MRC Endorses Capacity Obligation Proposal

At its Dec. 22 meeting, the Markets and Reliability Committee passed a proposal that clarifies when and how resource owners can replace their commitment in the capacity auction while still protecting market integrity and ensuring reliability.

PJM and the Independent Market Monitor presented revisions to Manual 18: PJM Capacity Market, regarding the immediate replacement of capacity obligations.  The committee endorsed the proposal by a sector-weighted vote with 4.39 approval (3.335 was needed for passage).

Stu Bresler, senior vice president − Operations and Markets, said that the intent of the revisions was to allow replacement of cleared capacity at any time, providing the owner can show that the resource being replaced has a physical reason for not performing. After the third incremental auction, the owner can replace the resource for any reason.

At the November MRC meeting, members approved changes that eliminated some requirements for replacement capacity. The elimination of the provisions was approved in spite of objections from PJM and the IMM.

The IMM then filed a complaint at the Federal Energy Regulatory Commission about the change. It argued that the change could allow market participants to manipulate the capacity market and would allow speculative and non-physical transactions. The IMM will now withdraw its complaint, with the passage of the new language.

The November revisions eliminated important market safeguards. Those safeguards protect the point of the capacity market, which is to commit actual, physical resources to deliver electricity when needed most by consumers.

The new language states that PJM will approve or deny a request for early replacement capacity. PJM, with input from the Market Monitor, will use the criteria listed below within 15 days of receiving a completed early replacement capacity request.

Acceptable reasons for early replacement are:

  • Generator deactivation (properly notified to PJM and posted to the website);
  • Withdrawal of generation queue position/cancellation of generation project (accompanied by written notification to PJM project manager);
  • Generation delayed in-service date (accompanied by written notification to PJM project manager);
  • Permanent departure of load used as a basis for an existing demand resource or energy efficiency resource at the time of commitment.

 Other committee business

Members discussed an updated stakeholder problem statement and issue charge regarding capacity markets. The statement and issue charge are related to the effect of the power purchase agreements in Ohio on the market. Stakeholders discussed variations of this problem statement over the past several months to determine the best language for moving forward.

The problem statement and issue charge will use the stakeholder process to examine how governmental actions, such as subsidizing resources, could impact how the capacity and energy markets send efficient signals for resource investment and exit.

PJM presented a proposal from the Underperformance Risk Management Senior Task Force regarding Capacity Performance participation by resources outside of PJM’s footprint. The proposal addresses both existing and new external resources. It will be voted on by the committee at the January meeting.

PJM also discussed the activities  and two proposals of the Energy Market Uplift Senior Task Force.  The proposals look at changes to where certain virtual transactions could be made. The committee will vote on this at the January meeting.

PJM’s proposal is intended to make minimal changes to the current calculation of uplift costs. The alternate stakeholder package is based on the premise that if a resource is providing the marginal megawatts, the offer of that unit should be reflected in locational margin pricing.

The committee also passed a motion regarding the task force’s cost allocation phase. During its regular meetings, the task force failed to reach a 50 percent approval on any proposal. The amendment recommended the task force revote on the top five vote-getters, while PJM gathers back-testing data.

Endorsements

The committee did not endorse revisions to the FTR undiversified credit adder.

Other first reads included a problem statement and issues charge regarding Market Operations Price Transparency, several revisions to the PJM Tariff and a half-dozen manual changes.