Exelon supports PJM request for delay of May 11 Base Residual Auction

Exelon Corp. (NYSE: EXC) filed comments on April 14 at the Federal Energy Regulatory Commission in support of an April 7 request by PJM Interconnection for a waiver of its tariff to allow a short delay in the timing of the 2015 Base Residual Auction (BRA), which is coming in May.

PJM proposed important and substantial reforms to its capacity construct (CP reforms) in order to address urgent reliability issues in the PJM region, Exelon noted. The CP reforms were filed in time to permit the commission to issue a final order prior to the 2015 BRA, which is scheduled to begin on May 11. On March 31, the commission issued a deficiency notice in response to PJM’s filing.

“The Commission appropriately has sought the additional information that it requires to reach a determination concerning the CP reforms,” Exelon noted. “However, its deficiency notice has created the distinct and concerning possibility that the Commission will not be able to issue an Order concerning the CP reforms prior to the beginning of the 2015 BRA, in which capacity is procured for the 2018/19 Delivery Year.

“Yet the market requires clear signals in order to bring about urgently needed investments in reliability. Accordingly, Exelon fully supports PJM’s request for a waiver of its tariff to permit a short delay in the timing of the 2015 BRA, so that the CP program can be implemented in tandem with that auction. To be sure, it is an extraordinary step to waive the tariff requirements governing the timing of an auction, and as a general matter Exelon strongly prefers the certainty that results from running auctions as scheduled. Nevertheless, the circumstances presented by PJM’s Waiver Request are indeed extraordinary. For the reasons discussed in PJM’s request for a tariff waiver, and for the additional reasons discussed below, it is critical that market participants have clarity on whether the Commission will accept the CP reforms, and in what form, prior to the 2015 BRA.”

The goal of the CP reforms is to give market participants clear incentives to make investments that are urgently needed for reliability – investments that the current market construct has not brought about because it does not sufficiently reward performance and penalize nonperformance, Exelon wrote. “These investments include the firming of fuel supplies; adding dual-fuel capability; investing in coal crackers and other equipment needed to reduce plants’ vulnerability to extreme cold; and, for plants for which operations and maintenance has been deferred, making significant catch-up investments to improve those plants’ performance.”

Three municipal entities oppose any auction delay

The waiver would allow a delay for an unidentified period out to mid August. American Municipal Power (AMP), Old Dominion Electric Cooperative (ODEC) and Southern Maryland Electric Cooperative (SMECO) filed joint April 14 comments against the delay, saying: “PJM’s request fails to satisfy the Commission’s well-established requirements for waiver of an effective tariff provision, and, for that reason, the Waiver Request should be promptly denied.

“The Commission should not allow PJM to create destabilizing market uncertainty by holding the BRA hostage until it secures a Capacity Performance ruling to its liking. Indeed, PJM’s transparent attempt to blame the Commission for the uncertainty – by requiring that PJM provide additional support for its deficient Capacity Performance proposal – only underscores that it is PJM, through the filing of its Waiver Request, that has created the very uncertainty it now asks the Commission to cure.

“PJM has recently compounded this uncertainty by introducing new, never-discussed concepts in its April 10 answer to the Commission’s March 31 Deficiency Letter, as well as offering to modify or reconsider other aspects of its original Capacity Performance proposal. Finally, although PJM argues that a grant of its Waiver Request will give market participants greater assurance about the status, schedule and rules for the next BRA, the truth is that, much like PJM’s Demand Response Stop-Gap proposal in Docket No. ER15-852-000, the requested waiver actually would ‘introduce[] uncertainties that may exceed those it seeks to avoid….’ Accordingly, and for the reasons further explained below, the Commission should promptly deny PJM’s Waiver Request and direct PJM to proceed with the BRA for Delivery Year 2018/19 under the currently effective rules.”

Panda Power Funds said in an April 14 opposition filing: “Panda submits this protest because the proposed delay in the upcoming BRA, now scheduled for May 11, 2015, creates significant uncertainty not only as to the timing of the BRA, but also as to the capacity products to be offered in the BRA, the costs of participating in the BRA, and other rules related to the BRA. Postponement of the BRA also threatens to delay the completion of needed new capacity and thus prevent PJM from meeting its own reliability objectives. Accordingly, delaying the BRA auction would substantially and needlessly harm the PJM capacity market and various market participants. The harm is unnecessary because of the availability of an adequate alternative measure that would not impose the same costs. As discussed below, PJM could apply the new Capacity Performance rules (if approved by the Commission) to a transitional auction for the 2018/19 Delivery Year just as PJM proposes for the 2016/17 and 2017/18 Delivery Years. By underestimating the harm to the market and failing to address a less burdensome remedy, PJM has failed to justify the extraordinary remedy it seeks.”

NRG comes down on PJM’s side in this matter

Subsidiaries of NRG Energy (NYSE: NRG) said in their own April 14 comments: “The NRG Companies respectfully request that the Commission grant the brief delay of the 2015 BRA requested by PJM in order to provide the Commission adequate time to substantively address the Capacity Performance proposal. With over 15,000 MW of generation in PJM, the NRG Companies do not take lightly a proposal to delay the BRA, even by the relatively modest period proposed by PJM. However, the reliability concerns expressed by PJM, combined with the need for market certainty before the 2015 BRA, warrant the delay requested by PJM.

“The Capacity Performance program is carefully tailored to address the reliability problems uncovered in past operations, including during the Polar Vortex of 2014. As PJM has recognized, the current Reliability Pricing Model (‘RPM’) design incents generators to prioritize maximizing average unit performance over the course of the year, and is not designed to incent performance on critical peak days when system adequacy is most stressed. In the view of PJM’s reliability professionals, the existing emphasis on average performance is no longer sufficient to maintain the reliability of the bulk power system, and, instead, PJM has proposed a carefully-orchestrated system of penalties and payments geared towards maximizing generator performance during periods of high demand.

“In addition to the reliability concerns expressed above, the NRG Companies note that the PJM markets are entering into a renewed cycle of capital investment. Both impending environmental law changes and the historic abundance of natural gas have combined to create a pressing need for new generation infrastructure in the PJM region. NRG stands ready to invest capital in meeting these infrastructure needs, but cannot do so in the presence of such significant uncertainty around market rules. For example, the investments NRG makes in a Capacity Performance world are very different than the investments that NRG would make in a non-Capacity Performance environment. Thus, an up-or-down decision on Capacity Performance prior to the 2015 BRA will greatly aid in the deployment of scarce capital.” 

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.