The Federal Vitality Regulatory Fee (FERC), in Docket No. ER24-99-000, just lately accredited a collection of tariff revisions submitted by PJM meant to “accommodate the power transition whereas sustaining useful resource adequacy.”
Though the reforms have an effect on many elements of PJM’s Reliability Pricing Mannequin (RPM), this commentary highlights:
The transition from capability accreditation utilizing Equal Demand Pressured Outage Fee (EFORd) to marginal Efficient Load Carrying Functionality (ELCC) for all era assets.
Imposition of latest capability testing necessities.
The brand new requirement to submit a “binding discover of intent” as a way to take part in capability auctions.
Discount of Efficiency Evaluation Interval (PAI) penalty cost “cease loss” quantity.
Alignment of RPM and FRR insufficiency expenses, multi-year waiver of deficiency expenses.
COMMENTARY
No Extra EFORd—Modifications in Capability Accreditation
A few of the imperfections with PJM’s former EFORd accreditation methodology have been that (1) it didn’t distinguish amongst the durations when compelled outages occurred, i.e. time on outage throughout emergency circumstances can be handled the identical as another time on outage for EFORd functions; (2) it didn’t seize the useful resource adequacy dangers related to correlated outages; and (3) the leads to half trusted the standard and completeness of outage reporting to NERC’s Producing Availability Knowledge System (GADS). For these causes, amongst others, PJM sought to implement an accreditation framework that higher captures producing assets’ precise contributions to useful resource adequacy. As well as, the modifications higher align accreditation of conventional era with variable era, which have had their capability accredited on an ELCC foundation for years.
By means of the appliance of complicated modeling utilizing climate information going again to 1993, the brand new ELCC-based methodology accredits assets based mostly on their marginal contribution to useful resource adequacy. The final thought of ELCC is that the majority useful resource sorts have professionals and cons relating to reliability and availability. To account for this, particular person assets shall be accredited based mostly on how a lot marginal profit is added to the system on a per MW foundation when in comparison with a hypothetical “good” MW of power that’s on-line 24/7, immediately out there, and by no means on outage. PJM will use a three-step course of to perform this.
Every year, PJM will first decide a revised ELCC class ranking for every useful resource kind. Once more, this ratio represents the worth to useful resource adequacy of a MW of that class of useful resource’s capability, as in comparison with a MW of the hypothetical good useful resource’s capability. The relevant ELCC class ranking is multiplied by the nameplate capability of the useful resource to yield a gross capability worth for the useful resource. Lastly, PJM will apply to that worth a “Useful resource Particular Efficiency Adjustment” (RPA) that’s based mostly on the person useful resource’s historic efficiency going again to 2012 – this step serves the identical normal objective as EFORd, however incorporates a broader evaluation to account for the timing of previous efficiency shortfalls, amongst different elements, and makes use of precise provide and efficiency information as a substitute of self-reported outage information. The ensuing accredited UCAP worth shall be communicated to assets every year, to be relevant throughout the next calendar yr.
Insights: Whereas the prior accreditation methodology solely modified UCAP values in a restricted and pretty predictable method based mostly on a useful resource’s EFORd (which was a relatively easy calculation), the brand new ELCC framework entails many extra shifting elements that can impression capability accreditation on an annual foundation. A few of these elements, notably the category ELCC rankings, are fully exterior of the management of particular person useful resource homeowners. Precise volatility of ultimate UCAP values on a year-to-year foundation stays to be seen. As such, patrons and sellers of capability within the bilateral market, specifically for long term offers and/or years past the present BRA planning yr, ought to guarantee transaction phrases account for this potential volatility in an acceptable method. We count on that many useful resource homeowners whose accreditation is now transitioning from EFORd to ELCC will initially see a decline in accredited UCAP. As well as, the common recalibrating of sophistication ELCC values, and the ensuing impacts to particular person capability accreditation, introduces further complexity to monetary modeling of anticipated capability revenues, though the Tariff does require PJM to put up non-binding indicative ELCC class rankings going ahead ten Supply Years.
New Generator Testing Requirement and Penalties
The prevailing generator capability functionality check should now be carried out in each the summer time and winter seasons for Era Capability Sources (aside from variable assets) dedicated by way of an RPM Public sale or in an load serving entity’s (LSE) Fastened Useful resource Requirement (FRR) Plan. Starting with the 2025/2026 Supply Yr, the penalties for failing a check shall be based mostly on a useful resource’s MW shortfall on the each day put in capability dedication of the useful resource somewhat than annual common of the put in capability dedicated on the useful resource.
As well as, PJM has adopted a brand new operational check to guage whether or not assets are in a position to meet provided start-up instances. Nonetheless, not all assets shall be topic to this specific testing. The assets chosen, and the timing of the assessments, shall be topic to PJM’s discretion and based mostly on a number of threat elements, such because the period of time because the unit has operated and up to date operational efficiency. A useful resource that fails this Generator Operator Take a look at (after a retest) shall be topic to a each day failure cost till it conducts a profitable check.
The accredited reform package deal additionally consists of modifications to testing for Demand Sources (DR). If DR is dispatched throughout a PAI, this shall be handled as its annual functionality check. If a DR useful resource has not been dispatched for a Load Administration occasion in a supply yr and assessed for efficiency throughout PAIs, PJM will check the useful resource for a two-hour interval sooner or later throughout the supply yr.
Capability Sources
Starting with the 2025/2026 Supply Yr, as a way to be eligible to supply into any RPM public sale, capability assets should submit a binding discover of intent to supply into such public sale. The discover doesn’t embrace a particular MW quantity, so the truth that the useful resource could not but understand how a lot capability they’re eligible to supply isn’t an issue. For the Base Residual Public sale (BRA), the discover should be supplied by December 1. For Incremental Auctions, the discover should be supplied 90 days previous to the public sale. If a capability useful resource submits a binding discover of intent, however subsequently fails to supply into the related public sale, will probably be barred from all subsequent auctions for that supply yr and its capability can’t be used to fulfill any LSE’s Unforced Capability Obligation (i.e. by way of an FRR plan).
Insights: Don’t miss this vital submission to take part in PJM’s capability auctions and, if discover is submitted, be sure to observe by way of and submit the provide. Being shut out of each the RPM auctions and use by an FRR entity will severely impression the flexibility to monetize a producing useful resource’s capability attributes in PJM.
Recalibration of ‘Cease Loss’
The PAI non-performance expenses that adopted Winter Storm Elliott laid naked the super (and imbalanced) threat related to a Capability Useful resource’s failure to carry out throughout even one PAI. Evaluating the prevailing cost restrict of 1.5 instances internet value of latest entry (Internet CONE), which for the 2022/2023 Supply Yr yielded a cease lack of roughly $135,000/MW-year, with the RTO BRA clearing value of round $18,250/MW-year, we see {that a} useful resource might be susceptible to dropping round 7.5 years’ value of capability revenues based mostly on non-performance in a single occasion. Notably with PAI exceptions being so restricted (i.e. excused failure to carry out throughout a PAI), the priority was that useful resource homeowners would possibly select to not provide capability as a result of the dangers are so vital.
In consequence, FERC accredited PJM’s proposal to index the annual cease loss quantity to the related BRA clearing value as a substitute of internet CONE. That’s, the utmost PAI penalty evaluation in a given yr is now equal to 1.5 instances the related BRA clearing value, per MW-year. Moderately than being penalized by as much as seven instances a useful resource’s annual capability revenues (or extra, relying on how low the BRA clearing value is), assets will now be topic to most annual penalties of 1.5 instances their capability income for the related supply yr.
Insights: Capability Sources get pleasure from considerably lowered non-performance penalty threat on account of this alteration, notably taken along with the latest modifications to what constitutes an Emergency Motion below the tariff.
FRR Entities
LSEs that elect the FRR different should present a capability plan displaying that they’ve procured sufficient capability prematurely of the upcoming supply yr. Failure to take action topics such utilities to the FRR Capability Insufficiency Cost after lack of ability to remedy inside 5 days of the submission deadline, after which each day deficiency expenses as soon as the supply yr begins. Previous to the topic reforms, the insufficiency cost was equal to 2 instances CONE (in $/MW-day) for the related location instances the MW shortfall beneath the entity’s capability obligation; the each day deficiency cost was equal to 120% of the relevant BRA clearing value. The tariff revisions now base each of those calculations on the value stage comparable to level (1) of the Variable Useful resource Requirement curve for the related Locational Deliverability Space, which represents the utmost value stage masses collaborating within the BRA would pay if the RPM public sale cleared in need of the reliability goal.
The bigger impression to FRR entities comes from the mix of total impacts of adoption of the ELCC accreditation methodology with the dearth of a transition mechanism for the capability deficiency cost. Recognizing that the brand new framework will lead to many assets having much less UCAP out there to fulfill reliability necessities, the accredited proposal gives two transition mechanisms: (1) FRR entities have the flexibility to discontinue utilizing the FRR different and return to the RPM starting with the 2025/2026 Supply Yr; and (2) the capability insufficiency cost is waived by way of the top of the 2028/2029 Supply Yr. Nonetheless, throughout the transition, FRR entities will nonetheless be topic to capability deficiency expenses as soon as every Supply Yr begins.
Insights: The rise within the capability deficiency cost, along with doubtless lowered UCAP values for a lot of the producing fleet, brings an elevated stage of urgency for FRR entities to acquire satisfactory capability within the bilateral market. To the extent ahead capability is procured for a number of supply years, contractual preparations ought to account for potential fluctuations in accredited capability for particular person assets based mostly on altering ELCC class rankings and RPAs from yr to yr. LSEs ought to contemplate prematurely how they may procure supplemental capability within the occasion annual accreditation modifications render prior preparations inadequate.
—Maxwell Multer is an power lawyer with Bryan Cave Leighton Paisner (BCLP). He represents purchasers in regulatory and enforcement issues earlier than the Federal Vitality Regulatory Fee, state utility commissions, and different regulatory authorities. BCLP assists PJM market contributors with all method of regulatory, transactional, enforcement, and stakeholder issues.