PJM pushes ahead with capacity performance plan

OREANDA-NEWS. The PJM Interconnection is pushing its plan to bolster performance incentives for capacity resources that are keenly awaited by generation holding companies and has agreed to make a change in response to federal energy regulators' concerns.

The "capacity performance" proposal would impose stiff financial penalties on generators that fail to come on line during emergencies. The reforms will give resources more incentive to hold firm fuel supply and are expected to support forward capacity prices, likely benefiting coal and nuclear resources that might otherwise risk shutting down.

The grid operator last week faced a setback for its capacity performance proposal when the Federal Energy Regulatory Commission (FERC) asked questions about the program's design rather than deciding if it should be approved. The continued review will prevent the changes from going into effect before the scheduled start of PJM's next forward capacity auction on 11 May.

But PJM last week responded to those questions and requested a delay of up to three months for the auction so FERC could decide whether to approve its proposed market overhaul. Doing otherwise would mean the largest US electric grid would preserve "weak" performance incentives for five more winters, the grid operator said.

PJM in its 10 April response to FERC's questions said the grid operator would tighten limits on how resources submit offer prices under the capacity performance proposal, with the goal of stopping the exercise of market power. The changes will mean PJM's program will more closely align with New England's pay-for-performance capacity market changes that FERC already approved.

Rather than giving resources the discretion to raise their offer price up to a metric called the net cost of new entry, which ranges from \\$235-300/MW-day, the changes will mean resources will have to base offer prices on their actual compliance costs. That metric is the annual capacity revenues a new peaking plant needs to cover its costs, after taking into account energy revenues.

That change would likely not affect the next auction's anticipated clearing price of \\$150-200/MW-day, analysts at the investment firm Tudor Pickering Holt said today in a research note. The auction is for capacity to be delivered from June 2018 to May 2019. Last year's forward capacity auction cleared at \\$120/MW-day.

Major power plant owners are urging FERC to act quickly on the capacity performance filing. The presidents of Calpine, Dynegy, Exelon, FirstEnergy, PPL, Public Service Enterprise Group, AEP, NRG and other companies in a jointly signed letter on 10 April called for a decision soon because further delay would create "significant market certainty."