Brilliantly Simple: Pa. PUC Shows Fatal Flaw to PJM Transitional Capacity Performance Proposal

The Pennsylvania PUC has levied a simple but brilliant criticism at PJM's proposal for a transition to its capacity performance product which illustrates the futility of paying billions in additional capacity costs for a limited amount of the new capacity performance product alongside existing capacity which does not have to meet the new performance requirements.

Under the transition period, PJM will procure (depending on year) capacity performance products equal to 60-70% of the reliability requirement.

The PUC, in comments at FERC, notes that this will add billions in costs to load. However, it simply won't assure reliability. "In simple terms, replacing up to 60% or 70% of existing capacity resources with CPP resources will not have any impact on reliability if the remaining 30%-40% of existing base capacity generation do not perform on a cold, peak winter day," the PUC said.

In other words, the chain is only as strong as its weakest link. As long as PJM is still relying on sub-standard capacity not subject to new performance measures for a portion of the reliability target, load can gold-plate the remaining 70% of capacity all it wants -- it won't help when PJM needs that last 30% of capacity to keep the lights on, and the capacity can't (and isn't required to) perform.

In our estimation, this reality makes any transition payments futile, and a transition period pointless, as the system is still as vulnerable as it was prior to the transition. What matters is that the last megawatt needed to maintain reliability performs; improvements to a subset of generators does not improve the situation if the customers have remaining exposure to sub-standard generation.

This, of course, is likely to fall on deaf ears at FERC, which (in support of over-procurements of capacity) believes in some fictitious notion of value from "incremental" capacity.

However, for load, resource adequacy is a binary condition. It's either present, or it isn't. Load doesn't receive any benefit from procuring capacity above the level needed to maintain resource adequacy. Moreover, as relevant to the capacity transition, load doesn't care how reliable a subset of capacity is if resource adequacy still ultimately hinges on the performance of sub-standard resources.