In re PJM Interconnection, LLC
| Docket Number | ER23-729-001,EL23-19-001 |
| Decision Date | 27 July 2023 |
| Citation | 184 FERC ¶ 61, 055 |
| Parties | PJM Interconnection, L.L.C. |
| Court | Federal Energy Regulatory Commission |
Before Commissioners: Willie L. Phillips, Acting Chairman; James P Danly, Allison Clements, and Mark C. Christie.
1. On February 21, 2023, the Commission issued an order accepting proposed revisions filed pursuant to section 205 of the Federal Power Act (FPA)[1] by PJM Interconnection, L.L.C. (PJM) to its Open Access Transmission Tariff (Tariff) to exclude planned generation capacity resources from the calculation of the Locational Deliverability Area Reliability Requirement (LDA Reliability Requirement) if the addition of such resources materially increases the reliability requirement and such resources do not participate in the capacity auction.[2] The Commission also in the February 2023 Order dismissed as moot a complaint (Complaint) filed by PJM alleging that the LDA Reliability Requirement, absent the changes in its FPA section 205 filing (Section 205 Filing) results in an unjust and unreasonable auction outcome.
2. Rehearing of the February 2023 Order was timely requested by American Clean Power Association, Solar Energy Industries Association, and Advanced Energy United (collectively, Clean Energy Associations); Constellation Energy Generation, LLC (Constellation); Electric Power Supply Association (EPSA) the NRG Companies,[3] LS Power Development, LLC (LS Power), and Vistra Corp. (collectively, Joint Parties); Leeward Renewable Energy, LLC and Leeward Renewable Energy Development, LLC (together, Leeward); and the PJM Power Providers Group (P3) (collectively with Clean Energy Associations, Constellation, Joint Parties, and Leeward, Petitioners).
3. Pursuant to Allegheny Defense Project v. FERC,[4] the rehearing requests filed in this proceeding may be deemed denied by operation of law. However, as permitted by section 313(a) of FPA,[5] we are modifying the discussion in the February 2023 Order and continue to reach the same result in this proceeding, as discussed below.[6]
4. As a regional transmission organization (RTO), PJM is responsible for ensuring reliability within its region.[7] PJM procures sufficient capacity to meet its reliability needs through its Reliability Pricing Model (RPM) capacity market by conducting capacity auctions to procure the appropriate amount of power supply resources needed to meet predicted energy demand three years in the future.[8] These auctions include an annual Base Residual Auction (BRA) and three Incremental Auctions for each delivery year, which runs from June 1 to May 31 (Delivery Year).[9] Resource owners submit offers in the capacity auctions that would commit the resources to be available to provide capacity for a given Delivery Year.
5. The capacity auctions determine which resources receive capacity commitments and at what price using: (1) an administratively-set "demand curve," called the Variable Resource Requirement Curve (VRR Curve), representing prices consumers should pay for various quantities of capacity; and (2) a "supply curve" based on all of the sell offers from sellers at a specific price.[10] PJM establishes demand curves for the PJM region as a whole, as well as for areas within PJM that have limits on the amount of capacity they can import, called Locational Deliverability Areas (LDA), if certain criteria are met.[11] PJM uses an optimization algorithm to evaluate seller offers and other inputs in each capacity auction and uses the supply curve and VRR Curve to determine the seller offers that clear.[12] Resources that clear the capacity auctions receive a capacity commitment and corresponding capacity revenues that are invoiced on a weekly basis during the relevant Delivery Year.[13]
6. The LDA Reliability Requirement is an input into the VRR Curve (the demand curve). The LDA Reliability Requirement[14] is the projected internal capacity in the LDA, plus the Capacity Emergency Transfer Objective (or CETO)[15] for the Delivery Year, less the minimum capacity from internal resources required for all Fixed Resource Requirement entities.[16] In modeling CETO for each LDA, PJM's manuals specify that PJM includes not only existing resources, but also planned generation resources that have an executed interconnection service agreement and resources that do not have an interconnection service agreement but have cleared a prior BRA (referred to collectively herein as Planned Generation Capacity Resources).[17]
7. On December 23, 2022, PJM filed in Docket No. ER23-729-000 proposed revisions to the PJM Tariff pursuant to FPA section 205 to allow PJM, during the auction process, to exclude Planned Generation Capacity Resources from the calculation of the LDA Reliability Requirement if the addition of such resources materially increases the LDA Reliability Requirement and such resources do not participate in the relevant capacity auction.[18] PJM asserted that the proposed amendment was needed to allow PJM to use an accurate LDA Reliability Requirement in clearing the capacity auctions.[19]
8. PJM stated that a significant amount of Planned Generation Capacity Resources that were expected to participate in the BRA for Delivery Year 2024/2025 (2024/2025 BRA) based on the expected in-service dates in their interconnection service agreements did not offer into the BRA, despite being included in the LDA Reliability Requirement.[20]Increases in projected internal capacity usually are offset in the LDA Reliability Requirement by a corresponding decrease in that LDA's CETO value-i.e., because with more projected internal capacity, less capacity needs to be imported into the LDA to remain within the targeted loss of load expectation. However, PJM explained that this is not the case when large Planned Generation Capacity Resources and proportionately large quantities of planned solar resources are added to a relatively small LDA that is winter peaking.[21]
9. PJM stated that, in these circumstances, the Planned Generation Capacity Resources do not provide as much reliability value. PJM identified two primary reasons for this result: (1) the load in a small LDA will be relatively dependent on a large resource, increasing the relative reliability risk if that resource experiences a forced outage; and (2) solar resources are not as productive in the winter.[22] PJM explained that the inclusion of these types of Planned Generation Capacity Resources when the resources do not actually participate in the capacity auction thus results in an LDA Reliability Requirement reflecting demand for more resources than the LDA's actual reliability needs.[23] In that case, the "impact on the market is the increase in demand with no offsetting increase in supply," artificially inflating clearing prices.[24] PJM contended that the inclusion of such planned resources that did not offer into the auction led to the LDA Reliability Requirement for the Delmarva Power &Light - South LDA (Delmarva) being overstated. PJM estimated that, if it were to complete the 2024/2025 BRA under the previously effective rules, the clearing price for Delmarva would be more than four times higher than if the planned resources that did not offer were excluded from the LDA Reliability Requirement.[25]
10. PJM proposed Tariff revisions to more accurately reflect reliability needs by providing the ability to update the LDA Reliability Requirement based on the actual supply of resources that submitted offers into the BRA.[26] Specifically, PJM proposed to exclude from the LDA Reliability Requirement calculation Planned Generation Capacity Resources that do not participate in the capacity auction when the LDA Reliability Requirement increased by more than one percent compared with the values used in relevant capacity auctions from the prior Delivery Year due to the addition of those resources.[27] PJM requested that the proposed Tariff revisions be applied beginning with the 2024/2025 BRA, asserting that this change was prospective, as the BRA process remained ongoing.[28] PJM was required to post the planning parameters for the 2024/2025 BRA on August 29, 2022. The BRA bidding window opened on December 7, 2022 and closed December 13, 2022. PJM had been scheduled to post the 2024/2025 BRA results on December 20, 2022, but did not do so pending review of the Section 205 Filing.[29]
I I. Concurrently, PJM filed in Docket No. EL23-19-000 its FPA section 206[30] Complaint, alleging that the existing LDA Reliability Requirement, absent the revisions proposed in the Section 205 Filing, would result in an unjust and unreasonable auction outcome that would be inconsistent with actual market fundamentals.[31] PJM explained that the Complaint contained identical proposed revisions to the Section 205 Filing, but that PJM was submitting the Complaint "out of an abundance of caution," to provide the Commission with the ability to make modifications to the proposed Tariff remedy, if it chose to do so.[32] PJM stated that the Complaint would become moot if the Commission accepted the Section 205 Filing.[33]
12. In the February 2023 Order, the Commission found PJM's proposed Tariff revisions in the Section 205 Filing to be just and reasonable and accepted them, effective December 24 2022.[34] The Commission found that applying PJM's proposed Tariff revisions to the 2024/2025 BRA did not violate the filed rate doctrine or the rule against retroactive ratemaking because, at the time PJM submitted the Section 205 Filing, no capacity commitments had yet been secured and no...
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