PJM Files Capacity Market Overhaul for Resource Adequacy and Grid Reliability | Troutman Pepper

On October 13, 2023, PJM Interconnection, L.L.C. (“PJM”) submitted two filings with FERC proposing revisions to its Open Access Transmission Tariff (“Tariff”) and its “Reliability Assurance Agreement” (“RAA”) designed to improve resource adequacy and grid reliability. PJM requested the Commission to accept both filings concurrently, with an effective date of December 12, 2023, so that PJM may implement the proposed reforms for the upcoming Base Residual Auction (“BRA”) associated with the 2025/2026 Delivery Year.

The October 13 filings were made in response to the PJM Board of Managers’ (“Board”) September 27, 2023 directive, which instructed PJM to file enhancements to PJM’s capacity market by addressing the following areas: (1) explore how PJM accounts for reliability-related risk; (2) ensure that market-seller offers reflect the risk of capacity obligation; (3) enhance resource accreditation; and (4) better align capacity market and fixed resource requirement rules.

In Docket No. ER24-98, PJM proposes Tariff revisions to the Market Seller Offer Cap and the Capacity Performance parameters, and to apply a forward-looking approach to the energy and ancillary services revenue calculation used to determine the Minimum Offer Price Rule (“MOPR”) offer prices and the Market Seller Offer Cap. First, PJM seeks to revise the Market Seller Offer Cap by (a) establishing a standardized methodology to calculate a unit-specific Capacity Performance Quantifiable Risk, (b) allowing Capacity Market Sellers of resources that will participate in the energy and ancillary service markets to reflect their respective cost of risk associated with capacity performance in their capacity market offers – regardless of their receiving a capacity commitment, (c) allowing segmented unit-specific offer caps, (d) better aligning the Market Seller Offer Cap rules applicable to Planned Generation Capacity Resources with costs they may incur, and (e) providing more flexibility for PJM in approving a unit-specific Market Seller Offer Cap.

Second, regarding Capacity Performance, PJM proposes to: (1) align the eligibility of Performance Payments during Performance Assessment Intervals (“PAI”) to committed Capacity Resources, (2) clarify when committed Capacity Resources are excused from Non-Performance Charges, (3) exclude any excused resources from the dominator of the Balancing Ratio, (4) establish the ability for Market Participants to transfer performance obligations of Capacity Resources before a PAI, and (5) remove the physical option for Fixed Resource Requirement (“FRR”) Entities that underperform during a PAI. Finally, PJM proposes to adopt a forward-looking Energy and Ancillary Service (“EAS”) offset for purposes of calculating the Market Seller Offer Cap and MOPR.

In Docket No. ER24-99, PJM proposes revisions to the Tariff and RAA that reflect the reforms above by modifying provisions governing resource accreditation, risk modeling, testing requirements, and stop-loss. PJM states these revisions will better align the market representation of capacity supply and demand with expected resource performance and system resource adequacy risks. Further, PJM states these changes will better balance demonstrated resource performance with financial incentives by, among others, removing extreme tail risk for Capacity Market Sellers via a reduction in the annual stop-loss limit.

Entities have until November 17, 2023, to intervene and submit substantive comments.

PJM’s filing at Docket No. ER24-98 can be accessed here.

PJM’s filing at Docket No. ER24-99 can be accessed here.

Leave a Comment

Your email address will not be published. Required fields are marked *