Tariff change is prudent step to avoid challenges in 2015-16

Mike Kormos, executive vice president of Operations

In just a few months, PJM could begin to experience a challenge maintaining our system’s high level of reliability with the convergence of a pair of unique situations. An historic amount of generation is retiring at a time when there is uncertainty about demand response’s continued participation in the wholesale markets. Our studies show that during summer and winter peak demand periods in the 2015-2016 delivery year, we could face resource adequacy issues during extreme weather as a result.

The possibility of not having enough capacity to meet extreme demands is a reflection of the large amount of coal generation retiring, the uncertain availability of demand response and new generation not planned to be in-service until a later time.

To manage this uncertainty and prevent reliability concerns, PJM recognizes that it may need some coal generators to delay retirement and some new generation projects to move up their in-service dates. Both actions require out-of-market agreements that are not currently permitted by the tariff for that purpose.

In December, PJM filed with the Federal Energy Regulatory Commission for a change in tariff language to enable PJM to recover from load-serving entities the costs associated with such out-of-market capacity agreements to help cover the potential shortfall.

Members and others filed comments on PJM’s proposal, providing a wide range of feedback. We filed our response to the comments, noting that none of the commenters has shown that the proposed tariff change is not a reasonable and prudent response to this unique set of resource adequacy concerns.

PJM is a strong proponent of market mechanisms and so has not sought this out-of-market solution lightly. All things considered, however, it is a reasonable response to the unusual conditions that have arisen for the coming delivery year, as it promises the fastest and least-cost way to address the potential resource and reliability gap.

Now it is in FERC’s hands to decide.