Exelon, NextEra Energy and PPL Electric are among a group urging the PJM Interconnection to dismiss a plan approved by two committees that would reduce penalties for failing to provide power during grid emergencies.
The proposal to slash potential capacity performance fines starting later this year follows PJM’s assessment of about $1.8 billion in penalties for generators that failed to provide power during Winter Storm Elliott in December. In response several generators have filed for bankruptcy and others have asked the Federal Energy Regulatory Commission to reverse the fines.
Under PJM’s capacity performance market design, installed after the 2014 Polar Vortex, generators must pay penalties if they fail to deliver on their capacity obligations during grid emergencies. Power plant owners that supply more than their obligation are rewarded with a share of the penalties.
The measure offered by American Municipal Power, a nonprofit wholesale power provider called AMP, passed PJM’s Members Committee on May 11 and its Markets and Reliability Committee on May 4 by more than the required two-thirds vote.
The companies opposed to the measure contend the plan to reduce the non-performance penalties an estimated 10-fold would harm grid reliability, lead to litigation and hurt power plant owners that have taken steps to ensure their generating units can run when needed, according to a Wednesday letter to the grid operator.
“The proposed penalty reductions would undermine reliability in the region at a time when more frequent weather extremes and diminishing capacity margins make it more important than ever that resources satisfy their capacity commitments,” the companies said.
There is no justification to seek approval to the plan by FERC when PJM staff has expressed concerns about core elements of the proposal, according to the letter.
“Given the dearth of information on the reliability impact — and with the knowledge that the current framework helped keep the lights on during Winter Storm Elliott — rather than supporting the proposed penalty reductions, the [PJM] board should be sending a strong message to resource owners to invest in improvements that will ensure they can perform when needed,” the companies said.
Companies signing the letter also include Avangrid Renewables, Calpine Energy Services, Constellation Energy Generation, Duquesne Light Co., Public Service Electric and Gas, PSEG Power, Vistra and Vitol.
During discussions on the measure, PJM expressed concern about how reducing the penalties to the extent proposed would affect generator incentives to perform, Jeffrey Shields, a spokesman for the grid operator, said. PJM must decide whether or not to ask FERC to approve the proposal and is evaluating its options, he said.
The proposal would reduce capacity performance penalties by up to 90%, according to Tom Rutigliano, a senior advocate at the Natural Resources Defense Council.
The environmental group agrees with the Exelon letter, he said in an email. “Reducing penalties now tells generation owners they should reduce winter preparedness,” he said, noting the North American Electric Reliability Corp. this week issued a high-level alert urging generators to prepare for extremely cold winters. “PJM’s board should support reliability by not reducing penalties.”
However, a generator would still face financial penalties under the proposal and those that overachieve would be rewarded, according to Steve Lieberman, AMP vice president for transmission and regulatory affairs.
“It will still get carrots. It will still get sticks,” he said. “So the motivation to perform is still there.”
PJM’s current penalty structure isn’t “just and reasonable” because it is untethered to how much revenue generators can earn in PJM’s capacity market, he said Thursday.
In PJM’s capacity auction earlier this year, capacity sold for almost $29/MW-day for most of its footprint. But the penalty is tied to Net Cost of New Entry, which is more than $290/MW-day, Lieberman said. AMP’s proposal ties potential penalties to how much generators are paid in the capacity market, he said.
The proposal could also reduce the number of “performance assessment intervals” that occur when PJM declares emergency actions when performance penalties can take effect. Under the proposal, those intervals would no longer be triggered when PJM calls on demand response resources for power supplies, according to Lieberman.
