Exelon Likens Increased Reliance on "Planned" (New, Cleared) Resources in Capacity Market as "Anomaly" Requiring a "Fix"

The increased reliance on "planned" resources -- meaning new resources clearing the capacity market -- to meet the PJM mandated reserve margin has been likened by Exelon to other "issues" in the capacity market which required reforms

In other words, the very raison d'etre of the PJM Reliability Pricing Model (RPM) capacity market -- to bring new resources online -- is now seen as a problem requiring market changes.

Specifically, last week during an earnings call Exelon CEO Christopher Crane said:

"Looking back on RPM and the auction process, it is a 12-year old process, from time-to-time we have had issues arise around the process that have required us to go back to the stakeholder process and make amendments. We will be working with PJM and fellow stakeholders on improvements and recommendations to address the increased reliance on planned resources and also supporting PJM's effort to enhance the MOPR rules as well as rules governing demand response."

Kenneth Cornew, Exelon Chief Commercial Officer, said:

"We've seen anomalies in the RPM auction results before and have successfully used [the] stakeholder process at PJM and FERC to improve the auction process. The MOPR issues of the '15/'16 auction were largely fixed by FERC as a result of the stakeholder process at PJM."

"Exelon intends to work with PJM, other PJM stakeholders, and FERC in reviewing the auction results and considering potential changes to market rules to address PJM's increased reliance on planned resources," Cornew said.

Exelon did not elaborate on what, "potential changes to market rules," would be appropriate in light of the increased reliance on planned generation resources clearing the RPM market to meet the mandated reserve margin -- or more importantly, why this is even an issue which must be "address[ed]", seeing as the market was specifically designed to procure new capacity when needed.

Despite revisionist history, as more fully detailed in our March 2012 retrospective, new capacity (or "planned resources" as they are now called) was the primary goal of the RPM capacity market, as stated in PJM's original section 205 filing.

Since the expectation was that RPM would always rely on planned resources for a substantial portion of the cleared capacity, it's not clear what issues must be addressed, unless Exelon is raising the possibility that planned resources cannot, under current rules, be reasonably relied upon to come online in the future to meet the mandated reserve margin -- a view that completely undermines the entire case for a capacity market in the first place. While Exelon did not specifically cast doubt on the future availability of planned resources, one of its peers recently did, as Calpine said that not all new capacity clearing the PJM capacity market is likely to get built

At the very least, the fact that PJM stakeholders have not had to previously "address" issues surrounding a reliance on planned new resources implicitly acknowledges that PJM's capacity market has failed to attract a significant amount of new (planned) resources. Not that this is surprising -- until this recent "anomaly," the auction results confirmed a lack of new build, as did studies showing that 93% of capacity payments (through the end of 2011) went to existing resources.

Again, while not surprising, the acknowledgement by an incumbent capacity owner that reliance on planned resources is a new phenomenon for PJM is notable, because the same capacity owner is one of several advocating that a capacity market in Texas is the only way to get new build. But then when new build finally starts appearing in PJM after a decade of capacity payments, the incumbent asset owner says PJM must "address" the new build in the same way that PJM has addressed other "anomalies."