Commissioner Mark C. Christie Statement
July 30, 2021
Docket Nos. ER21-2043-000 ER20-584-000 EL19-100-000
I dissent from today’s order concerning PJM’s proposed ELCC and offer the following.
In my concurrence to the Commission’s April 30, 2021 ELCC order[1] I noted:
It is absolutely essential that RTO/ISO capacity markets value and compensate capacity resources as accurately as practicable, for two primary reasons: First, reliability depends on it, and second, consumers should only pay for capacity that actually performs when needed. That was an oft-heard theme of the Commission’s . . . [March 23, 2021 Technical Conference regarding Resource Adequacy in the Evolving Electricity Sector, Docket No. AD21-10-000] in RTOs/ISOs with capacity markets.[2]
In addition, I noted that:
. . . 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.[3]
I also expressed my explicit expectation that PJM’s proposal “can and will be improved.”[4] I dissent today because the proposal has not been improved sufficiently and, as a result, consumers and system reliability may well suffer.
I agree that under Section 205, a proposal does not need to be theoretically the most just and reasonable or the best of all possible alternatives, it need only be found as just and reasonable. I acknowledge that a reasonable person could make a reasonable argument concluding that PJM’s proposal herein may meet that standard if combined with the possibility of future fixes and further refinement.
I cannot reach this conclusion, however. I agree with PJM’s Independent Market Monitor (IMM) that, based on this record, PJM’s proposal fails to meet the standard required for a finding that it is just and reasonable and I further conclude that the mere possibility of future refinements that may fix its fundamental flaws is speculative.[5]
It comes down to this for me: PJM’s ELCC may well force consumers to pay for capacity that does not deliver or to overpay for the amount of capacity that the resource does deliver.[6] That is both a cost problem and a reliability problem.
Let’s remember what a capacity market is and what it is not. It is not a true free market open to all sellers willing to compete on price and quality. It is an administrative construct, with some market features, that exists to pay money to resources to replace the “missing money” that generating resources lost when restructuring took resources out of rate base – with its guaranteed revenue stream – to pay for the all-in costs of a resource, including capital costs. This “missing money” comes from consumers. That is, consumers pay these resources to be available in the future when called upon. So if an ELCC overvalues the actual capacity a resource will deliver at that future time, consumers have paid too much. And, reliability suffers because the whole point of a capacity market is to ensure that adequate resources are available in the future to keep the lights on.
Not only has the IMM extensively detailed flaws in PJM’s ELCC proposal,[7] but since our April 30 Order we have received on-the-public-record evidence from Dr. David Patton,[8] President of Potomac Economics which is the IMM or Market Monitoring Unit for several of the nation’s ISOs.[9] Dr. Patton agrees with what is to me a fundamental point made by the PJM IMM: only a marginal valuation – not average – will accurately produce capacity accreditations for compensation and will deliver the reliability value relied upon by the RTO.[10]
Another fundamental failure of PJM’s ELCC proposal, in my view, is its failure to extend the ELCC to all resources, including thermal resources. Today’s order recognizes supporting comments in favor of equal application of the ELCC across all resources when it states, for example, “[American Clean Power Association (ACP) and Solar Energy Industries Association (SEIA)/Advanced Energy Economy (AEE)] request that the Commission direct PJM to explore and review the application of ELCC to all resources”[11] and “SEIA/AEE argue that PJM must address capacity valuation for all resources to ensure the ELCC proposal is not implemented in an unreasonable and unduly discriminatory manner.”[12] I agree that the ELCC should apply to all resources and PJM’s proposal does not.
In my view, there is no urgency to replace the current rules and there is no reason to approve an ELCC at this time that is not as good as it needs to be. Further, I think the prospect that PJM will revisit this proposal in the near term to fix the flaws identified is fanciful.
For these reasons, I respectfully dissent.
[1]. PJM Interconnection, L.L.C, 175 FERC ¶ 61,084 (2021) (April 30 Order) (Christie, Comm’r, concurring).
[2] Id. at P 2 and n.3 (citing Transcript March 23, 2021 Technical Conference regarding Resource Adequacy in the Evolving Electricity Sector, Docket No. AD21-10-000 (Transcript March 23, 2021 Technical Conference), Tr. 263:15-19 (“Keep the lights on, while at the same time not undermining individual state preferences. The key to it is appropriately evaluating resources based on their capacity contributions and capabilities.”) (Conway); Tr. 108:25-109:1 (“Efficient capacity accreditation is something that would really facilitate the policy objectives.”) (LeeVanSchaick); ISO-New England Mar. 19, 2021 Pre-Technical Conference Statement at 3 (“The next step in the evolution includes a project to revise the capacity accreditation of various resource types, which may require modifications to capacity clearing and qualification procedures to ensure we are not crediting resources for more than their actual reliability benefit to consumers.”) (emphasis added); Transcript March 23, 2021 Technical Conference, Tr. 242:1-7 (“The type of generation or resource technology that a state wants to deploy or retain demonstrates its ability to meet demand consistently and when most needed. And that type of resource should be able to participate and compete for capacity revenue in the PJM capacity market, but only to the extent that it actually provides capacity performance and no more.”) (emphasis added) (Conway)).
[3] Id. at n.5 (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.”); see also, 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.”)).
[4] Id. at P 4 (emphasis added).
[5] See, e.g., PJM Interconnection, L.L.C, 176 FERC ¶ 61,056, at P 39 (2021).
[6] See, e.g., IMM June 23, 2021 Comments at 7 (“The results of overstating the reliability contribution of intermittent[] [resources] through the use of an average ELCC include the overstatement of reliability, increased costs to consumers and incorrect price signals.”).
[7] See e.g., IMM June 23, 2021 Comments; IMM July 9, 2021 Answer and Motion for Leave to Answer; and IMM July 20, 2021 Answer and Motion for Leave to Answer; see also IMM Answer, Docket Nos. EL19-100 and ER20-584 (filed May19, 2021). The IMM also made several filings addressing flaws in the PJM proposal addressed by the Commission’s April 30 Order. See, e.g., IMM Corrected Comments, Docket Nos. ER21-278 and EL19-100, (filed Nov. 24, 2020); IMM Answer, Motion for Leave to Answer and Motion for Consolidation, Docket No. ER21-178 (filed Dec. 15, 2020); IMM Answer and Motion for Leave to Answer, Docket No. ER21-278, (filed Dec. 21, 2020); and IMM Comments, Docket No. ER21-278 (filed Mar. 22, 2021).
[8] This May 25, 2021 on-the-record testimony exists in the public record in Docket No. AD21-10-000 and is highly relevant to the docket before us today, as the marginal versus average issue is a material issue raised and commented on in this proceeding.
[9] Potomac Economics serves as the “Independent Market Monitor for the Midcontinent ISO and ERCOT, the Market Monitoring Unit for the New York ISO, and the Independent Market Monitoring Unit for ISO New England.” https://www.potomaceconomics.com/about-us/ .
[10] See, e.g, Transcript Technical May 25, 2021 Conference regarding Resource Adequacy in the Evolving Electricity Sector (AD21-10-000), Tr. 170:1-9 (“I will say one thing though that’s very important is that for all technology types we have to accredit them based on their marginal value, their marginal contribution to reliability even though like for a lot of resources that we’re talking about here their value goes down as the penetration increases, but the market can’t perform efficiently unless we recognize what the next megawatt is going to give you in terms of reliability.”) (emphasis added) (Patton); id. at 181:15-21 (“So this is the same sort of marginal versus average issue that arises in a lot of areas going all the way back to should locational marginal prices be marginal. Should they reflect the value of the next increment of energy. All well-functioning markets are priced and compensate participants based on the marginal value they provide.”) (emphasis added) (Patton); id. at 144:1-6 (If the objective of the market is to provide reliability, then the quantification of the amount of capacity that resources can sell has to reflect the marginal reliability value of those resources, and in all of these markets we over accredit certain resource types.”) (emphasis added) (Patton). Moreover, Dr. Patton made clear that marginal valuations can be made. In response to a question of whether “it’s feasible to design the ELCC based on marginal values, or is it just too hard to do” Dr. Patton stated “I think it’s definitely possible. . . . in fact I think you can simulate for what different levels of penetration would give you.” Id. at 182:21-25 (emphasis added).
[11] PJM Interconnection, L.L.C, 176 FERC ¶ 61,056 at P 68 (footnote omitted) (citing ACP Comments at 7; SEIA/AEE Comments at 7).
[12] Id. (footnote omitted) (citing SEIA/AEE Comments at 6).