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Demand Response Alliance Says New Reports Show Moving To 100% Capacity Performance In PJM Will Waste Billions Of Consumer Dollars Without Benefit (Files FERC Complaint)

PJM Report: 99.9% of PJM Resource Adequacy Risk Is In Summer

Alliance: Basing LSEs' Capacity Costs On Summer Peaks Forces Customers To Subsidize Generators' Winter Outages

January 6, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Citing new analyses prepared by PJM, the Advanced Energy Management Alliance said that the transition to a 100% capacity performance procurement as scheduled in the May 2017 PJM Base Residual Auction is not just and reasonable, as the Alliance filed a complaint at FERC requesting that FERC order that PJM allow base capacity resources to continue to participate in the market until a seasonal capacity standard is developed.

Although the objections raised by the Advanced Energy Management Alliance are not novel, the Alliance includes with its complaint new data which it says contradicts PJM's stated reasons for a 100% capacity performance construct.

Specifically, the Alliance said that PJM's Reserve Requirement Studies [RRS] for both 2015 and 2016, "concluded that all resource adequacy risk lies in the summer."

"These are PJM’s core planning studies, which are used to set RPM capacity procurement targets," the Alliance noted

"PJM bases its capacity purchases on the amount of capacity needed to support the expectation that there will be insufficient supply to meet demand no more than one day in every ten years (the '1-in-10 loss of load expectation' or simply '1-in-10 LOLE'). PJM determines the amount of capacity needed to meet this reliability standard through an annual Reserve Requirement Study ('RRS'). The 2015 RRS and 2016 RRS were both published after the Commission accepted Capacity Performance, and both studies concluded that '99.9% of the [resource adequacy] risk is concentrated in a few weeks of the summer period . . . . For all weeks outside [of ten weeks between June and August] the weekly LOLE approaches zero.' PJM planning staff’s winter LOLE conclusions in the 2015 RRS and 2016 RRS do not indicate a need for 100% annual capacity, nor do they indicate increased or increasing winter reliability risk when compared to prior years," the Alliance said

Additionally, the Alliance said that PJM's Winter Operations Assessments for both 2015 and 2016 concluded that there was sufficient surplus capacity to allow generators to schedule planned and maintenance outages during the winter peak seasons.

Furthermore, the Alliance said that a dedicated PJM task force produced a 2016/17 Winter Readiness Study, "which concluded that the system had sufficient resources to remain reliable even in the face of worst-case scenarios such as large-scale failures of the natural gas system or Polar Vortex levels of generator failure."

"The reliability concerns PJM cites as justifying Capacity Performance are not resource adequacy concerns but are specific to the winter operations of a changing generation fleet. Requiring annual-only capacity resources does nothing to improve the winter operational reliability of generation within the PJM footprint, and is not supported by published planning and reliability studies. On the contrary, PJM’s operations guidance shows that there is sufficient surplus capacity in the winter to allow avoidable generator outages during the winter peak," the Alliance said

"The 2015 and 2016 RRS conclusions are based on analysis. In contrast, PJM has repeatedly asserted to the Commission that it needs all capacity resources to be available any time of year. The RRS results and PJM’s stated need for annual-only capacity resources cannot both be correct. The RRS quantifies winter resource adequacy needs and finds them to be very low relative to summer. PJM’s Capacity Performance rationale is premised on PJM’s winter resource adequacy needs equaling its summer needs," the Alliance said

"The RRS is a foundation of PJM’s capacity markets. It sets the reliability requirements that determine how much capacity PJM purchases in RPM auctions, and also contains the reliability analysis that shows PJM meets resource adequacy standards. It is not an exaggeration to say that if the RRS contains serious inaccuracies, PJM’s entire capacity market becomes arbitrary. On the other hand, if the RRS is correct, PJM is about to spend billions of dollars on 'forc[ing] consumers to pay for capacity without receiving commensurate reliability benefits,'" the Alliance said

"Since Capacity Performance was approved, PJM has performed a new analysis that better establishes the benefits of additional winter capacity. That analysis revealed that winter capacity brings very little reliability benefit. For example, as we show below, even if PJM auctions cleared at the minimum reserve margin, over 30 MW of additional winter capacity is needed to compensate for each megawatt of summer capacity lost in order to preserve the same level of projected reliability. Furthermore, at current procurement levels, PJM is so over-supplied in the winter that additional winter capacity does not measurably reduce resource adequacy risks. This new information on the low value of winter capacity renders the Capacity Performance requirement for a single annual capacity product arbitrary and unreasonable, reduces aggregation to little more than an discriminatory barrier keeping useful summer capacity resources from the market, and shows that Capacity Performance will send incorrect price signals that encourage development of unneeded resources," the Alliance said

Regarding PJM's aggregation program, the Alliance said, "At best, aggregation appears to be a series of expensive and arbitrary hoops that seasonal resources must jump through simply to retain market access."

"New information from PJM’s load forecasting reveals that peak shaving programs have very little impact on future capacity purchases. Once summer demand response is eliminated from the market, PJM will continue to purchase virtually the same amount of capacity regardless of any decrease in the actual need for capacity," the Alliance said

"PJM stakeholders have declined to address the seasonal capacity cost allocation issues that FERC allowed PJM to defer in relation to PJM’s original Capacity Performance filing. PJM continues to allocate wholesale capacity costs based on summer peak demand. This mismatch of Capacity Performance and pre-Capacity Performance rules results in summer peaking loads paying for capacity they do not use, subsidizing both winter peaking loads and generators who take outages during the winter peak," the Alliance said

"At PJM’s request, the Capacity Performance ruling did not address cost allocation issues. Since that decision was made, PJM stakeholders have elected not to review cost allocation rules, leaving pre-Capacity Performance rules in place. The result is a contradictory set of rules that inhibits customers’ ability to reduce capacity costs through taking interruptible service. Far from being an abstract imperfection in the market design, this unjustly shifts winter capacity costs onto demand response-capable loads," the Alliance said

"Capacity Performance relies on unjust cost shifts where interruptible summer-peaking loads bear costs caused by winter-peaking loads and generators taking winter outages," the Alliance said

"Loads are charged for 365 days of capacity based on their summer peaks; loads that consume more in the winter pay nothing for that service. Combining this cost allocation scheme with the Capacity Performance demand response rules means that summer peaking loads must pay for capacity they have committed not to use so that winter loads can continue to enjoy free service. In addition, in a very real sense, summer peaking customers are being told they cannot provide demand response because someone else is taking the service they are paying for. Beyond the obvious financial harm this causes, it is unreasonable because it reduces incentives for peak shaving during either season: there is less reason for reducing summer peaks, since demand response credits are reduced or eliminated, and there is no reason to reduce winter peaks, since someone else is paying for them," the Alliance said

Furthermore, the Alliance said that charging loads based on summer peaks is being used to subsidize the ability of generators to take winter outages.

"PJM explained that they calculate a 'Winter Weekly Reserve Target,' which helps establish the maximum level of generation planned and maintenance outages they will approve during winter peak months. This allowance is calculated using the assumption that loads will be consuming less than their capacity allocation during those months. If summer peaking loads were given demand response credit for reducing their peaks, then they would be consuming closer to their net capacity allocation during winter periods. This would reduce the amount of 'surplus' winter capacity used to accommodate generator outages," the Alliance said

"Once again, the decision to allocate annual capacity costs based on summer peaks makes this an unduly discriminatory cost shift. Summer peaking resources are paying for annual capacity; if they commit to use less capacity, they should not have to pay for it. It is arbitrary to reduce or eliminate load’s ability to provide demand response merely because some of the capacity that would create was counted on 'already being there' and used to support generator outages," the Alliance said

"This allowance for generator outages78 during peak winter months is especially puzzling given Capacity Performance’s purported requirement for year-round, 'no excuses' performance," the Alliance said

"However, in any context, derating one class of resource (demand response) for the benefit of the resources that are actually causing the costs (generators on winter outage) is unjust," the Alliance said

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