The PJM Interconnection’s board on Tuesday directed the grid operator’s staff to ask federal regulators to approve various changes to its capacity market to ensure it has enough power supplies and to improve grid reliability.
The proposal, set to be filed with the Federal Energy Regulatory Commission by Oct. 13, was developed through two stakeholder processes, including a fast-track effort that was launched after close to a quarter of PJM’s generation capacity failed to operate in late December during Winter Storm Elliott. The pending proposal is also in response to PJM’s evolving mix of generating resources.
“This is a sign of our evolving times; namely, the energy transition and how our markets must adapt to meet the transition,” the board said in a letter outlining its decision on what should be included in the final proposal to FERC.
PJM may offer its proposal for FERC review in multiple filings so disputes over any single element don’t derail the entire package, according to the board.
Earlier this year, FERC approved PJM’s plan to delay by a year its last planned capacity auction until June so any reforms can be included in the auction, which procures capacity resources three years in advance.
PJM’s board directed the grid operator to maintain an annual market design instead of adopting a seasonal market. “While the case for more granular designs is compelling, the board heard overwhelming feedback from stakeholders about the desire for additional time to refine such proposals,” the board said.
The board also directed PJM to file with FERC a set of enhancements to resource adequacy risk modeling the grid operator included in its initial proposal vetted by stakeholders.
The board told PJM staff to continue including the “capacity benefit of ties” — a measure of power that can be imported from neighboring regions in emergencies — in its risk modeling while evaluating more accurate ways to account for the ties. PJM staff had proposed setting the value of the ties at zero.
The board ordered changes to PJM’s “capacity performance” framework, which penalizes resources that fail to meet their capacity obligations and rewards those that deliver more power than they were required to.
“The board continues to support strong performance incentives in the capacity market absent a stronger set of explicit requirements or a broader review of performance incentives in the energy and ancillary service markets,” the board said.
The board directed PJM to change its “market seller offer cap” to allow capacity market sellers to include risk-related costs in their offers even if their net avoidable cost rate is zero or negative.
“The ability to express risk in offers is integral to ensuring the optimal set of resources are selected to provide capacity, and on its own is not an exertion of market power when those quantified risks are rooted in rigorous, reasonable analysis,” the board said.
The board directed PJM to file a proposal to implement “marginal effective load carrying capability” — a measure of how much resource adequacy a resource provides — as the method of capacity accreditation for all resources.
The planned accreditation changes would lead to a more accurate assessment of the reliability value of gas-fired power plants, according to Tom Rutigliano, a senior advocate at the Natural Resources Defense Council. Gas-fired capacity accounted for 70% of power plant outages in PJM during Winter Storm Elliott.
“The critical reliability issue facing PJM is gas-powered generators not delivering in emergencies,” Rutigliano said Thursday in an email. “With this decision, PJM is finally dealing with the dangers of unreliable gas plants.”
However, the board lowered penalties on non-performing suppliers, according to Rutigliano. “This means it will remain profitable to sell PJM capacity that you can’t deliver,” he said. “Until PJM fixes this, their capacity market cannot guarantee reliability.”
The PJM Power Providers Group, which represents generators, is pleased to see the reform process advancing and looks forward to reviewing the pending proposal at FERC, Glen Thomas, P3 president, said Thursday in an email.