On January 30, 2024, FERC approved, subject to condition, PJM’s proposal to reform its Reliability Pricing Model, including resource adequacy risk modeling, capacity accreditation, testing requirements for capacity resources, and the Capacity Performance stop loss (“Modeling Enhancements Filing”). In that same order, FERC approved PJM’s proposal to replace its previously effective average Effective Load Carrying Capability (“ELCC”) capacity accreditation method with a marginal approach, effective December 12, 2023. The order directed PJM to submit a compliance filing to make certain revisions to its proposal, which PJM subsequently submitted on February 16, 2024. Additionally, on February 6, 2024, FERC rejected a companion PJM proposal to modify the rules governing its Market Seller Offer Cap and Capacity Performance construct and adopt a forward-looking Energy and Ancillary Service (“EAS”) offset for purposes of calculating the Minimum Offer Price Rule (“MOPR”) and offer cap.

On October 13, 2023, PJM filed two companion filings with the stated goal of reforming its capacity market rules to accommodate the energy transition while maintaining resource adequacy. In the Modeling Enhancements Filing (Docket No. ER24-99), PJM proposed to reform its capacity market rules to enhance PJM’s resource adequacy risk modeling and capacity accreditation processes and enhance testing requirements of Capacity Resources. In particular, PJM proposed to replace its current “average” ELCC capacity accreditation method with a “marginal” ELCC approach, which would accredit all Generation Capacity Resources and Demand Resources based on their marginal Expected Unserved Energy benefit.

In its January 30 order accepting PJM’s Modeling Enhancement Filing, FERC determined that PJM’s proposed marginal ELCC capacity accreditation framework is just and reasonable because it: (1) incorporates the risk of correlated outages, especially in cold weather conditions, of all supply-side resources, including thermal resources; (2) reflects the fact that dual fuel resources are more likely to be available than gas-only resources during certain system conditions; (3) accounts for the fact that highly correlated resources such as solar and short-duration storage resources generally provide less reliability value as more of those resources are added to the system; and (4) accredits all resources within an ELCC class with identical performance characteristics equivalently. Specifically, FERC found that adopting a marginal ELCC framework will allow PJM’s capacity market to substitute one resource type for another on the margin without affecting reliability, even considering present and future resource adequacy challenges.

In the February 6 order, FERC rejected PJM’s companion proposal in Docket No. ER24-98 to update the rules governing its offer cap, Capacity Performance construct, and EAS offset. Among other findings, FERC specifically took issue with PJM’s proposal that, for resources that would continue to participate in the EAS markets regardless of whether they receive a capacity commitment, those resources would have an offer cap that is no less than their incremental cost of providing capacity (standalone CPQR offer cap). While FERC agreed that as a general matter, a competitive offer in the capacity market may reasonably reflect only incremental costs that are avoidable if the resource does not receive a capacity commitment, FERC found that PJM failed to sufficiently explain how it would distinguish between incremental costs that are incurred as a result of receiving a capacity commitment from those costs that are not. FERC rejected PJM’s filing in its entirety, though it provided guidance to assist PJM in developing a new proposal should it wish to do so.

FERC also rejected PJM’s proposals to: change to its methodology for calculating offer caps; eliminate the physical non-performance assessment option for Fixed Resource Requirement entities; eliminate language stating that a resource would be considered in the calculation of a performance shortfall if it is not scheduled solely due to the seller’s submission of a market-based offer that is higher than its cost-based offer; limit eligibility for bonus payments to committed Generation Capacity Resources with a capacity obligation that outperforms their expected performance during Performance Assessment Intervals up to their committed level of installed capacity; allow sellers to rely on third parties with experience evaluating Capacity Performance insurance policies to justify their proposed CPOR values; and allow PJM, after the Market Monitor’s review, to calculate an alternative offer cap independently based on information provided by the seller.

The Commission’s Order in ER24-99-000 can be found here.

The Commission’s order in ER24-98-000 can be found here.