FERC Accepts PJM Compliance Filings Overhauling Reserve Market and E&AS Offset Calculation

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On November 12, 2020, the Federal Energy Regulatory Commission (“Commission”) approved changes regarding PJM Interconnection, L.L.C.’s (“PJM”) reserve market, including how the Regional Transmission Organization (“RTO”) calculates its energy and ancillary services offset (“E&AS Offset”). The order approves a PJM compliance filing establishing categorical exclusions for nuclear, wind and solar resources, which historically have not provided capacity reserves due to their inflexible characteristics.  The order also greenlighted a related exemption process PJM will use to determine reserve eligibility for resources that are automatically deselected, recognizing that in some circumstances nuclear, wind, and solar may be able to provide reserves.

As background, on August 5, 2020, PJM submitted a compliance filing containing revisions to its tariff to incorporate a forward-looking E&AS Offset beginning with the Base Residual Auction (“BRA”) for the delivery year commencing June 1, 2022.  The Commission accepted the compliance filing and established an effective date of May 1, 2022.

PJM’s compliance filing described which resources may provide synchronized reserves, non-synchronized reserves, and secondary reserves.  PJM has established a default rule that nuclear, wind or solar units are ineligible to provide these reserve products.  According to PJM, these resources typically do not include a dispatchable range in their energy offers due to their inherent operating characteristics; as a result, PJM’s market engines do not see any reserve capability present.  PJM also stated that even when those resources include a dispatchable range, they cannot or do not intend to follow PJM’s dispatch instruction.  As a result of this exclusion, PJM’s market clearing engines will no longer consider these nuclear, wind, or solar resource offers with a dispatchable range.  The Commission rejected as beyond the scope of the compliance filing the Independent Market Monitor for PJM’s (“IMM”) request for PJM to include additional information in the tariff to specify automatic or manual deselection of resources from providing reserves due to testing, shutdown, or providing regulation.

PJM also proposed an exemption process to account for certain circumstances where nuclear, wind, and solar resources may be able to provide reserves.  This process requires the market seller to submit a written request to PJM and the IMM.  The request must also include documentation to support the resource’s ability to follow PJM’s dispatch instructions in order to provide reserves to meet system demand.  Supporting documentation may include historical operating data showing voluntary response to reserve events and/or technical information about the resource that demonstrates the resource is capable of adjusting its energy output upon instruction from PJM—i.e., ramp down output to provide reserves or ramp up output to provide energy.  PJM will respond to the market seller within 30 days of receiving the request. The Commission found the exemption process and the process by which PJM proposes to communicate the determination to the market seller complied with its prior directives.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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