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PJM stakeholders consider 'holistic' revamp of capacity market

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PJM stakeholders consider 'holistic' revamp of capacity market

Shortly after stakeholders on Sept. 29 approved a measure to finalize the transition to acapacity auction processthat penalizes underperforming resources, they discussed the idea of a "holistic"revamp of its capacity market.

In September 2015, PJMconducted a transitional auction under its new capacity performance constructfor 70% of the independent system operator's 2017-2018 reliability requirement,which resulted in10,017 MW of newly committed resources at a marketwide clearing price of$151.50/MW-day.

But PJM later determined itcould release the 10,017 MW of new capacity through an incremental auction,because of a reduction in peak load forecast, and obtained permission from FERCto do so.

"The total reliabilitycharge to all [regional transmission organization] load is reduced by releasingcapacity commitments in [incremental auctions] unless the auction clearingprice is $0, in which case the capacity commitments are released with nobenefit to load," PJM Capacity Market Operations Manager Jeff Bastian saidin a written presentationto the PJM Markets & Reliability Committee Sept. 29.

PJM had also determined itdid not need the 4,245 MW of new CP capacity obtained for the 2016-2017reliability requirement, and had previously released these resources under oldpricing rules, which resulted in clearing prices averaging $4.79/MW-day.

"Using this samemethodology to establish the price at which PJM would release the new 10,017 MWcommitment in the 2017/18 … [incremental auction] could potentially result inall or a portion of the new commitment being released at an auction clearingprice of $0/MW-day," Bastian said.

Ultimately, stakeholdersapproved setting an offer curve with a minimum price of $10.74/MW-day and amaximum price of $144/MW-day for the entire 10,017 MW.

Current 'reliability pricing model' set in 2007

Later on Sept. 29,stakeholders discussed the possibility of addressing PJM's "reliabilitypricing model" capacity auction process "holistically, rather thanincrementally."

A draft "problem/opportunitystatement," which is a preliminary step to assigning an issue to acommittee, was presented to the Markets and Reliability Committee. The documentnoted that the current reliability pricing model became effective in 2007 as "theresult of intense multiparty negotiations among the PJM stakeholders and PJMduring the settlement process" at FERC.

"RPM was proceeded byyears of contentious stakeholder debate on how best to address the 'missingmoney' from the energy and ancillary service markets," the documentstates. "Ten years later, RPM has continually changed either in reaction tounforeseen events or as part of perceived design improvements."

One stakeholderon Sept. 29 objected to the idea of re-engineering PJM's capacity market,because the substantial change embodied in the capacity performance process hasnot yet reached the point of full implementation.

"It seems premature tobe discussing a brand new construct," he said. "If we want morestability, maybe we should go forward with something that was just recently putin place. The idea that we would be looking at alternative constructs to theRPM just throws up more uncertainty at the wrong time."

PJM's meeting rules prohibitthe media from identifying stakeholder speakers without their express consent.

But Marji Rosenbluth Philips,director of RTO and federal services at retailer , said it would be "disingenuous"to say that continuing with the RPM as is would reduce uncertainty.

"We are amending the CPconstruct by small cuts, and we are just suggesting that we instead work on thepatient holistically rather than incrementally," Philips said.

Ultimately, stakeholders whosupport the idea of reviewing alternatives to the RPM decided to considerrevising the "problem/opportunity statement" to take into account theSept. 29 feedback and give the matter sharper focus.

Tariff rate hike plan draws support

Later in the day, the PJMMembers Committee endorsed by acclamation a proposed schedule of increases in PJM's stated rates —the amount paid by PJM members based on their activity to defray PJMadministrative costs — for the period from 2017 through 2026.

In 2016, the stated rate is29 cents/MWh, which it has been since 2011, but that number would climb underthe proposal approved Sept. 29 to 37 cents/MWh for 2017 and 2018, then rise ata rate of 2.5% a year until the total reaches a maximum of 41 cents/MWh in2024, which would continue until 2026, unless PJM files a new stated ratetariff.

The stated rate helps fund areserve equal to no more than 6% of annual revenue, which is used to defrayunexpected variations in revenue, such as might result from unusually mildweather. When the reserve exceeds the 6% threshold, PJM members get refunds ona quarterly basis.

The proposed stated rateschedule is slated to be presented to the PJM Board of Managers in October,after which it would be filed at FERC with Jan. 1, 2017, as the targeteffective date.

The Markets and Reliability Committee also received a reportregarding PJM's latest five-year study of installed reserve marginrequirements, which indicated a slight increase in how much capacity in excessof expected peak load would be required in the planning years 2017-2018 through2020-21. The installed reserve margin for 2016-2017 had been estimated in the2015 study at 16.4%, rising to 16.5% for the planning years 2017-2018 through2019-2020.

The 2016 study indicates that because of generation capacitychanges in adjacent ISOs, PJM's installed reserve margin would be 16.6% for2017-2018, 16.7% for 2018-2019, and 16.6% for 2019-2020 and 2020-2021.

The report was presented for information purposes, with theplan to have the Markets and Reliability Committee endorse the report at itsOct. 27 meeting.

In other business, the committeeapproved an update to its manual to allow PJM transmission owners to proposewinter temperature ratings lower than what had been the systemwide standard of50 degrees F. The lower ratings could be 41 degrees or 32 degrees. PJM staffwould review the proposals and "approve as appropriate," said MichaelHerman, a PJM transmission planning staffer.

Mark Watson is a reporter at S&P Global Plattswhich, like S&P Global Market Intelligence, is a division of S&P GlobalInc.