – Capacity Storage Resources – will be subjected to substantially more stringent requirements than other Capacity Performance Resources. These proposed provisions are clearly unduly discriminatory, as they will result in capacity resources being subjected to different operating requirements. Moreover, these requirements are unjust and unreasonable because, contrary to PJM’s stated intent to improve resource performance, they will in fact create a disincentive for market participants to invest in more flexible resources.

“Accordingly, rather than the unit- or class-specific approach proposed in the EL15-29 Filing, the Commission should direct PJM to implement minimum operating criteria that will be applicable to all resources. In addition, even to the extent that PJM is permitted to impose unit-specific parameter limits, the Commission should direct PJM to modify its proposal such that unit owners, rather than PJM, in consultation with the Independent Market Monitor for PJM (the ‘IMM’), are responsible for setting the requirements for their own units.”

LS Power is headquartered in East Brunswick, NewJersey, and is managed by LS Power Development LLC. LS Power, through its affiliates and subsidiaries, is an active participant in the markets administered by PJM, including PJM’s Reliability Pricing Model.

The company added in the Jan. 20 filing: “In the EL15-29 Filing, PJM proposes to implement new parameter limited schedules that will be in effect when PJM declares a Maximum Generation Emergency, issues a Maximum Generation Emergency Alert, Hot Weather Alert, Cold Weather Alert (for Capacity Performance Resources), or schedules units based on the anticipation of the occurrence of any of these events. 

“These parameter limited schedules will be based on an individual unit’s ‘physically achievable’ operating parameters on the basis of its operating design characteristics for a number of parameters such as minimum and maximum MW output, down time, run time, daily/weekly starts, start-up time, and notification time. Moreover, PJM proposes to apply additional parameter limits to all Capacity Performance Resources offering into the PJM energy markets, with Capacity Storage Resources being subject to more stringent requirements than other resources. These proposals are unjust, unreasonable, and unduly discriminatory.

“All Capacity Performance Resources will be paid a single clearing price for providing a single product. Nonetheless, as a result of the modifications proposed in the EL15-29 Filing, such Capacity Performance Resources will be subject to different requirements and performance obligations, in violation of the prohibition against undue discrimination. For example, PJM has singled out one specific type of asset class, Capacity Storage Resources, and is requiring those assets to have a unique combined start-up and notification time that shall not exceed one hour and a minimum down time not exceeding one hour. These requirements are substantially more stringent than those imposed on other Capacity Resources, which are only required to have combined start-up and notification times of 24 hours, or 14 hours when Hot or Cold Weather Alerts have been issued, and PJM does not propose specific asset class requirements for anyother type of asset. Similarly, when a Hot Weather Alert or Cold Weather Alert has been called by PJM, individual resources will be required to operate based ‘solely on the physical operational limitations of the…resource.’

“Moreover, ‘[i]f for some reason the resource is unable to meet these parameters, then the unit will need to ensure that it is operating during times when its energy is needed, and operation outside of the more flexible operating parameters…will not beat PJM’s direction, and therefore will be ineligible for make-whole payments as established in sections 1.10.1 and 3.2.3.’ As a result, operating requirements will vary greatly between Capacity Performance Resources, and resources capable of less limiting/more flexible operationwill have greater exposure to unrecoverable costs without any increase in compensation, notwithstanding the fact that they offer PJM an operational benefit. Indeed, such exposure is heightened because a resource that is more flexible can reasonably be expected to be dispatched/cycled more frequently by PJM during emergency actions. Accordingly, PJM’s proposed parameter limits are not only unduly discriminatory, but also create a disincentive for resources to be more flexible.

“Rather than the discriminatory approach proposed in the EL15-29 Filing, PJM should apply the same minimum criteria to all resources and asset classes – no single resource or asset class should be required to operate to a higher standard. This would be consistent with PJM’s Capacity Performance construct, which has eliminated the different types of capacity resources based on their operating limits. To the extent PJM needs more flexible performance, it should propose a more stringent system-wide standard, and each individual resource’s performance should be measured against the system-wide standard rather than the unit-specific capability. Alternatively, PJM may consider offering incentives, in the form of additional compensation or otherwise, for resources to meet more stringent parameter limited schedules.”

Dominion among the others protesting this PJM plan

Units of Dominion Resources (NYSE: D) said in their own Jan. 20 protest: “Dominion supports PJM’s efforts to improve reliability through revisions to the market rules applicable to capacity resources. However, Dominion is concerned that PJM’s proposal in this docket may have the unintended consequence of reducing reliability in the long term by undermining efforts to promote and maintain fuel diversity. In addition, PJM’s proposal ignores ongoing Commission proceedings regarding the coordination of the natural gas and electric markets that may result in changes that alleviate many of the concerns PJM attempts to address in its proposal. Further, certain aspects of PJM’s proposals may be unnecessary considering the new capacity performance incentives that PJM has proposed in the Capacity Performance Filing.

“PJM’s determination to utilize a special stakeholder process, and to thereby deny stakeholders an adequate opportunity to participate in the formulation of the proposed revisions, and its desire to rush to have market reforms in place prior to the conclusion of the ongoing industry-wide efforts to address related issues, are misplaced.

“One of the primary components of PJM’s proposal is the requirement for capacity resources to meet more stringent maximum run time, start-up and notification requirements. However, PJM fails to demonstrate that the run-time, start-up and notification limitations it proposes are consistent with the operational characteristics of resources participating in the PJM capacity markets, instead basing the new requirements solely on PJM’s desire for more flexibility in scheduling.

“Further, PJM has failed to identify which, if any, operating characteristics a capacity resource could address with additional investment in order to meet the new requirements. These more stringent operating parameters may force units that are not as flexible as newer, gas-fired resources out of the market. This will increase the region’s reliance on gas-fired generation and undermine efforts to promote fuel diversity and increase reliability.

“Many of the reforms PJM proposes are based on PJM’s scheduling needs or are related to the difficulties some capacity resources face in attempting to procure fuel on short notice. In several industry-wide proceedings, the Commission is attempting to address these issues and to provide for better coordination between the natural gas and electric markets. PJM should await the outcome of these efforts prior to proposing rule changes to address these same issues, and thereby secure the benefit of any guidance that may come from industry and Commission efforts to foster better coordination between natural gas and electric markets. Failure to do so could result in PJM being required to make subsequent filings further revising its market rules to account for any changes in scheduling or other procedures that may result from these collaborative efforts. Indeed, the results of these industry-wide collaborative efforts may obviate the need for some or all of the revisions PJM has proposed.”

Dynegy, NRG more supportive, but also want changes

Dynegy (NYSE: DYN) and NRG Energy (NYSE: NRG) subsidiaries (calling themselves the “Indicated Shippers”) said in Jan. 20 joint comments that they pretty much support the proposal, adding: “The changes proposed in the December 12 Filings will further the goal of improving reliability if – and, indeed, only if – capacity suppliers are able to submit offers that reflect the costs and risks of providing the ‘Capacity Performance’ product. In this regard, as explained in the affidavit and report of Dr. John R. Morris, a Principal of Economists Incorporated, provided in Attachment A (the ‘Morris Report’), it is difficult to overstate the magnitude of the increased costs and risks faced by suppliers of the proposed Capacity Performance product and the importance of the flexibility that the proposed Net CONE offer cap would afford suppliers as a means of managing these risks. Without that flexibility, PJM could be left worse off than it is today as an adequate supply of under-performing Capacity Resources is still likely to provide more reliability value, at lower cost, than an inadequate supply of better-performing Capacity Performance Resources.

“In addition, the Indicated Suppliers strongly support PJM’s proposal to eliminate the Short-Term Resource Procurement Target. This mechanism artificially suppresses Reliability Pricing Model (‘RPM’) auction clearing prices, and its elimination is long overdue. Finally, the Indicated Suppliers also strongly support the proposal to credit penalties collected from underperforming capacity resources to over-performing resources. This proposal is consistent with the approach approved as part of the ‘Pay for Performance’ initiative of ISO New England Inc.(‘ISO-NE’), and appropriately complements penalties for poor performance with rewards for good performance.

“While the Indicated Suppliers generally support PJM’s Capacity Performance proposal and the December 12 Filings more broadly, there are certain discrete changes that should be required to ensure that the Capacity Performance proposal operates as intended and consistent with basic market principles. First, PJM should not have unfettered discretion to disqualify resources from being offered as Capacity Performance Resources. This aspect of PJM’s proposal is unnecessary given the potential consequences of submitting speculative offers, and it would create substantial, un-hedgeable risks for suppliers. Second, the Commission should reject PJM’s proposal to treat a Capacity Performance Resource that is not dispatched by PJM as if it failed to perform if its market-based offer was higher than its cost-based offer. This proposal would effectively eliminate market-based energy offers as an option for Capacity Performance Resources in the circumstances when they are most needed and appropriate. Third, if PJM is going to be allowed to withdraw or rescind prior approval of a Generator Maintenance Outage, as proposed in the EL15-29 Filing, it should be required to compensate the Market Seller for the costs of such withdrawal or rescission.”

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.