Docket Nos. ER24-99-000, ER24-99-001
Despite my serious concerns about PJM’s failure to propose a transition period for the application of the new Capacity Deficiency Charge for utilities that have chosen Fixed Resource Requirement (FRR) status, about which more below,[1] I nevertheless concur in the approval of PJM’s filings in this matter.
While I am sympathetic to the Independent Market Monitor’s (IMM) claim that these reforms are ultimately inadequate to “fix” once and for all the PJM capacity market,[2] they do represent some significant improvements and do meet the standard for approval under section 205 of the Federal Power Act (FPA).[3]
In particular, PJM finally moves from an average ELCC methodology to a marginal one, which I and the IMM both strongly advocated in a recent major PJM capacity reform filing.[4] So better late than never.
I found particularly persuasive the thoughtful comments – and I make this observation only with respect to the issues before us today in Docket No. ER24-99[5] – filed by the Organization of PJM States, Inc. (OPSI), the Public Utility Commission of Ohio’s Federal Energy Advocate (Ohio FEA), and the Pennsylvania Public Utility Commission (PAPUC). None of these state entities are cheering vociferously for PJM’s reforms in today’s docket – OPSI in particular expresses concerns about the rushed process in which the reforms were developed,[6] which curtailed time for thorough analysis and consideration – but all three ultimately express their qualified support for the filings as a step forward.
I would add that these filings certainly do not render the PJM Capacity Market any less opaque and complex than it has been historically. PJM’s filing is replete with a blizzard of acronyms, old and new, understandable only to pure insiders, and not to all of them. (Just to cite a few: LOLE, FPR, UCAP, VRR, PRISM, LDA, CIR, ELCC, RAA, RPA, PAI, CONE NetCONE/360, etc.) Consider this passage from the order itself, attempting to explain PJM’s methodology:
. . . PJM calculates the Accredited UCAP of ELCC Resources using a four-step process. First, PJM uses an ELCC analysis to calculate the ELCC Portfolio UCAP, which reflects the installed capacity of a group of Unlimited Resources with no outages that yields the same annual LOLE as the group of ELCC Resources that are expected to offer into a given capacity auction. Second, PJM allocates the ELCC Portfolio UCAP among individual ELCC Resource Classes (e.g., 4-hour storage, 10-hour storage, wind, tracking solar, etc.) by conducting additional ELCC analyses that consider the reliability value of ELCC Classes in the presence and absence of other ELCC Classes. The result of this allocation process is an ELCC Class UCAP for each ELCC Resource Class. Third, PJM converts the ELCC Class UCAP for each class to an ELCC Class Rating, using procedures described in its RAA. Finally, PJM calculates an Accredited UCAP value for each individual ELCC Resource based on the resource’s ELCC Class Rating, its nameplate capacity, and a resource-specific ELCC Resource Performance Adjustment (RPA).[7]
There will be a pop quiz on this passage soon.
Every “fix” – and there have been many since the RPM[8] went into operation about 15 years ago – renders the capacity market construct more incomprehensible (and as I have said many times, it’s an administrative construct, not a market). One could even make a credible argument that its sheer complexity renders it unjust and unreasonable. I have described it before as “Rube Goldberg-esque” and as replete with “hopeless complexity.”[9] Perhaps PJM should be required to post a warning to every reader who tries to read and comprehend a detailed explanation of how the capacity market construct works (borrowing from Dante): “Abandon all hope, ye who enter here!”[10]
While I vote to approve this filing overall as meeting the FPA section 205 standard, I want to join the serious concerns expressed by the FRR Coalition.[11] While the FRR Coalition “generally supports the overall set of reforms” on the filing, it protests the “incomplete” transition period that “[does] not address the impact of RPM’s currently compressed schedule on the Capacity Deficiency Charge” related to the applicable to FRR utilities.[12]
As a former regulator in a state in which the two largest load-serving utilities have chosen FRR status,[13] I am particularly sensitive to the impacts of capacity market rules on FRR utilities and, more importantly, on their customers. The heart of the FRR Coalition’s Limited Protest is the time frame allowed for FRR utilities to transition to the new Capacity Deficiency Charge:
Failure to provide a transition for the Capacity Deficiency Charge substantially increases the financial risks and potential capacity costs for FRR Entities and could close off the FRR Alternative as a viable option for vertically integrated utilities. This result is clearly unjust and unreasonable.[14]
The FRR Coalition asks for a slightly longer transition period to comply, which I find an entirely reasonable “ask.” Yet PJM has not agreed to this.
It should be noted that PJM, as the operator of its own capacity market, has an incentive to discourage load-serving utilities from choosing FRR status. FRR utilities self supply, usually through a combination of constructing generation units, purchasing through bilateral power purchase agreements (PPAs), or open-market purchases in PJM’s markets. FRR utilities have chosen not to subject their customers to the vagaries and risks of complete dependence on the PJM capacity market to meet their load-serving obligations.
So my ideal outcome would have been that the Commission approve the filing but impose a condition that PJM grant the FRR utilities their requested transition time related to the Capacity Deficiency Charge. However, under NRG, the Commission’s ability to direct revisions to a section 205 filing is limited, and such an outcome could raise serious legal risks.[15] Since I believe the filing overall meets the section 205 standard, as I described above, I will concur with the order accepting it.
I would urge the FRR utilities, however, to monitor the impacts on their customers in terms of costs and reliability as implementation of PJM’s reforms take place, and if evidence materializes that their customers are being subjected to unjust and unreasonable rates as a result, the FRR Coalition has the option to file a section 206 complaint.
For these reasons, I respectfully concur.
[1] See infra PP 8-13.
[2] See, e.g., IMM Dec. 21, 2023 Answer to PJM Deficiency Letter Response, Docket No. ER24-99, at 1-2 (citation omitted) (“PJM . . . has failed to make the case that the proposal in Docket ER24-99 ‘will help to strengthen the capacity market’s ability to send market signals that incentivize resource adequacy in PJM.’ Ensuring that market signals reflect the underlying supply and demand conditions in the markets is essential. But PJM’s proposal is an effort to change the signals rather than to allow the market to send signals. PJM continues to assert its unique ability to administratively define the value of assets three years prior to a delivery year, based on a black box method that is not founded on market principles and does not allow market forces, including actual resource performance, to define asset values. (The black box method is PJM’s ELCC approach, also known as capacity accreditation in PJM terminology). That initial definition of asset values would be updated by PJM prior to the delivery year using the same black box method, putting resource owners at risk of unpredictable capacity shortfalls just prior to the delivery year. PJM’s ELCC approach is based on incorrect input data that significantly affects the value of market assets including both thermal and renewable resources. PJM’s ELCC approach fails to determine the reliability of the actual portfolio of resources that clear in the auction, meaning that PJM’s approach would not and cannot correctly define either the asset value of resources or the expected reliability for the delivery year. All of these issues mean that PJM has not demonstrated that its filing is just and reasonable.”).
[3] I limit my comments in this statement to my views related to the IMM’s comments concerning Docket No. ER24-99 only, which is the subject of today’s order. The IMM has also offered views in Docket No. ER24-98 (sometimes in the same filing as comments he made related to ER24-99) and has filed a complaint concerning PJM’s penalty rates for Performance Assessment Intervals (PAI) in the Reliability Pricing Model in Docket No. EL24-12. However, as noted, I comment only on Docket No. ER24-99.
[4] See, e.g., PJM Interconnection, L.L.C., 176 FERC ¶ 61,056 (2021) (Christie, Comm’r, dissenting at P 3) (available at https://www.ferc.gov/news-events/news/commissioner-christies-dissent-order-concerning-pjms-proposed-elcc) (quoting PJM Interconnection, L.L.C, 175 FERC ¶ 61,084 (2021) (Christie, Comm’r, concurring at P 4 n.5), (available at https://www.ferc.gov/news-events/news/commissioner-mark-c-christie-concurrence-order-pjms-proposal-effective-load) (“. . . I hope the parties continue to address the distinctions between a marginal versus average ELCC value. The Independent Market Monitor has expressed his view that the marginal approach is superior to the average approach and, indeed, has expressed concerns that use of average values will cause increased inefficiencies.”) (citing Independent Market Monitor for PJM, Docket Nos. ER21-278 and EL19-100, Nov. 23, 2020 Comments at 19 (“The use of average rather than marginal ELCC values will cause PJM’s capacity market results to be incorrect and inefficient, at the expense of the PJM customers and non-ELCC resources competing with ELCC resources.”); id. at 19-20 (“Using the marginal rather than average ELCC value in market clearing results in every resource receiving the same price per MW of provided equivalent load carrying capacity, the correct assignment of capacity obligations per MW of cleared of a ELCC adjusted resource and the correct allocation of any penalties for non performance.”)); reh’g denied by operation of law, 176 FERC ¶ 62,159 (2021).
[5] I make this distinction with great care. For example, the Ohio FEA’s comments were filed in both Docket No. ER24-99, which is before us today, and Docket No. ER24-98, which is pending before this Commission and is not the subject of this order. And, portions of the PAPUC’s comments may also arise in the ER24-98 docket, although they appear to have been filed solely in today’s docket, ER24-99. My remarks as to each of these filings today are made only with regard to the portion of OPSI, Ohio FEA and PAPUC’s comments that concern today’s docket and I reserve my views on any comments related to Docket No. ER24-98 until that matter is decided by this Commission.
[6] OPSI Nov. 9, 2023 Comments at 2.
[7] Order at P 7 (footnote omitted).
[8] PJM’s capacity market is technically named the Reliability Pricing Model (RPM). See, e.g., id. P 1.
[9] See, e.g., PJM Interconnection, L.L.C., 182 FERC ¶ 61,073 (2023) (Christie, Comm’r, concurring at P 2) (footnote omitted) (available at https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-pjms-quadrennial-review-er22-2984) (“That issue is whether the PJM capacity market itself needs to be reconsidered on a comprehensive basis to determine whether it is still fit for purpose, which is to make certain a sufficient amount of power supply is available to ensure reliability, at a cost that is just and reasonable to consumers. This proposal is only the latest example — and one of the worst in its hopeless complexity — of the endless Rube Goldberg tinkering with the minute details of the capacity market construct. Such tinkering with the rules has gone on for years and never reaches a point of stability, yet stability of market design is essential to attract the necessary capital investment in capacity resources.”).
[10] Dante Alighieri, The Divine Comedy.
[11] Dominion Energy Services, Inc., American Electric Power Service Corp., and Duke Energy Kentucky, Inc. Nov. 9, 2023 Comments and Limited Protest (FRR Coalition Limited Protest).
[12] Id. at 6.
[13] Dominion Energy Services, Inc.’s and American Electric Power Service Corp.’s Appalachian Power Company unit are Virginia’s two largest load-serving utilities.
[14] FRR Comments at 9-10 (emphasis added).
[15] NRG Power Mktg., LLC v. FERC, 862 F.3d 108 (D.C. Cir. 2017) (NRG).