On April 22, 2014, FERC approved revisions to the PJM Interconnection, L.L.C. (“PJM”) tariff in order to identify limits on capacity from external resources that can be reliably imported into PJM.  The revisions were designed to address risks from external resources that are subject to curtailment of firm transmission due to certain Transmission Load Relief (“TLR”) events.

In support of the proposed tariff changes, PJM indicated that the capacity imports limitations address a gap in reliability rules in its forward capacity auction.  According to PJM, its capacity auction recognizes constraints limiting delivery of capacity within PJM, but do not account for a similar risk for delivery of capacity from areas outside PJM.  Specifically, the PJM auction rules do not recognize the risk that an external resource may be unable to provide energy to PJM due to firm transmission curtailments.  As detailed in its filing, PJM imports substantial capacity from outside regions, and though external resources must reserve firm transmission service from their resources to PJM, that service can be curtailed due to certain TLR events.  PJM noted that from 2009-2013, transmission into PJM was curtailed for 151 separate “level 5” TLR events.  In addition to reliability risks, PJM argued that external resources that do not accurately reflect the cost of delivering energy can artificially suppress capacity prices and cause physical assets to retire by displacing certain resources that are looking to capacity payments to determine whether to retire or remain in service.

Under the proposed tariff changes, PJM would limit the amount of capacity imports in any Base Residual Auction (the principal PJM auction which sets commitments for capacity three years forward) to 6,000 MW.   The tariff changes also include a process for identifying five external source zones and grouping them as one or more balancing authority areas to provide support to PJM’s firm imports.  PJM also proposed an exception to the capacity import limit for certain external resources that do not pose risks to locational constraint or suppressed prices.  Under the exception, the external resource must demonstrate no later than five business days before the relevant auction that: (1) the external resource is treated like an internal resource; (2) they have confirmed long-term transmission service on a system path that runs directly into PJM; and (3) the external resource agrees to the same must-offer requirements as internal PJM resources.

Despite numerous protests, FERC approved the capacity import limits to PJM’s tariff, effective January 31, 2014.

Commissioner John Norris concurred with a separate statement to highlight the importance of calculating the optimal capacity import limit.  Commissioner Norris noted that seams between systems should be viewed as an opportunity to increase efficiency between systems for the benefit of the economy and consumers.

A copy of the order and Commissioner Norris’ concurrence is available here.