By Rory D. Sweeney and Rich Heidorn Jr.
WILMINGTON, Del. — A stakeholder group calling for a comprehensive review of PJM’s capacity market won support from consumer advocates and state regulators last week, but industrial consumers and generators were cool to the idea.
The one point no one disputed at Thursday’s Markets and Reliability Committee meeting: Winning consensus on rules to replace the Reliability Pricing Model is a long shot.
“We might have a very low probability of coming to consensus on this process,” acknowledged American Municipal Power’s Ed Tatum, who introduced the proposal. “But it’s not zero.”
The proposed problem statement seeks a structure that will be more “resilient” to unforeseen shocks, such as state-subsidized generation.
The framework for the capacity market is the result of a FERC-brokered settlement in 2007. But there have been numerous rule changes since then, including most recently the introduction of Capacity Performance, which increased penalties and rewards for performance.
Delaware Municipal Electric Corp., Old Dominion Electric Cooperative, the PJM Public Power Coalition, the Public Power Association of New Jersey, Dominion Virginia Power and retailer Direct Energy have signed on as co-sponsors of AMP’s initiative. (See Co-ops, Munis Call for Reset of PJM Capacity Model.)
Direct Energy’s Jeff Whitehead said changes to the capacity constructs are “already happening,” citing the stakeholder initiatives created to address concerns over CP. In addition to task forces addressing seasonal capacity and mitigating generators’ risk of nonperformance, there are ongoing debates over calculating CP penalties, generator ramp rates and treatment of external assets.
To those who don’t support the problem statement, he asked, “Where do you want these debates [to occur] if not here?”
Additional Supporters
The coalition picked up support at the meeting from Dan Griffiths, executive director of the Consumer Advocates of PJM States; John Farber of the Delaware Public Service Commission staff; and Greg Pakela of DTE Energy Trading.
Farber said ad hoc reactions to CP, such as the seasonal capacity initiative, have created uncertainty. “That uncertainty only creates risk, and risk creates cost,” he said. “The worst position for PJM is to do nothing.”
Pakela said PJM needs to prepare for the future, predicting it’s “a matter of time” before states find a way to subsidize in-state generation that passes muster at FERC. Such efforts may increase as states seek to meet their emission targets under EPA’s Clean Power Plan, he said.
But Susan Bruce, who represents the PJM Industrial Customer Coalition, said although her group “has never been a big fan of capacity markets,” it wasn’t eager to open up the issue again.
“The devil we know may be better than the devil we don’t,” she said.
Stakeholders representing generators were particularly wary. “While I encourage you to look at other market designs, I’ll challenge you to find one that’s better,” Dynegy’s Jason Cox said. Models used by MISO and CAISO, he said, are “vastly inferior.”
He also questioned the premise of the initiative, asking “How can you design a construct to deal with issues you don’t even know about yet?”
Nothing in it for Supply?
Neal Fitch of NRG Energy and Tom Hyzinski of Talen Energy said it was unclear to them what the “problem” is and questioned Tatum on the scope of the proposed inquiry.
“Soup to nuts within resource adequacy?” Fitch asked.
Yes, responded Tatum.
Based on input from stakeholders, Tatum revised the proposed issue charge before the meeting to narrow its scope. The revised charge says it will limit its discussion of shortage pricing and the energy and ancillary services markets “to those that would be necessitated by any recommended changes to the capacity construct.”
“We don’t want to take on the world here,” Tatum said.
“You’re assuming that you’ll come up with something that will be bulletproof?” Hyzinski asked Tatum.
“No,” Tatum responded. “I think there might be something more resilient. I don’t know if there is or not.”
Mike Borgatti of Gabel Associates called it “a pocketbook issue.”
“Suppliers don’t want to be paid less. Load doesn’t want to pay more,” he said. “I struggle to explain to my clients on the supply side of the house what the opportunity is” pursuing the discussion.
Whitehead acknowledged his company’s interests, saying the current uncertainty is undermining competitive retailers’ business model. Predictable prices based on market fundamentals, he said, “allows us to contract forward and sleep at night.”
Tatum and Steve Lieberman of ODEC said their employers are caught in the middle as load-serving entities that also own generation. This issue “hits us on both sides,” Lieberman said.
Tatum said AMP likes the opportunity provided by markets to build its own generation or seek cheaper options offered by others. “If we can get supply for less than building our own, that’s a good thing,” he said.
PJM, Monitor Weigh In
PJM officials and Independent Market Monitor Joe Bowring were silent during the 70-minute discussion, until a stakeholder asked for their positions.
“There’s no harm in discussing things,” Bowring said. “I actually think CP is pretty robust and a pretty good design. It can always be improved.”
“If the intent is to replace the capacity market with a bilateral approach,” he added after the meeting, “I think that is a bad idea.”
PJM CFO and MRC Chair Suzanne Daugherty responded: “PJM believes in the stakeholder process. If the stakeholders support [the initiative], we do also.”
Facilitator Sought
A vote on the problem statement could come as soon as next month’s MRC meeting. PJM stakeholders rarely reject problem statements, which require only majority support to proceed. Winning approval for Tariff changes, however, would take a two-thirds sector-weighted vote.
If the problem statement moves forward, Bruce suggested, the discussions should be moderated by a facilitator independent of market participants and PJM. Other stakeholders supported Bruce’s request.
“I’m guessing that we’re not all looking for the capacity market to do the same thing,” she said. “It’s beyond ‘missing money’ at this point.”
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