On September 16, 2019, FERC accepted revisions to the PJM Interconnection, L.L.C. (“PJM”) tariff that: (1) establish a process by which existing capacity sellers can request removal of their capacity resource’s status; and (2) revise the process for must-offer exceptions due to an existing seller’s physical inability to meet its capacity requirements. The changes clarify how existing capacity resources may, under certain circumstances, effectively elect to “opt out” of PJM’s annual capacity auctions (termed Based Residual Auctions, or “BRAs”).

PJM’s capacity market, the Reliability Pricing Model (“RPM”), ensures long-term reliability by requiring electricity suppliers to have enough resources to meet their customers’ demand plus a reserve, which can be met through a variety of options, including generating their own capacity or purchasing capacity through PJM’s market auctions. PJM’s filing focused specifically on rules for Existing Generation Capacity Resources, which PJM defines as a capacity resource that is either in service or not in service but has cleared an RPM auction as of the date on which bidding starts for that auction. PJM requires existing sellers to offer their full capacity in all RPM auctions unless their resources are categorically exempt or eligible for an exception. PJM’s tariff previously specified how generators may qualify for an exception to this must-offer requirement, but did not provide a process for doing so. Similarly, the tariff also effectively allowed sellers to seek to remove a resource from capacity resource status indefinitely without procedural specificity.

Pursuant to the revisions, sellers seeking to remove an existing resource from PJM’s auctions must provide written notification indicating the reason for the request, along with supporting documentation, by either September 1 (for annual BRAs) or 240 days prior (for Incremental Auctions), and either confirm or withdraw that request by December 1 (for BRAs) or 120 days prior (for Incremental Auctions). As FERC notes, these timelines are identical to the rules for sellers requesting an exception due to deactivation. PJM will then publish the requests online and incorporate the loss of available capacity in its models and studies. If the request is ultimately approved, PJM will terminate the corresponding Capacity Interconnection Rights (“CIRs”) one year from the date the status change takes effect. Sellers can also transfer CIRs consistent with the process used for deactivation.

The new rules also provide more process around exceptions to the must-offer requirement. Sellers that are physically unable to meet their capacity requirements will now have up to five years to develop and complete necessary upgrades, which is commensurate with the amount of time provided for new resources to reach their commercial operation date. Rather than receive an indefinite exception and retain their CIRs indefinitely, sellers now have the choice to seek a short-term must-offer exception with a plan to meet capacity requirements, convert the capacity resource to an energy resource, or retire the unit.

On September 27, 2019, PJM issued a statement confirming the suspension of its 2019 BRA until further notice as PJM continues to await an order from FERC addressing the Minimum Offer Price (“MOPR”) rules (see March 21, 2019 edition of the WER).

A copy of the order is available here.