Retail Suppliers: "No Rational Way" To Develop Retail Rates Under PJM's New Capacity Allocation Design

PJM's proposal to assign capacity obligations to load based on days other than the summer peak leaves load serving entities, such as retail suppliers, with "no rational way" to develop retail prices for load, retail suppliers said at FERC.

PJM's proposed modification to its capacity allocation methodology is part of its capacity performance proposal. In short, PJM proposes to include an LSE's load during the weather-adjusted highest winter peak and any Performance Assessment Hours in addition to the currently used summer peak to assign capacity obligations.

The Retail Energy Supply Association noted that there may or may not be Performance Assessment Hours in a year; "there may be 10 or 100 or any combination of Performance Assessment Hours that would be part of the calculation of the Zonal Obligation Peak Load for a particular year."

"PJM has not adequately considered the volatility and unpredictability its proposal could impose on LSEs, utilities and states," Direct Energy said in separately filed comments.

"There is no rational way to develop rates or prices for load due to the complete lack of knowledge of the season in which the Emergency CP days will occur," Direct Energy said.

"By way of example, under PJM’s proposal, suppose one year an ice manufacturer capacity is measured based on 4 summer peaks plus 1 winter peak plus 10 winter Emergency peaks and its load is 2 MW. Now suppose that in the next year PJM has a bad summer and the Ice manufacture has its capacity measured as 4 summer peaks plus 1 winter peak plus 12 summer Emergency peaks and its load is 13 MW. One year, the customer’s contribution to capacity costs would be based on 2 and the next based on more than six times this amount," Direct Energy said.

"LSEs cannot accurately price load in a zone due to the unpredictability of the season in which the 'Emergency CP' days will occur. Direct Energy does not suggest that PJM should be precluded from considering additional peaks, but it must identify how many Summer and how many Winter peaks it will utilize and show it is appropriate. PJM has not demonstrated that its new proposal accurately allocates costs based on cost causation and has failed to address the volatile cost allocations that could result from this new methodology," Direct Energy said.

RESA noted that, "Retail LSEs such as RESA members rely on the predictability of the establishment of the LSE Capacity Obligation. The more variables, the more difficult it is to know with certainty what the load obligation will be in the future. This is especially true when the variable of Performance Assessment Hours are considered."

"[T]here is no limit to Performance Assessment Hours. In one year there may not be any. In another year there may be many. Some years the Performance Assessment Hours may arise in the summer; in another year, in the winter. Retail LSEs will not be able to predict what their capacity obligations are with certainty with such a potentially erratic variable," RESA said.