On August 20, 2014, PJM Interconnection (PJM) proposed changes to their capacity market to address reliability concerns highlighted by generator performance during the 2013-2014 winter season, during which up to 22% of PJM capacity was unavailable due to cold-weather issues. The purpose of this proposal is to provide details regarding PJM’s proposed initial solution to issues identified in PJM’s August 1, 2014 whitepaper entitled “Problem Statement on PJM Capacity Performance Definition.” PJM expects the solutions detailed in this proposal will be adapted through discussions with stakeholders.

PJM’s proposal, accessible at http://www.pjm.com/~/media/documents/reports/20140820-pjm-capacity-performance-proposal.ashx, explains that the major fuel switch from coal to natural gas throughout the country is placing the reliability of PJM’s generation fleet at risk.  To shore up generation performance and grid reliability during this transition, PJM proposes to add an enhanced product within its existing RPM structure called “Capacity Performance” (CP). CP is based on winter peak load requirements, and includes additional eligibility requirements and obligations on resources that elect to commit to the product.

The proposal identifies five objectives for CP: fuel security through a dependable fuel source; enhanced operational performance during peak periods; high availability of generation resources; flexible unit operation parameters; and operation diversity.

Eligible resources for CP will be generators capable of sustained operation for 16 hours per day for three consecutive days (generators that burn gas must have a secured fuel supply with some combination of firm commodity, firm transport, and access to storage), demand response capable of sustained curtailment for 72 hours, and energy efficiency.

To ensure performance, a CP resource must deliver energy in all hours if scheduled by PJM or if self-scheduled when PJM declares a Hot Weather, Cold Weather, or Maximum Generation alert. A resource also must offer into the Day-Ahead Market as available on a non-emergency schedule (economically for Demand Response resources). Limited exemptions would be provided only for resources not scheduled by PJM. A penalty would be applied for every hour that energy is not delivered, but the penalty could be offset by energy produced by a non-capacity resource in the generation owner’s portfolio.

The proposed changes would take effect for the May 2015 Base Residual Auction, with an incremental auction for the 2015/16, 2016/17 and 2017/18 Delivery Years to incrementally procure a sufficient amount of capacity that adheres to the CP performance requirement.

The proposal identifies two cost allocation options for assigning costs of the CP product:  (1) costs allocated to load-serving entities based on their daily unforced capacity obligation times the final zone capacity price; and (2) allocate the additional costs of the CP product based on zonal winter peak load forecasts.