PJM IMM Says Creation Of D.C.-Specific Fixed Resource Requirement Would Increase Capacity Prices For D.C. Customers, Though Costs Fall Under One FRR Scenario
Analysis Prepared At Request Of D.C. PSC Chair
May 17, 2021 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
The following story is brought free of charge to readers byEC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com
In response to a request from District of Columbia PSC Chairman Willie L. Phillips, the PJM Independent Market Monitor analyzed the impacts of the
creation of Fixed Resource Requirement (FRR) entities in the District of Columbia (DC).
FRR entities elect to not participate in the PJM Capacity Market and to use the FRR
option to satisfy their capacity obligations
The IMM stated in its report, "Based on the analysis, the creation of a Pepco/DC FRR is likely to increase payments for
capacity by customers in DC. It is expected that the actual price for capacity in DC
would be the result of a negotiation between the owners of the required capacity, and
the District of Columbia. The resultant price for capacity resources could substantially
exceed the capacity market clearing price and the capacity market offer cap."
The IMM analyzed two
scenarios. The entire DC region is within the Pepco Zone. The rest of the Pepco Zone is located in
Maryland. The Pepco Zone includes the Pepco LDA but is not identical to the Pepco
LDA, which is a part of the SWMAAC parent LDA.
In Scenario 1, the IMM assumes that an FRR is established that includes all of the DC
portion of the Pepco LDA (Pepco/DC FRR) and that the Pepco/DC FRR procures the
entire Pepco/DC capacity obligation at a rate equal to the net Cost of New Entry (CONE)
times B offer cap applicable to the Pepco LDA ($210.86 per MW‐day) for the 2021/2022
PJM Reliability Pricing Model (RPM) Base Residual Auction (BRA). The rest of the Pepco
LDA remains in the PJM Capacity Market. The IMM concludes that under Scenario 1,
net load charges for Pepco/DC FRR under the FRR alternative would increase by $46.5
million or 41.3 percent compared to the results of the 2021/2022 RPM BRA.
In Scenario 2, the IMM assumes that an FRR is established that includes all of Pepco/DC
and that the Pepco/DC FRR procures the entire Pepco/DC capacity obligation at a rate
equal to the clearing price in the 2021/2022 RPM BRA applicable to the Pepco LDA
($140.00 per MW‐day). The IMM concludes that under Scenario 2, the net load charges
for Pepco/DC under the FRR alternative would decrease by $6.9 million or 6.2 percent
compared to the results of the 2021/2022 RPM BRA.
The IMM in the report stated, "Creation of an FRR creates market power for the small number of generation owners
from whom generation must be purchased in order to meet the reliability requirements
of the FRR entities. All participants in the Pepco FRR fail the three pivotal supplier test
which reinforces the conclusion that there is structural market power in each case. A
fundamental point about the FRR approach is that the FRR approach is a nonmarket
approach. In the FRR approach, there is no PJM market monitoring of offer behavior by
generation owners, there are no market rules governing offers, and there are no market
rules requiring competitive behavior. In the absence of a competitive market that
includes the FRR area(s), there is no competitive market reference point to define what a
competitive offer would be from the FRR generation owners in a bilateral negotiation or
what the competitive market price would be. Prior market results do not define a
competitive outcome in subsequent periods because market dynamics and market
outcomes may change significantly. As a result, even the higher estimates of the cost
impact to the customers of DC from the creation of an FRR are likely to be
conservatively low. If DC were to subsidize any generating units, the subsidy costs
would be in addition to the direct FRR costs."