FERC Accepts PJM’s Proposal to Limit Imported Capacity

Owners of generation capacity in PJM have often complained of what they perceive as favorable treatment under rules governing PJM’s annual forward capacity auctions when applied to competing resources, namely generation located outside the region and demand resources located within the region.  On April 22, the Federal Energy Regulatory Commission (FERC) accepted tariff changes proposed by PJM to address concerns with respect to the treatment of external generation (Docket No. ER14-503), and FERC is expected to act soon with respect to PJM’s proposed changes in its treatment of demand resources (Docket No. ER14-822).

PJM’s proposed changes to capacity auction rules governing the treatment of external capacity did not go as far as some PJM generation owners or the PJM Independent Market Monitor (IMM) would have liked, and the proposal went further than many in the Midcontinent Independent System Operator (MISO), including the MISO Market Monitor, thought necessary; FERC, however, found PJM’s proposal just right, noting that it “strikes a reasonable balance between the availability of capacity from external resources to bid into the capacity market and the importance that those external resources are available for delivery when needed.”

Rules governing PJM’s capacity auction have always recognized locational constraints that limit the delivery of capacity within PJM, but the rules previously have not reflected capacity import limits on the delivery of capacity from external resources into PJM.  Noting the concerns that external resources may be prevented from providing energy to PJM at critical times due to curtailment of firm transmission by systems beyond PJM’s control, FERC agreed with PJM that failure to reflect import limits in the auction could jeopardize reliability.  Under the new rules, PJM will determine region-wide and source zone capacity import limits each year, and these limits will apply, with certain exceptions, in capacity auctions beginning with the upcoming three-year forward capacity auction.  The new capacity import limit rules will allow the auctions to put a price on transmission constraints that bind, just as the auctions do today with respect to transmission constraints internal to PJM.

The new rules permit exceptions from the capacity import limit for external resources that:  1) are “pseudo-tied” to PJM, i.e., resources that are subject to PJM redispatch and locational pricing; 2) have a confirmed long-term firm transmission contract path to PJM; and 3) agree to the same “must-offer” requirement that applies to PJM’s internal resources.