PJM Files Anticipated "Reforms" to Protect Generator Revenue in RPM

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February 14, 2011  

PJM has filed its expected tariff changes at FERC to "reform" the capacity market Minimum Offer Price Rule so that it can be applied to protect $2 billion in capacity payments that is expected to be paid to generators absent action (or potential action) for new capacity to be built under long-term contracts in Maryland and New Jersey.

PJM requested approval of its associated tariff changes by April 13, 2011, so that it may implement the "reforms" in the May Base Residual Auction.

Despite the fact that PJM is proposing to rush these reforms through FERC, PJM insisted that, "[t]his is not an occasion for a broad review or overhaul of RPM, nor should this proceeding (or the proceeding on the P3 complaint) become a vehicle for any party to push upon the Commission any concern they have with any other aspect of RPM."

In other words, reforms necessary to transfer $2 billion from load to generators should be fast-tracked.  Any changes to RPM sought by load can wait for the usual languid stakeholder process.

This approach is all the more offensive considering the so-called deficiencies in the Minimum Offer Price Rule were part of the original settlement, foisted upon load.  The New Jersey and Maryland programs are simply working within the bounds of RPM as it is currently constructed, and, absent the proposed reforms being rushed through the FERC process, would not violate any RPM tariff provision.

As the original settlement reflected a compromise, with parties accepting certain provisions in exchange for others, it seem untoward to rush through significant changes to the Minimum Offer Price Rule, specifically designed to protect generator revenue at the expense of legitimate actions taken by load, while not at the same time opening up the RPM tariff to, "broad review or overhaul."

The specific changes sought by PJM are consistent with what has been expected.  Chief among the modifications would be the elimination of the provision that triggers the Minimum Offer Price Rule only in situations where the capacity seller is in a "net short" position.

PJM would also eliminate the requirement that the Minimum Offer Price Rule is only triggered if the offer would reduce the auction clearing price by 20 to 30 percent.

Offers below the Minimum Offer Price Rule based on state policy grounds could only be granted via a section 206 complaint brought before FERC.

PJM proposes to keep the existing rule's tolerance of a zero-price offer for nuclear, coal, Integrated Gasification Combined Cycle facilities, and hydroelectric resources, and is adding wind and solar facilities to that category.

PJM proposes to eliminate, however, the zero-price exception for, "any upgrade or addition to an Existing Capacity Resource."

"Such a resource is a planned resource if it adds capacity, and adding capacity to an existing CC or CT plant could well be an effective means of pursuing a price-suppression strategy," PJM said.

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