|
|
|
|
FERC Denies Proposed PJM Capacity Market Change Opposed By Retail Suppliers
The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com
FERC denied proposed tariff filings from PJM to change the manner in which excess capacity is released in the incremental auction, a change which had been opposed by Direct Energy as increasing costs to LSEs.
Under current rules, the PJM sell-back offer price is based on PJM’s updated capacity demand curve. PJM states that this requirement has resulted in PJM’s submitting sell-back offers at a low price relative to the Base Residual Auction clearing price, often at $0/MW-day, which has driven down the Incremental Auction clearing prices.
To address alleged "speculative" behavior, PJM had proposed changing the process under which excess capacity is released, such that the release of excess capacity commitments by PJM would be made using a sell offer price equaling the base residual auction clearing price
Direct Energy protested PJM’s proposal to submit sell-back offers at a price equal to the relevant Base Residual Auction clearing price, arguing that it ignores how markets operate. As summarized by FERC, Direct Energy argued that the proposal undermines PJM’s ability to sell excess capacity on behalf of load, by establishing irrational fixed sell offer prices that are known to all capacity market participants prior to the auction, thereby ensuring that capacity market participants can always clear by underbidding the base residual auction clearing price. Direct Energy argued that, knowing that PJM will submit sell-back offers at the base residual auction clearing price, capacity market participants will be incentivized to offer below PJM’s price and ensure that they clear the incremental auction, and that load does not realize any cost benefit from sales made by third parties below the price set by PJM’s sell-back offers. Direct Energy argued that the price paid for capacity in the Base Residual Auction is irrelevant to the Incremental Auction clearing price, and that the demand for replacement capacity in each Incremental Auction relative to supply dictates the price of capacity in the Incremental Auction.
Direct Energy argued that, if PJM’s purpose is to reduce arbitrage between base residual auction and incremental auction prices, PJM must improve load forecasting.
FERC rejected, as unjust and unreasonable, PJM’s incremental auction proposal.
"PJM proposes to submit sell-back offers at the relevant Base Residual Auction clearing price, thereby setting the sell-back offer price without regard to PJM’s capacity demand curve. The Commission has previously rejected such an approach, and we do so here again," FERC said
"The central issue here is whether to permit PJM to set the price for capacity PJM sells back to the market in an Incremental Auction at the Base Residual Auction Price," FERC noted
"PJM’s proposal to price its sell-back offers at the Base Residual Auction clearing price, which is similar to the changes proposed in the 2009 filing, is flawed because it fails to reflect that the value of a given amount of capacity is lowered when the reliability requirement changes, a concept reflected in PJM’s updated capacity demand curve," FERC said
"PJM’s proposal to assign a value to sell-back offers at a pre-determined price rather than market price is inconsistent with the established way that PJM’s markets represent the value of excess capacity to load," FERC said
"On three separate occasions, the Commission has rejected as unjust and unreasonable PJM’s proposals to value sell-back offers at a level that differs from the valuation of excess of capacity reflected by PJM’s capacity demand curve. We again find PJM’s proposal to submit sell-back offers at the relevant Base Residual Auction clearing price to be unjust and unreasonable, as it fails to establish a reasonable price for excess capacity as the Commission has found in the prior orders and, as a result, the Incremental Auctions would not adequately correct for PJM’s over-procurement of capacity in a Base Residual Auction and would not produce prices commensurate with load’s value of the over procured capacity. Accordingly, we reject the Incremental Auction Proposal. Because PJM submitted the Incremental Auction Proposal as a package of reforms, we do not address other aspects of the proposal. Absence of discussion on other aspects of the proposal, however, is not an indication of how the Commission would rule on the merits of those issues if submitted separately from the Incremental Auction Proposal," FERC said
FERC further said that, "PJM argues that the Incremental Auction Proposal is needed to address the problem of speculative behavior in the capacity market, and offers data regarding replacement rates to support its argument. PJM has not supported its position that speculative behavior is, in fact, occurring. As discussed below, replacement rates do not necessarily indicate speculative behavior. Regardless, we do not find that setting prices in a manner that does not reflect demand is justified to cure such behavior."
While PJM cited the frequency by which resources, particularly Demand Resources, replace their capacity as evidence of speculative behavior, FERC said that such replacement rates, "may instead reflect the ability of resources, particularly Demand Resources, to relieve their capacity obligations while efficiently and profitably following economic signals."
"For example, if a Demand Resource’s going forward costs are higher than the clearing price in the applicable Incremental Auction, it would be efficient, as well as profitable, for the provider to buy back its capacity obligation, even if the provider was fully capable of providing its service," FERC said
FERC also noted separate mechanisms approved by FERC to address speculative behavior, such as capacity performance, and also cited measures to improve PJM load forecasting
"For these reasons, we find that there is no need for the Commission’s further consideration of solutions to address potential speculative behavior in the Base Residual Auctions and Incremental Auctions in the FPA section 206 proceeding in Docket No. EL14-48-000. Accordingly, we terminate the proceeding in Docket No. EL14-48-000" FERC said
Docket ER18-988
ADVERTISEMENT Copyright 2010-16 Energy Choice Matters. If you wish to share this story, please
email or post the website link; unauthorized copying, retransmission, or republication
prohibited.
May 9, 2018
Email This Story
Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
NEW Jobs on RetailEnergyJobs.com:
• NEW! --Director - Sales Management & Strategy -- Retail Supplier
• NEW! -- Operations Analyst -- Retail Supplier
• NEW! -- Sr. Business Development Manager -- Retail Supplier
• NEW! -- Sales Support Specialist -- Retail Supplier
• NEW! -- Natural Gas Operations Manager -- Retail Supplier
• NEW! -- Energy Consultant
• NEW! -- Director, Retail Energy Supply & Pricing -- Retail Supplier -- Houston
• NEW! -- Sales and Channel Partner Manager -- Retail Supplier
|
|
|