The following issues were approved by stakeholders with little or no opposition Thursday.
Markets and Reliability Committee
Manual Changes
Manual 11: Energy & Ancillary Services Market Operations and Manual 15: Cost Development Guidelines were revised to correct a typographical error. The words “mileage ratio” will be replaced with “mileage” in Section 3.2.7 of Manual 11 and Section 2.8 of Manual 15, where the calculation of adjusted regulation performance cost is described. There is no change in PJM’s calculations, which have been correctly using mileage as it is defined by PJM.
Manual 14A: Generation and Transmission Interconnection Process was revised with the addition of a new section 1.14 regarding interim deliverability studies.
Manual 14D: Generator Operational Requirements was updated as part of an annual review. It includes changes reflecting North American Electric Reliability Corp. standard MOD-025-2.
FTR/ARR Senior Task Force
Members approved changes in the scope of the Financial Transmission Rights Senior Task Force. The task force was formed to identify ways to improve FTR funding levels. The new scope includes an examination of the role of virtual transactions on revenue adequacy and proposed solutions by the Market Monitor.
One sentence was struck from the revised problem statement as a result of objections by the Market Monitor. The sentence stated that: “With FTR underfunding that has occurred over the last several years, FTRs no longer perform the function of an effective hedge against congestion in the Day-Ahead market.” While PJM officials said it was factually accurate, the Monitor said it wasn’t appropriate for inclusion in the problem statement.
Credit Requirements
The MRC and Member Committee approved the following changes recommended by the Credit Subcommittee:
Risk Documentation Requirements – Removes the requirement that officer certifications be notarized, and allows electronic submissions. Eliminates the requirement for annual submissions of risk policy documentation; PJM will accept certification that no substantive changes have been made since the last submission.
Peak Market Activity (PMA) Exclusions – Spot market energy, transmission congestion and transmission loss charges resulting from virtual transactions will be excluded from the peak market activity (PMA) credit requirement. Virtual transactions have their own credit screening rules. Screened export transactions also will be excluded from the PMA. The PMA is used to set baseline credit requirements for members based on historical activity.
Virtual and Export Transactions Credit Requirement Timeframe – Reduces the credit requirement timeframe for export transactions to two days from four days. The MIC approved a similar change in August for virtual transactions. (See PJM MIC OKs Settlement, Credit Changes.)
Demand Bid Volume Limits – Establishes a daily demand bid limit for each load-serving entity by transmission zone. Bids would be limited to the LSE’s calculated zonal peak load reference point for the day plus whichever value is more, 30% of the reference point or 10 MW. PJM said the need for such limits was illustrated by the default of People’s Power & Gas in January.
Transition to 30-Minute Demand Response
The MRC and Members Committee approved a transition mechanism related to changes requiring more operational flexibility from demand response providers. The change would allow curtailment service providers to designate previously cleared megawatts as “non-viable” — unable to meet the new 30-minute-lead-time requirement. CSPs would be relieved of their obligations and have their capacity payments reduced. The transition mechanism was developed to comply with the Federal Energy Regulatory Commission’s May 9 ruling on the DR changes (ER14-822). Members also agreed to sunset the Capacity Senior Task Force.
Transparency of TO Calculations
Members voted to close an issue relating to the transparency of the calculations transmission owners use for allocating energy, capacity and transmission costs. PJM has created a webpage listing the methodologies transmission owners use for calculating total hourly energy obligations (THEO), peak load contributions (PLC) and network service peak loads (NSPL). The issue arose because some TOs have not filed tariffs disclosing the methodology they use. Some members complained that the lack of transparency made it difficult to ensure they were being properly charged. (See TOs Will Disclose Calculation Methodologies.)
Members Committee
Supplemental Transmission Project Definition
Members approved revisions to the Operating Agreement clarifying the definition of supplemental transmission projects as one that is not a state public policy project and is not required for system reliability, operational performance or economic criteria. The change removes a reference to supplemental projects as “Regional RTEP” (Regional Transmission Expansion Plan) projects. It also clarifies that any reliability upgrades required as a result of the supplemental project are considered part of that project and are the responsibility of the entity sponsoring it.
Data Submittal Deadlines
Members endorsed Tariff revisions extending the deadlines for electric distribution companies (EDCs) to submit Power Meter and InSchedule data. The changes would allow load reconciliation data to be included in the calculation of balancing operation reserve deviation charges.
Members also endorsed Reliability Assurance Agreement revisions to allow EDCs to submit corrections to peak load contribution and network service peak load assignments until noon on the next business day. The changes, which will also be reflected in Manuals 18 and 27, are intended to aid Pennsylvania EDCs squeezed by new Pennsylvania Public Utility Commission deadlines. (See PJM MIC OKs Settlement, Credit Changes.)
A massive retired coal-fired generating station on the Delaware River is up for sale and is generating enthusiasm among architecture scholars and developers. Delaware Station, built in 1920, was designed by Philadelphia architect John T. Windrim, who also designed the famous Franklin Institute. The 223,000-square-foot building comes with 10 acres of land and another 6 acres underwater.
The site is near the booming Northern Liberties and Fishtown neighborhoods. Owner Exelon Generation has hired real estate brokerage Binswanger to supervise the sale. Sealed bids are due by Nov. 3.
The plant was the northernmost of three waterfront Philadelphia Electric Co. power stations, each a variation on a classical temple. All three are retired. One has been repurposed as an office.
PPL’s plan to build a 725-mile transmission line across four states to take advantage of power generated from cheap Marcellus Shale gas is attracting opposition.
Environmentalists and property owners say PPL’s plan to build a $4 billion to $6 billion, 500-kV line across Pennsylvania to bring power to New Jersey, New York and Maryland will induce more drilling, fracking and power-plant construction in the shale region.
“There are a whole wealth of harms that come from drilling for shale gas,” said Maya K. van Rossum, head of the Delaware Riverkeeper Network. “And the more we invest in fossil fuels, the less money we have to invest in renewable sources.”
Construction on what is billed as the world’s largest post-combustion carbon-capture plant is underway near Houston. While other carbon-capture projects are still in the design phase, or hung up with permitting or financing issues, NRG Energy is going ahead with the Petra Nova Carbon Capture Project. It is being built at the existing W.A. Parish power plant in Fort Bend County.
The plant is designed to capture 90% of the carbon dioxide from flue gas, compress it and transport it by pipeline 80 miles to an oil field, where it will be pumped underground to stimulate oil production. The compressed carbon dioxide is expected to increase the oil field’s yield from 500 barrels a day to 15,000 barrels.
The $1 billion project is being funded by a grant of up to $167 million from the Department of Energy’s Clean Coal Power Initiative, along with $250 million in loans from Japanese banks and $600 million in equity.
An environmental group opposed to Dominion Resources new liquefied natural gas export project in Maryland is taking a new tack: trying to convince potential investors that it’s a bad risk.
The Chesapeake Climate Action Network hired a financial research firm to analyze the project, which is planned for an existing facility on the Chesapeake Bay’s western shore. The firm’s report warns that the project’s success is dependent upon further state and federal approvals. Dominion Midstream Partners is awaiting approval from the Securities and Exchange Commission to raise $400 million to finance the project.
“Investors buying the common units of Dominion Midstream Partners should realize that this company’s cash-flow is purely dependent on the Cove Point Liquefaction Project, for which further delays are expected,” said Jan Willem van Gelder, director of Profundo, the research firm. “In combination with the limited voting power of the unit holders and the dominant position of parent company Dominion Resources, investors are likely to face very uncertain returns.” The report goes on to warn of expected legal challenges facing Cove Point, based on environmental and conflict of interest charges.
Public Service Enterprise Group is partnering with four other companies to build and operate a 105-mile, $1 billion natural gas pipeline.
The New Jersey company will partner with affiliates of UGI, South Jersey Gas, New Jersey Natural Gas and Elizabethtown Gas. PSEG will have a 12% stake in the project, with the other parties each holding 22%. UGI Energy Services would build and operate the project. PSEG said the project would benefit its New Jersey customers, bringing low-cost Marcellus Shale gas to them.
Construction is planned for 2017. The pipeline would run from Luzerne County, Pa., to Trenton, N.J.
Duke Energy announced last week it is buying 278 MW of solar energy from eight utility-scale projects in North Carolina to help meet state renewable-energy mandates. Duke is purchasing three solar farms rated at 128 MW and power-purchase agreements with five projects rated at 150 MW.
“Solar prices are coming down. We can make it work at an attractive price,” said Rob Caldwell, vice president at Duke Distributed Energy Resources. He said the current purchase-power agreements the company is entering into are “about a third” of the $0.11/kWh Duke now pays for rooftop solar.
Duke must derive 12.5% of its power from alternative energy sources by 2021. The acquisitions will make Duke compliant with interim targets in 2015 and 2018, Caldwell said.
An Ohio judge barred FirstEnergy workers from picketing the homes of three company executives after neighbors of FirstEnergy CEO Tony Alexander complained about protesters using bullhorns and air horns in their suburban neighborhood.
Common Pleas Judge Jane M. Davis issued the restraining order against the Utility Workers of America, which is in contract negotiations with FirstEnergy. A tentative pact was reached in July, but workers at 14 units turned it down.
FirstEnergy requested that the protests be limited to no more than five people and that the protesters be prohibited from screaming, yelling or making noise “in a manner intended to disturb.” But the judge prohibited any protesters at all.
FirstEnergy spokesman Todd Schneider said the company’s actions were in response to the large, “inappropriate” demonstration in a residential area.
“Protesting in front of our corporate headquarters is one thing,” he said. “Protesting in a residential neighborhood is a different thing.”
FirstEnergy’s Bruce Mansfield Plant in Shippingport, Pa., and American Electric Power’s General James M. Gavin plant in Cheshire, Ohio, are among the nation’s 10 dirtiest power plants, according to a report by Environment America Research & Policy Center.
The “America’s Dirtiest Power Plants” report ranked the Mansfield plant third and the Gavin plant sixth.
“In 2012, U.S. power plants produced more carbon pollution than the entire economies of Russia, India, Japan or any other nation besides China,” the report said. “In fact, the 50 dirtiest U.S. power plants alone — representing less than 1% of U.S. power plants — produced as much pollution in 2012 as the nation of South Korea (the world’s seventh leading emitter of greenhouse gases).”
Georgia Power’s Scherer plant in Juliette, Ga., was No. 1. Indiana Michigan Power’s Rockport Plant in Rockport, Ind., came in No. 4. The Tennessee Valley Authority’s Paradise plant in Drakesboro, Ky., was No. 10.
The Markets and Reliability Committee heard first read Thursday on proposed rule changes intended to reduce uplift and capture operator actions in LMPs.
The proposal would make changes to day-ahead resource commitment and scheduling reserve requirements, as well as synchronized and primary reserve requirements. It will be brought to a vote at the next MRC meeting Oct. 30.
One change would allow PJM operators to commit long lead resources scheduled for the next operating day — those with a 36-hour notification and start time — in the DA market. Operators would have this option only during emergencies and Hot or Cold Weather Alerts. The change is intended to reduce the mismatch between DA and real-time markets and capture more of the resources meeting system needs in DA LMPs.
‘Heartburn’
A second element would increase the day-ahead scheduling reserve (DASR) requirement on these peak days when forecasted RT load exceeds submitted fixed demand.
The change is intended to ensure that PJM schedules enough capacity to meet RT load while also scheduling enough reserves to meet the average load forecast error (LFE) and forced outage rate (FOR), as well as its normal 10-minute reserve requirements. The current 6.27% DASR requirement covers only the LFE and FOR. How costs of the additional reserves would be allocated is still under discussion.
“This is a piece that really gives us heartburn,” said Susan Bruce, representing the PJM Industrial Customer Coalition. Bruce said the proposed change would work against customers that seek to keep their actual loads in line with their demand bids to avoid deviation charges.
PJM is also proposing changing the calculation of eligible reserves to more accurately reflect the dispatch capability of resources if they are needed in real time. Operators would clear reserves up to resources’ economic max rather than emergency max. They would also adjust assumptions for offline units to recognize startup and notification times. Unlike the previous changes, which are limited to emergencies and weather-related peaks, these changes would apply at all times.
Synchronized, Primary Reserve Requirements
The RTO is proposing a flexible solution for increasing synchronized and primary reserves during emergency conditions. Instead of adding 1,300 MW, as under the temporary solution approved by stakeholders May 29, PJM would increase the reserves by the additional scheduled capacity. (See PJM Reserve Proposal Gets OK for Trial Run.) Shortage pricing would be implemented through a second, lower step on the synchronized and primary reserve demand curves.
Interchange Cap
In addition to the reserve changes, members also will be asked to consider a cap on hourly interchange transactions to prevent unexpected imports from displacing scheduled resources and generating uplift.
The cap would apply during emergency conditions when operators have made firm resource commitments and anticipated interchange schedules are sufficient to meet projected load.
It would block additional spot imports and hourly non-firm point-to-point transactions once net interchange reaches the cap. Schedules with firm or network designated transmission service would not be blocked. The cap value — based on operator expectations plus a margin of 700 MW — would be implemented one to two hours before the operating hour.
Price Impact Uncertain
Lisa Morelli, who moderated the special sessions of the Market Implementation Committee that led to the proposals, said PJM has been unable to conduct a simulation to predict precisely the impact of the changes.
She said PJM had rerun some day-ahead cases under the proposed rules and found that the changes resulted in increased DASR reserve prices and small increases in day-ahead LMPs during peak hours. “Obviously it would also decrease uplift,” said Andy Ott, executive vice president for markets.
Timeline
If approved, the changes would take effect as early as this winter. Changes requiring Tariff modifications would be effective next spring.
Carl Johnson, representing the PJM Public Power Coalition, praised PJM’s crafting of proposed solutions. “PJM has really listened to our concerns,” he said.
PJM’s Capacity Performance proposal has done the near impossible: unite the RTO’s stakeholders.
Virtually all of the more than 50 stakeholders who commented on the RTO’s revamp of the capacity market agreed that it goes too far, creates too much risk and is being rushed through the stakeholder process too quickly.
For suppliers, its nonperformance penalties are out of balance with its incentives and threaten to bankrupt individual generators.
For load, it represents an unwarranted increase in capacity costs and increased risk of market power.
Both sides agree that it has been insufficiently vetted and may not improve reliability.
PJM staff won’t publish their final proposal until Oct. 7, after receiving additional feedback from stakeholders in a meeting tomorrow.
But based on an initial review of the comments, it’s unlikely the PJM Board of Managers will seek Federal Energy Regulatory Commission approval for the original plan under the original timeline (see table).
All who commented said they shared PJM’s concern over the high forced outage rate during January’s polar vortex. But only a handful said they largely supported PJM’s plan. (See PJM: New Capacity Product Needed for Reliability.)
Many said PJM should try more targeted, incremental changes, rather than a fundamental overhaul of the capacity market that includes a new product and major changes to both compensation and penalties.
RTO Insider reviewed all 45 comments, totaling more than 300 pages, after their release yesterday. (Several of the filings came from multiple stakeholders.) Below is a representative sampling of the most frequently cited complaints.
STAKEHOLDER PROCESS
Pepco Holdings Inc. decried what it called the “hyper-accelerated time line.”
“We now face the immediate prospect of an abrupt major change in critical PJM market rules that took over four years of discussion in the stakeholder process to develop, plus three months of intensive negotiations at FERC to finalize and which have continued to be tweaked ever since. PJM is now seeking to change these rules after only four or five half-day stakeholder meetings.”
The Public Utilities Commission of Ohio said the proposal includes “significant improvements,” including addressing the need for winter- and summer-peaking products and an acknowledgement that “Out of Management Control” is not a legitimate exemption from performance requirements.
Without changes, however, PUCO said it will have “negative, unintended consequences.”
“By rolling out a new capacity tier before the dust has even settled on recent demand response reforms, and before FERC has even seen filings from PJM’s [variable resource requirement]/Triennial Review, PJM casts a cloud of uncertainty over how these related proceedings, taken in a vacuum, will ultimately affect reliability and capacity prices.”
Maryland Public Service Commission: “Compared to the roughly eight to nine weeks devoted to this matter under PJM’s schedule, both NYISO and ISO-NE conducted a roughly one-year stakeholder proceeding to formulate their recent market performance proposals.”
LS Power Group: “While all markets tend to evolve over time, drastic market redesigns such as the proposal often bring about unintended consequences and can shake market confidence.”
Topaz Power Management, which manages competitive power portfolios owned by affiliates of Riverstone Holdings, said the proposal is “unnecessarily complex and unlikely to resolve the root cause of the January cold-weather events. It introduces additional reliability and market risk that could harm both load and supply.”
Targeted Approach Urged
Several commenters called for a change in the day-ahead market schedule to better align it with gas pipeline operations. Others said PJM should consider an interim winter reliability program such as what FERC approved for ISO-NE.
Delaware Public Service Commission: PJM’s proposal “is an overly broad cannon blast to the entire [Reliability Pricing Model and Base Residual Auction] processes rather than focused rifle shots to specifically address identified generator performance issues.”
Dominion Resources suggested splitting the RPM into summer and winter markets “that are separately cleared using the current RPM construct.”
Old Dominion Electric Cooperative and Southern Maryland Electric Cooperative urged PJM “to return to energy and ancillary market solutions rather than add additional requirements to an already cumbersome administrative construct.”
LS Power: “PJM should avoid shoe-horning an entirely new capacity product designed to address winter reliability issues within a structure predicated on meeting PJM’s peak capacity needs in the summer. Instead, the winter reliability issues can be best addressed through combining a few targeted enhancements to the current capacity construct included in the proposal along with establishing a new targeted winter reliability program. This approach would redress certain market flaws that have been identified, and at the same time creating [sic] incentives for generators to qualify for a separate winter-focused product.”
Brookfield Energy Marketing: “In our view, for the most part, the PJM capacity markets are currently functioning relatively well. As a result, the current PJM capacity construct does not need to be totally re-constructed as contemplated in the proposal, but instead can be altered with appropriate rule changes that provide the needed performance incentives that PJM is purportedly seeking to address.”
GENERATORS
Suppliers said the proposed penalties could bankrupt individual generators after a single peak-day outage and could lead to accelerated retirement of steam units.
Penalties Unduly Harsh
Generators were unanimous in calling for a reduction in the proposed penalties and in their opposition to the elimination of current force majeure provisions.
Public Service Enterprise Group: “The proposal leans too heavily on the ‘stick’ and fails to provide an adequate ‘carrot.’”
American Electric Power, Dayton Power and Light, FirstEnergy, East Kentucky Power Cooperative and Duke Energy Ohio: “The size and likelihood of increased penalties under the current proposal, matched with continued uncertainty in the capacity price, could easily result in a net revenue decrease for steam generation units, which could further spur premature retirements.”
NRG Energy: “The exclusion of force majeure is inappropriate and could lead one to believe PJM wants every generator to make investments to be hardened for hurricanes and all conceivable natural disasters. This cannot be accurate. Likewise, if a generator has firm natural gas service, and that service is disrupted by an outage on the interstate pipeline system, that is a classic force majeure and the generator should not be penalized for events that are truly outside of its control.
“The proposed penalty is so high (up to 2.5 times a resource’s total annual capacity payments) that it could bankrupt an otherwise viable resource after only one unpredictable outage that should be considered out of the control of the generator. A more appropriate penalty design would place no more than 100% of a Delivery Year’s capacity credits at risk (as opposed to the 250% in the proposal) for any single unit.”
Competitive Power Ventures, which is building combined-cycle plants in Maryland and New Jersey, said the proposed penalties for nonperformance by a 600-MW Capacity Performance generator could total $110 million.
“Assuming a $100/MW-day clearing price, the financial risk imposed on a 600-MW Capacity Performance resource is $55 million, of which about $22 million reflects a full forfeiture of RPM revenues for the year. If the clearing price were $200/MW-day, which occurs frequently in constrained [locational deliverability areas], this would result in a financial exposure of $110 million for this same project. … This penalty structure is unnecessarily punitive and could jeopardize the financial viability of a generation resource.”
Dynegy and Invenergy faulted PJM’s “unrealistic expectations” of generator performance and provided a list of what they called the RTO’s for “faulty assumptions.” Among those assumptions: that all risk should flow to the generator; that dual-fuel capability or fuel on the ground is a panacea; that all gas-fired generators have equal access to fuel-firming products; and that gas-fired generators should maintain the same flexibility during “critical days” on the pipeline as regular days.
EquiPower Resource Corp., which owns 3,600 MW of PJM generation, also criticized the RTO for what it said was a lack of understanding of gas-electric issues. “It appears that some parties have told PJM that no-notice service is readily available as long as generators are willing to pay for it. This is a fallacy. If some no-notice service exists at a few locations inside PJM, we doubt that it is adequate to fuel more than a few generators, never mind the entire PJM gas-only fleet.”
PSEG: “The commercial viability of many resources with higher than average EFORd [equivalent demand forced outage rate] levels will be greatly challenged by this structure. Further, imposing a construct that forces serviceable facilities out of the market because they do not meet highly idealized standards of performance and flexibility is inefficient and will impose unnecessary costs on consumers. Indeed, because many of the most affected units will be older coal and oil units, an unintended consequence of the CP proposal could be to actually decrease reliability by undermining fuel diversity.”
Shell Energy North America said “it may make more sense to offer capacity that we control into the capacity auctions as a Base Capacity Product, rather than as CP, as we are concerned that the current proposal does not provide a reasonable opportunity to earn a return on investments we may make in such resources, nor does it compensate us for the risks we will face with the CP as proposed.”
PJM Power Providers Group (P3): “P3 is struggling to see how the enormous additional risks that will be forced upon generators will be appropriately compensated, year after year, with corresponding revenues.”
Capacity Performance Requirements Too Restrictive
Several commenters complained about the 6,000 run-hour threshold requirement.
NRG called the new product “poorly defined and hastily proposed.”
“The current proposal is discriminatory and likely to have unintended and adverse consequences by excluding substantial quantities of reliable, fuel-diverse resources from the premium capacity product. Many baseload resources with substantial on-site fuel storage will not qualify as Capacity Performance resources because they do not satisfy the required 6,000 run-hour qualification or the greater than 18-hour minimum run time requirement for the Base Load Asset Class. A facility’s run time is based purely on energy market economics and has nothing to do with investment surrounding fuel certainty.”
LOAD
Overly Conservative
Consumer advocates from Delaware, Maryland, New Jersey, Illinois, West Virginia, Pennsylvania, Indiana and D.C.: PJM’s proposal “goes far beyond what is necessary, … is likely to be unacceptably costly and poses a grave potential for resource owners to exercise market power. … PJM proposes to identify the quantity of the new CP product that it will procure through a new reliability study that will focus on winter peak needs. However, the new methodology apparently suggests PJM will require 85 to 90% of all capacity to be CP. We are concerned that the proposed study will rely upon extremely conservative and unrealistic assumptions.”
NextEra Energy Resources: “If PJM were to procure the 85% CP resource level for the 2015/16 delivery year at a clearing price near $190/MW-day, [load-serving entities] would bear roughly $10 billion in additional capacity payments relative to the projection from the most recent incremental auction.”
American Municipal Power (AMP) said PJM has chosen a “radical solution.”
“There has been no clear demonstration by PJM that its proposal has investigated the impact on customers or even whether it will provide superior reliability, particularly during the winter months about which PJM has claimed it is most concerned. While there is no denying or diminishing the magnitude of the ferocity of last winter and the polar vortexes, PJM must remember that it has determined that the winter event was a one-in-10-year event. If the system wasn’t close to the edge during the extreme winter events, it would have meant that the system was over-engineered and inefficient.”
New Jersey Board of Public Utilitiesstaff: The proposal is “a complex and, in certain critical areas, undeveloped set of unnecessary market changes designed to solve near-term reliability concerns that could be addressed far more simply and effectively. The proposal would, moreover, impose significant, but not as yet precisely quantified, capacity-cost increases on end-use customers. The reliability issues that faced PJM this past January were principally occasioned by generator performance failures and were not the direct consequence of market design failure.”
PJM Industrial Customer Coalition: “PJMICC and its members have fundamental questions whether the PJM Problem Statement on PJM Capacity Performance Definition (‘PJM Problem Statement’) accurately captures the reliability concerns. Even assuming that it does, however, PJMICC has serious concerns that the CP Proposal is not a proportionate response and, in fact, may not effectively target the gas‐electric coordination issues that appear to be the root of the reliability problem. If that is in fact the case, the CP initiative may have devastating impacts on energy‐intensive businesses in the PJM footprint.”
Market Power
AMP: “Based on the limited information provided thus far, it appears that PJM’s proposed measures to retain the mandatory capacity markets while breaking out the capacity product into separate categories will substantially increase market complexity and pose the potential for gaming at best.”
NJ BPU: The proposal “appears to open up a distinct new opportunity for strategic withholding. The bifurcation of existing annual capacity resources into Capacity Performance and Base Capacity categories would, absent an explicit set of additional provisions that stakeholders have yet to see, invite generation fleet entities to withhold Capacity Performance capacity and bid such capacity in as Base Capacity in an effort to drive up the Capacity Performance clearing price. There is nothing evident in the Proposal that would prevent such strategic behavior.”
MARKET MONITOR
The Independent Market Monitor called the proposal “an ambitious and timely effort to address some of the significant issues with the current RPM capacity construct” and said it “appropriately focuses substantially on performance issues.”
But the Monitor said the creation of multiple classes of capacity is unwise. “The capacity market should include a single capacity product with one set of performance incentives. There is no reason to have multiple products. With well-designed performance incentives, all sources of capacity can determine how to offer the single capacity product consistent with the physical limits of the resource and the reliability needs of the PJM system. Creating multiple products is the first step towards micromanaging the mix of capacity resources and attempting to substitute the judgment of the planner for market choices.”
The Monitor said its sensitivity scenarios found that coupling offers for resources that cannot currently meet Capacity Performance requirements decreases the price separation between Base Capacity and Capacity Performance prices.
Reducing the maximum amount of Base Capacity resources increases the Capacity Performance price and the price separation between Base Capacity and Capacity Performance products. A requirement for firm gas transportation would have a larger impact on clearing prices than a requirement for dual-fuel capability.
The Monitor reiterated its call for eliminating the 2.5% demand adjustment as well as the Limited and Extended Summer demand response products.
“The capacity market should no longer include any demand side resources on the supply side of the market, including energy efficiency resources (EE). Demand side resources should be on the demand side of the market where they can and should be a very significant component of the capacity market. … Load that does not want to pay for capacity, and is willing to interrupt its use of capacity when that capacity is needed by those who do pay for it, should be able to avoid paying for capacity. That is the demand side of the market as it should work and can work.”
The IMM said its recommendations share PJM’s goals but seeks to accomplish them differently:
“The IMM proposal includes a mechanism to ensure that market prices reflect the net revenue shortfall or missing money, which is to set the offer cap at net [cost of new entry]. The PJM proposal does not include such a mechanism.”
“The IMM proposal includes performance incentives which are solely a function of the provision of energy and reserves during high load hours and which apply equally to all capacity resources. … The PJM proposal imposes high and difficult-to-predict risks on generators as a result of including both quantity and price (LMP) risk in the performance incentives.”
“The IMM proposal does not provide for exceptions to the performance incentives. … PJM’s proposal includes exemptions for units that are not committed by PJM or dispatched down by PJM for providing ancillary services or because of transmission constraints.”
“The IMM proposal includes a must-offer requirement for all capacity resources, which includes the ability of unit owners to incorporate the costs of being a capacity resource in such offers. The PJM proposal does not appear to include an explicit must-offer requirement.”
RETAIL MARKETERS
Consolidated Edison Energy and Consolidated Edison Solutions said PJM’s proposed implementation schedule is unfair to LSEs.
“All market participants have come to rely on the cost and regulatory certainty of the three-year forward mechanism. This allows retail suppliers like CES to account for future capacity costs in their retail contracts with customers, and modifying this capacity market construct without the typical three-year forward lead time would result in unpredictable and potentially unrecoverable costs for retail LSEs.”
DR, STORAGE, RENEWABLES
Brookfield: “Historically, hydro resources have been considered a reliable capacity resource, and PJM can depend on that type of performance going forward. In general, these resources do not depend on a third party to sell a fuel commodity and ensure transportation to the site. … Hydro should be given the option to offer into RPM as a ‘Capacity Performance’ product if the resource is prepared to take on the risk of hourly non-performance penalties.”
NextEra: The proposal “effectively precludes participation by wind resources and non-pumped storage resources.”
The Mid-Atlantic Renewable Energy Coalition said the proposal “would in effect value the capacity benefits of wind at zero.”
Consumer advocates said the proposal “will have a substantially negative impact on the ability for demand response to meaningfully participate in PJM’s capacity market despite the fact that DR compensated for faulty generators during January 2014.”
The Energy Storage Association said PJM’s proposal that Capacity Performance resources be required to provide their full installed capacity (ICAP) for 16 hours per day for three consecutive days is an “unnecessary barrier to storage participation in RPM.”
“Over the course of three days, a Capacity Performance resource must be able to discharge for 48 hours with only 16 hours for recharging. This limited time for recharging means that most facilities will not be able to fully recharge each day, further reducing capacity value. For example, the 30,931-MWh, 3,003-MW Bath County Pumped Storage Station would only have a capacity value of 1,391 MW under proposed Capacity Performance rules. The ESA believes that this dramatically undervalues the contribution modern energy storage can make to system reliability.”
ENERGY EFFICIENCY
EMC2 said PJM has “large amounts of winter energy efficiency that has up to now been invisible to RPM. With the new emphasis on winter reliability, we suggest that RPM would be improved by recognizing the value of these resources.”
“Valuing EE measures at the minimum of their summer and winter reductions undervalues these resources. Instead, we propose that EE measures that have a higher summer value than winter value be credited for their winter value as Base or Capacity Performance, with any excess summer reductions credited as Summer Extended.”
Members who responded to a PJM survey are about equally divided over the preferred meeting site for the Markets and Reliability and Members committees.
About 39% of those responding said they thought future meetings should be held at PJM’s Conference and Training Center in Valley Forge, while 36% favored remaining at Wilmington’s Chase Center. Another 13% chose a “hybrid” with meetings split between the two venues. Two states and 62 of the RTO’s 920 members responded.
“I don’t know how [statistically] significant this is,” Old Dominion Electric Cooperative’s Ed Tatum said of the survey results during a Members Committee discussion Thursday. Pepco Holdings Inc.’s Gloria Godson agreed, saying she was unaware the poll had been conducted.
The poll was sent to the MRC and MC distribution groups. Dave Anders, PJM director of stakeholder affairs, said the respondents included most of those that regularly participate in stakeholder meetings.
For Valley Forge
CEO Terry Boston made a pitch for Valley Forge, noting its proximity to PJM staff. Ruth Ann Price, deputy Public Advocate for Delaware, responded by noting the number of PJM staffers in attendance. “Access to staff is, with all due respect, specious,” she said.
David Hastings, of Market Interconnection Consulting Services in Illinois, said he preferred Valley Forge because it had more dining options than Wilmington and thus was a better locale for evening meetings with other out-of-town members.
For Wilmington
Some other out-of-town stakeholders said they preferred the Chase Center, which is about a mile from Wilmington’s Amtrak station.
Greg Pakela of DTE Energy said he flies from Michigan to Baltimore-Washington International Airport because it is much cheaper than flying into Philadelphia. The Amtrak from BWI to Wilmington takes about an hour. “The Amtrak access is huge,” Pakela said. Valley Forge does not have easy mass transit access.
Tatum said he prefers Wilmington for the two senior committee meetings. “I think we have a better opportunity to get [members’] senior executives here,” he said. Tatum also said members should consider returning the Market Implementation, Planning and Operating committees to Wilmington, where they were conducted until the CTC was opened in 2012.
The venue question was rekindled after the MRC and MC meetings were temporarily moved to Valley Forge due to highway construction in Wilmington. (See PJM Members Split over MRC/MC Meeting Site.)
“What about D.C. or Baltimore or points south, or even Ohio?” asked Dominion’s Lisa Moerner, who is based in Richmond, Va.
Anders said the RTO had conducted meetings around its footprint several years ago. “We found we had the same people coming to the meetings when they were in Columbus or Chicago and the same people on the phone,” Anders said. “We had very little difference.”
No Decision
With the two sides far apart — one member observed there was less consensus on this subject than on capacity market rules — Members Committee Chairman Dana Horton cut off the debate. “We’ll continue the discussion next month,” he said.
Disappointed but not surprised, federal and RTO officials began assessing their options last week after an appellate court refused to reconsider a ruling voiding the Federal Energy Regulatory Commission’s jurisdiction over demand response compensation.
The D.C. Circuit Court of Appeals rejected requests by FERC, PJM and other parties for an en banc review of a May 23 ruling by a three-judge panel that overturned FERC Order 745.
The court ruled 2-1 that FERC’s order, which required PJM and other RTOs to pay demand response resources market-clearing prices, violates state ratemaking authority. (See Court Throws Out Demand Response Rule.)
FERC Chairman Cheryl LaFleur and Commissioner Philip Moeller said they were disappointed in the ruling.
“We have a variety of opinions on that across this table. Personally I was sad to see it denied because I did not want our commission to lose jurisdiction over demand response,” Moeller said at last week’s commission meeting. “While the final chapter hasn’t been written I thought it was unfortunate. It’s not the end of the world if states are the ones now that have to procure DR. It’s real money to real consumers. They will treat it responsibly.”
Commissioner Tony Clark, who supported the court’s ruling, said DR could still be used for planning in conjunction with price-responsive demand and advanced metering.
“This is now an opportunity for us to move forward,” he said. “It does not mean we should ignore demand response. Rather DR reductions can still be accounted for if they’re measurable, verifiable.”
LaFleur said she would consult with her colleagues on whether to ask the Supreme Court to review the ruling — a very long shot — as well as discussing what guidance the commission can provide the regions assuming the ruling stands.
Ex Parte Rule
PJM General Counsel Vince Duane told the Markets and Reliability Committee meeting Thursday that RTO officials cannot discuss the matter with the FERC commissioners because of ex parte rules.
Duane said PJM will issue a report in several weeks outlining potential responses to the order. “It will be more of a thought piece than a position paper or white paper,” he said.
While the ruling dealt specifically with the treatment of DR in wholesale energy markets, Duane said “I think the capacity market jurisdiction is impacted very squarely by the court opinion.
“There may be some of our rules that encroach on what really looks more like a retail activity.”
Yesterday, FirstEnergy filed an amended version of its complaint (EL14-55) seeking to eliminate the DR that cleared in May’s Base Residual Auction. Duane said, “I tend to think that’s a long shot” that FERC will undo the BRA results.
Order 745
Order 745 required PJM and other RTOs to pay DR participating in the day-ahead and real-time energy markets LMPs identical to those for generation.
FERC said it had authority for the order under sections 205 and 206 of the Federal Power Act because reducing retail consumption through DR can aid reliability and lower wholesale prices. The commission made a distinction between “price-responsive” DR, which it acknowledged was a retail product subject to state regulation, and responding to incentive payments, which it called “wholesale demand response.”
The court’s majority, ruling on a complaint by the Electric Power Supply Association, disagreed. “A reduction in consumption cannot be a ‘wholesale sale’” and thus does not come under federal jurisdiction, the court said.
Demand Response Growth Forecast Cut
A study by Greentech Media predicts that the loss of Order 745 will reduce the annual growth rate of the DR industry from 8% to 4.9% through 2023. The report predicts the $1.4 billion U.S. DR market will grow to only $2.3 billion in 2023, down from a previous forecast of $2.9 billion.
Report co-author Geoff Wyatt said DR providers will have to adapt their business models in response to the ruling. “With more policy decisions being made at the state level, the fragmentation of the demand response market will only be exacerbated,” he said.
Shares in DR market leader EnerNOC closed Friday at $18.76, down 6% for the week but virtually unchanged from where they stood before the court’s May 23 ruling.
The Federal Energy Regulatory Commission last week rejected for a second time PPL Electric Utilities’ request to be relieved from its obligation to purchase the output of an 18-MW qualifying facility (QF) in Pennsylvania.
FERC’s Sept. 18 order reiterated its October 2013 ruling that PPL had failed to prove that a planned IPS Power Engineering cogeneration facility at a beef processing plant in Souderton, Pa., would be able to sell into PJM’s markets.
In 2009, FERC ruled that PPL would no longer have to purchase capacity and energy from QFs larger than 20 MW in PJM. The order established a rebuttable presumption that facilities below 20 MW did not have “nondiscriminatory” access to PJM’s wholesale markets.
The commission’s two Republican members expressed misgivings about the 2013 ruling, issuing a concurrence in which they said the commission’s standard for rebutting the presumption for QFs below 20 MW should not be unreasonably high. Since then, however, FERC has eliminated mandatory purchase requirements for two QFs below 20 MW, both owned by a larger company, GDF Suez Energy, which does participate in wholesale markets.
Last week’s ruling also rejected a request from the Pennsylvania Public Utility Commission for clarification on how the qualifying facility mandatory purchase obligations should be applied in retail-choice states, such as Pennsylvania. The PUC sought guidance on how utilities such as PPL would comply with the obligations if they are not default suppliers and have no load to serve.
FERC dismissed the PUC’s questions as “largely broader issues beyond the scope of this proceeding.”
WASHINGTON — Natural gas industry representatives reacted coolly last week to the idea of a centralized gas trading platform, suggesting the industry could improve its service to electric generators through smaller, incremental changes.
The issue was the subject of a nearly three-hour meeting called by Federal Energy Regulatory Commissioner Phillip Moeller.
The idea of a trading platform for natural gas was proposed at an April 1 FERC technical conference by Donald Sipe, an attorney representing the American Forest and Paper Association. (See PJM May Offer Firm-Fuel Premium.)
Sipe said a trading platform would address a lack of price transparency and liquidity in the gas market by applying lessons from RTOs on matching supply and demand in real time.
Last week’s discussion was not an official FERC meeting, although Moeller did obtain a docket number (AD14-19) for receiving written comments. He was the only commissioner to attend.
PJM: Dual-Fuel Solution?
Among those who spoke was PJM Executive Vice President of Operations Mike Kormos, who recalled PJM generators’ complaints last winter about the difficulty in getting gas and the uncertainty in when they will receive it. “From a reliability perspective, that’s unacceptable to us,” Kormos said. “We can’t just roll the dice and hope somebody gets gas.” Kormos said that the answer for the electric side may be to “just forget [gas-only units] and go dual fuel.”
“Maybe it’s not the most economic solution, but if the gas side can’t be flexible enough to meet our needs, then our answer’s got to be, from a reliability perspective, that we need to go to dual fuel and something else,” he said.
Christine Tezak, managing director of ClearView Energy Partners, said no solution will be perfect. “If you’re trying to do everything at least-cost dispatch, in five-minute increments, at some point you do have to reconcile the fact that you are using a fuel that’s only moving at 23 mph. And electricity is moving at the speed of light, and there’s going to be a disconnect.”
Gas industry representatives questioned the need for a trading platform, instead calling for spending on additional pipeline capacity.
Who Pays?
“The problem we’ve got here is, who pays for what is desired?” said Don Santa, CEO of the Interstate Natural Gas Association of America. “Where is the wherewithal for those who want these capabilities, in terms of the infrastructure to support the services, to be able to pay for it?”
Bob Reilley, vice president of regulatory affairs for Shell Energy, said any trading platform should be voluntary. “I can’t object to a user putting out his needs on a public forum,” Reilley said. “On the other hand … if he doesn’t want to do so, I would still like to be able to serve him.”
Some electric industry representatives also questioned the need for a centralized trading clearinghouse.
“We don’t see the type of weekend issues or off-peak hours issues that I’ve seen discussed here,” said Jerry Yupp of Florida Power & Light. “We’re able to find the gas we need dealing directly with suppliers, not through an electric platform on the weekends.”
Moeller tried to assuage the concerns of those on the gas side who were worried that FERC would make a broad, sweeping order to change the gas market. Rather, Moeller said, he wanted both sides to reach an agreement so that FERC would not have to react to a crisis, such as the January polar vortex.
“The fact that we have a convergence of the electric industry and the natural gas industry, which is only increasing — in one sense it’s a celebration of the fact that we have plentiful domestic gas that we didn’t know we had a few years ago,” Moeller said. “It is a really good set of problems to have. It’s a chance for everyone to win.”
PJM electric consumers are spending $433 million a year in excess capacity because the RTO’s load forecasts fail to capture the full impact of energy efficiency, according to a report by The Brattle Group for a coalition of environmental organizations.
Unlike ISO-NE and NYISO, PJM’s energy forecasts do not account for all energy efficiency projected to come online during the forecast period, according to the report, which was commissioned by the Sustainable FERC Project, an initiative of the Natural Resources Defense Council and others.
Improved forecasts could reduce both environmental impacts and customer costs, the report said.
Including the missing energy efficiency would reduce PJM’s cumulative average growth rate for energy and peak demand to 0.8% from 1.1% through 2022, with a reduction in total customer costs of $433 million annually through 2017/18 and by $127 million annually beyond.
Short-run capacity reductions of $527 million annually are partially offset by $93 million in increased energy costs due to reduced reserve margins.
The projected cumulative GWh savings from new energy efficiency relative to 2013 will reach 11,213 GWh (1.3% of load) in 2017 and 27,245 GWh (3% of load) in 2022.
“In ISO New England (ISO-NE) and the New York ISO (NYISO), targeted efforts have been undertaken to capture the effects of existing and planned energy-efficiency programs that may be unaccounted for in the forecasting process,” the report said. “Such targeted efforts do not exist for the PJM Interconnection.”
PJM Capturing only Some Energy Efficiency
PJM’s current load forecast includes historical energy efficiency embedded in econometric forecasts and supply-side energy efficiency that clears in capacity auctions.
“However, this approach does not capture the existing EE that did not bid into/clear in the [auctions] or any new/incremental EE programs predicted beyond the three-year forward capacity market window,” Brattle said. “Both ISO-NE and NYISO have addressed these issues in their load-forecasting processes to account for the full effects of the EE investments and produce a more accurate load forecast.”
PJM Responds
PJM spokesman Ray Dotter said the RTO has “a solid record for including energy efficiency” in its markets and load forecasts, noting that the last Base Residual Action cleared 1,339 MW of energy efficiency.
“The reduction in the load forecast that Brattle predicts for 2017, 1.1%, is well within the margin of error expected over a three-year forecast,” Dotter said. “The annual capacity market also procures 2.5% less capacity than the load forecast indicates to allow for corrections to the expected demand closer to the actual delivery year. The ‘hold back’ provides opportunities for energy efficiency in the shorter-term auctions.”
Still, Dotter said PJM is considering improvements in the way it incorporates efficiency into its forecasts. Dotter said the RTO will begin discussing potential changes and the impact of the D.C. Circuit Court decision on demand response with stakeholders soon. (See related story, Appeals Court Snuffs Hope for FERC DR Jurisdiction.)
Study Methodology
Brattle based the study on publicly available filings for each of the 20 utility zones in PJM: utility and state integrated resource plans and demand side management filings, and Energy Information Administration Form 861.
The consultants applied their methodology to publicly available data for New England and found that it identified about half the missing energy efficiency identified by ISO-NE. “This implies that our projection approach is likely to underestimate the level of new EE that will be implemented in the forecast period. Therefore, our results are most likely on the conservative side.”
Stakeholder Criticism
The Sustainable FERC Project is a coalition of clean energy advocates and other public interest organizations “focused on breaking down federal regulatory barriers to the grid integration of renewable energy demand-side resources.”
The Brattle report provides support for stakeholders representing PJM load, who complain that the RTO’s load forecasts have been too high since at least the recession.
One of the authors of the Brattle report, Kathleen Spees, Ph.D., also helped lead the consulting firm’s review of PJM’s Variable Resource Requirement curve parameters, which Brattle performed for the RTO as part of the recent Triennial Review.
Brattle’s work on the 2014 Triennial Review did not include an analysis of PJM’s load forecasting. In its 2011 review, Brattle recommended PJM “increase the transparency and stakeholder understanding of the load forecasting process,” noting that it had been the subject of stakeholder complaints.
PJM will revise its conflict of interest policy to reflect the increasing number of consumer product companies, manufacturers and technology companies becoming involved in the electric industry.
The Federal Energy Regulatory Commission prohibits PJM staff and board members from owning stock in any “market participant,” which FERC defines as including PJM members and their affiliates. Exempt are companies that do “not have economic or commercial interests that would be significantly affected by the [RTO’s] actions or decisions.”
PJM’s proposed revisions to its Operating Agreement are based on those approved by FERC for NYISO and MISO.
PJM plans to add a new Section 10.2.1 to the OA (“Financial Interests”) similar to its current Code of Conduct. The section will include a new definition of “prohibited securities,” applicable to the stocks of PJM members, non-incumbent transmission developers, “eligible customers” — transmission owners, power marketers or others generating electricity for resale — and their affiliates.
PJM would allow employees and directors to invest in companies with a de minimis relationship to the RTO, as determined by a “no” answer to each of the following questions:
Is the company’s primary business purpose to transact in the electricity industry or is it a non-incumbent transmission developer pre-qualified to be a designated entity under PJM’s transmission planning?
Are the member’s annual PJM total financial settlements more than 0.5% of the member’s annual gross revenues?
Are the member’s annual financial settlements in PJM more than 3% of the total transactions for which PJM Settlement is a counterparty?
General Counsel Vince Duane said the changes were needed to simplify compliance and ensure the policy doesn’t create employee recruiting or retention problems.
”It’s no longer intuitive that a Google or a Microsoft is not a member,” Duane said. Google is an investor in the Atlantic Wind Connection, a proposed transmission project to serve off-shore wind generators.
