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PJM may lose valuable capacity resources absent rule changes, stakeholders warn

Changes to PJM Interconnection LLC's forward capacity market construct that are about to go into effect will leave certain seasonal resources out in the cold unless the grid operator takes steps to ensure that they can meaningfully participate in the region's capacity auctions, according to a complaint filed recently with FERC.

The complaint (FERC docket EL17-32), tendered jointly by Old Dominion Electric Cooperative, Direct Energy Business and American Municipal Power Inc., asserted that enhancements PJM recently proposed to make to its capacity performance aggregation provisions are inadequate to address the impending elimination of the base capacity resource product from the market construct — referred to as the reliability pricing model, or RPM.

"Our concern with PJM's lack of accommodation of seasonal capacity performance resources is that it will remove from the RPM auctions valuable resources that have demonstrated reliability benefits, solely because they do not fit within the parameters forced by PJM," the complainants said.

Through its RPM, PJM secures capacity resources three years in advance of when those resources are expected to be needed. In an effort to ensure that resources committed as capacity are available to meet the region's reliability needs, FERC in June 2015 largely signed off on PJM's proposal to recognize two capacity products with different performance requirements and gradually phase out the lower-performing base capacity product by 2020.

PJM's next base residual capacity auction will be the first in which all resources must meet the more stringent requirements for capacity performance resources. However, PJM in November proposed to make certain changes (FERC docket ER17-367) to its capacity performance, or CP, rules allowing resources that cannot operate predictably all year to submit aggregate offers. Among other things, that proposal sought to eliminate a requirement that aggregated resources be within the same locational deliverability area.

But Old Dominion and the other complainants insisted that the proposal does not go far enough, and they asked FERC to initiate an investigation aimed at ensuring that seasonal resources, which include storage, intermittent, demand response, energy efficiency and environmentally limited resources, are not shut out from the upcoming base residual auction for the 2020/2021 delivery year and potentially lost to future auctions due to lack of viability.

"[W]hat we are seeking is for the commission to recognize, based on two years of experience with CP and taking into account the commission's continued policies for inclusiveness and diversity of resources, that the 'one size must fit all' approach of CP is neither necessary nor consistent with developing commission policy and, moreover, is to the detriment of the very resource diversity, reliability, economically efficient market outcomes and other benefits upon which the commission relied in approving CP," the complainants said.

The best approach, according to the complainants, would be for PJM to continue procuring the base capacity product for another year but implement an enhanced penalty structure that would "set the performance and offer incentives of [that] product in a manner comparable to the capacity performance product." Doing so would give the grid operator and its stakeholders time to develop a longer-term solution for ensuring that season resources can fully participate in the capacity auctions to the extent of their abilities.

"As opposed to the continued unfounded reliance that PJM's capacity construct will fail unless all resources are forced to mimic the mythical, always-available, traditional resource, complainants request that the commission recognize that there has been no demonstration that seasonal capacity performance resources cannot be accommodated in PJM's CP regime," the filing said.