PJM Says Incremental Auctions May Result in Over-Procurement of Capacity

April 18, 2011
Email This Story

PJM's current tariff regarding the conduct of the incremental auctions under the Reliability Pricing Model could require PJM to seek to procure or release too many or too few capacity commitments relative to the reliability requirement, PJM said in a filing to revise the tariff.

The incremental auctions are intended to, among other things, permit PJM to seek additional capacity (or release unneeded capacity) due to changed circumstances, such as an updated reliability target, since the Base Residual Auction, or prior incremental auctions.

Under the current tariff provisions, the megawatt quantity of capacity sought to be procured (or released) in the incremental auctions is based on the change in the reliability requirement for a particular Delivery Year from the Base Residual Auction, or a prior incremental auction, to a the upcoming incremental auction, plus a short-term resource procurement target.

However, the target for the instant incremental auction does not consider the amount of capacity commitments that PJM sought to procure or release in a prior incremental auction that did not clear in the prior incremental auction for the same delivery year.

PJM provided the following example. For a particular delivery year, PJM has a reliability requirement of 150,000 MW for the Base Residual Auction, and it is assumed that 150,000 MW are cleared in the auction; therefore PJM has procured capacity commitments in a quantity exactly equal to the then current reliability requirement.

At the time of the First Incremental Auction, PJM has determined that the reliability requirement has decreased to 149,000 MW. Accordingly, PJM will seek to release 1,000 MW. In this example, assume 600 MW of that amount clears the auction, leaving 400 MW that did not clear. This results in a cumulative amount of committed capacity of 149,400 MW.

At the time of the Second Incremental Auction, PJM has determined that the reliability requirement has decreased again to 148,500 MW. Under the current tariff provisions, this would require PJM to seek to release 500 MW of committed capacity. If 300 MW cleared in the auction, there would be 200 MW that did not clear, resulting in a cumulative committed capacity amount of 149,100 MW.

Continuing the example, for the Third Incremental Auction, PJM has determined that the reliability requirement has increased to 150,500 MW. Under the current tariff provisions, which do not take into account PJM's efforts in the First and Second Incremental Auctions to release capacity, PJM will seek to procure an additional 2,000 MW of capacity commitments. If PJM's offers to purchase that additional capacity clear, the region will have a total capacity of 151,100 MW committed, even though the reliability requirement is 600 MW lower, at 150,500 MW.

PJM's proposed tariff changes would provide that the determination of the quantity of capacity commitments that PJM seeks to procure or release in an incremental auction shall consider any amounts that did not clear in prior incremental auctions for the same Delivery Year.

"These revisions will result in a more accurate calculation of the amounts PJM should seek to procure or release in an Incremental Auction. The revisions also should result in the actual amount of committed capacity more closely matching the amount determined for the reliability requirement," PJM said.

PJM also sought to revise the provisions governing Excess Commitment Credits. Under the current tariff, the amount of capacity commitments that PJM seeks to release but that do not clear an incremental auction is allocated to LSEs as Excess Commitment Credits. LSEs may use these credits as replacement capacity or sell them to other market participants that need replacement capacity.

PJM said that the current rules may allocate Excess Commitment Credits when no excess exists, because the credits only reflect the amount of capacity commitments that PJM seeks to release that do not clear in an incremental auction, but do not reflect the amount of capacity commitments that PJM seeks to procure that do not clear.

"Without the inclusion of the amount of capacity commitments that PJM seeks to procure that do not clear in an Incremental Auction, there is a possibility that Excess Commitment Credits could be allocated when no excess exists," PJM said, in proposing language to base the allocation of Excess Commitment Credits on capacity commitments that PJM seeks to both release and procure that do not clear in an Incremental Auction.

Email This Story

HOME

Copyright 2010-11 Energy Choice Matters.  If you wish to share this story, please email or post the website link; unauthorized copying, retransmission, or republication prohibited.

 

Be Seen By Energy Professionals in Retail and Wholesale Marketing

Run Ads with Energy Choice Matters

Call Paul Ring

954-205-1738

 

 

 

 

 

Energy Choice
                            

Matters