151 FERC ¶ 61,208

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Norman C. Bay, Chairman;

 Philip D. Moeller, Cheryl A. LaFleur,

Tony Clark, and Colette D. Honorable.

PJM Interconnection, L.L.C.

Essential Power Rock Springs, LLC, Essential Power 

OPP, LLC, and Lakewood Cogeneration, L.P. v. PJM 

Interconnection, L.L.C.

Docket Nos. ER15-623-000

EL15-29-000

ER15-623-001

EL15-41-000

ORDER ON PROPOSED TARIFF REVISIONS

(Issued June 9, 2015)

Table of Contents

Paragraph Numbers

I. Introduction ............................................................................................................................4.

II. Notice of Filing and Responsive Pleadings..........................................................................16.

III. Procedural Matters...............................................................................................................20.

IV. Capacity Market Revisions .................................................................................................22.

A. PJM’s Justification for the Proposed Changes.................................................................24.

1. PJM’s Proposal .............................................................................................................24.

2. Protests and Comments ................................................................................................30.

3. PJM’s Answer...............................................................................................................36.

4. Additional Answers......................................................................................................38.

5. Commission Determination..........................................................................................41.

B. Performance Requirements ..............................................................................................51.

1. PJM’s Proposal .............................................................................................................51.

2. Protests and Comments ..............................................................................................60.

3. PJM’s Answer...............................................................................................................73.

4. Additional Answers .....................................................................................................82.
Docket No. ER15-623-000, et al. - 2 -

5. Deficiency Letter, PJM’s Response, and Protests and Comments...............................85.

6. Commission Determination..........................................................................................91.

C. Non-Performance Charges ...............................................................................................106.

1. PJM’s Proposal .............................................................................................................108.

2. Protests and Comments ................................................................................................117.

3. PJM’s Answer...............................................................................................................134.

4. Additional Answers......................................................................................................142.

5. Deficiency Letter, PJM’s Response, and Protests and Comments...............................147.

6. Commission Determination..........................................................................................158.

D. Fixed Resource Requirement Plans .................................................................................187.

1. PJM’s Proposal .............................................................................................................188.

2. Protests and Comments ................................................................................................190.

3. PJM’s Answer...............................................................................................................195.

4. Additional Answers......................................................................................................198.

5. Commission Determination..........................................................................................202.

E. Transition Mechanisms.....................................................................................................213.

1. PJM’s Proposal .............................................................................................................213.

2. Protests and Comments ................................................................................................224.

3. PJM’s Answer...............................................................................................................237.

4. Additional Answers......................................................................................................247.

5. Commission Determination..........................................................................................253.

F. Market Power Mitigation..................................................................................................262.

1. PJM’s Proposal .............................................................................................................263.

2. Protests and Comments ................................................................................................271.

3. PJM’s Answer...............................................................................................................297.

4. Additional Answers......................................................................................................307.

5. Market Monitor Answer and Replies .........................................................................310.

6. Deficiency Letter, PJM’s Response, and Protests and Comments...............................313.

7. Commission Determination .........................................................................................334.

G. Credit Requirements.........................................................................................................359.

1. PJM’s Proposal .............................................................................................................363.

2. Protests and Comments ................................................................................................369.

3. PJM’s Answer...............................................................................................................374.

4. Commission Determination..........................................................................................378.

H. Short-Term Resource Procurement..................................................................................384.

1. PJM’s Proposal .............................................................................................................385.

2. Protests and Comments ................................................................................................386.

3. PJM’s Answer...............................................................................................................390.

4. Additional Answers.....................................................................................................391.

5. Commission Determination..........................................................................................394.

V. Energy Market Revisions .....................................................................................................400.

A. Operating Parameters.......................................................................................................401.
Docket No. ER15-623-000, et al. - 3 -

1. PJM’s Proposal .............................................................................................................402.

2. Protests and Comments ................................................................................................404.

3. PJM’s Answer...............................................................................................................421.

4. Additional Answers......................................................................................................430.

5. Commission Determination..........................................................................................432.

B. Force Majeure...................................................................................................................447.

1. PJM’s Proposal .............................................................................................................448.

2. Protests and Comments ................................................................................................451.

3. PJM’s Answer...............................................................................................................458.

4. Additional Answers......................................................................................................461.

5. Commission Determination..........................................................................................462.

C. Maximum Emergency Offers...........................................................................................471.

1. PJM’s Proposal .............................................................................................................472.

2. Protests and Comments ................................................................................................473.

3. PJM’s Answer...............................................................................................................475.

4. Commission Determination..........................................................................................476.

D. Generator Outages............................................................................................................482.

1. PJM’s Proposal .............................................................................................................483.

2. Protests and Comments ................................................................................................486.

3. PJM’s Answer...............................................................................................................489.

4. Additional Answers......................................................................................................492.

5. Commission Determination..........................................................................................493.
Docket No. ER15-623-000, et al. - 4 -

1. On December 12, 2014, in Docket No. ER15-623-000, PJM Interconnection, 

L.L.C. (PJM) submitted proposed changes to its Open Access Transmission Tariff 

(OATT) and Reliability Assurance Agreement Among Load Serving Entities (RAA), 

pursuant to section 205 of the Federal Power Act (FPA),1 to establish a new capacity 

product, a Capacity Performance Resource, on a phased-in basis, to ensure that PJM’s 

capacity market provides adequate incentives for resource performance (Capacity 

Performance Filing). In a related, contemporaneous filing, PJM submitted in Docket 

No. EL15-29-000 proposed changes to its Amended and Restated Operating Agreement 

(Operating Agreement) and to its OATT, pursuant to FPA section 206,2 to address these 

performance issues, as applicable to PJM’s energy market (Energy Market Filing).3

 

2. For the reasons discussed below, we conditionally accept PJM’s Capacity 

Performance Filing, effective April 1, 2015, as requested, subject to the condition that 

PJM submit a compliance filing within 30 days of the date this order issues.4

 In addition, 

we grant, in part, and deny, in part, PJM’s complaint in its Energy Market Filing and 

direct PJM to submit a compliance filing within 30 days of the date this order issues.

5

 

We find that PJM has demonstrated that its existing energy market rules addressing 

operating parameters, force majeure, and generator outages are unjust and unreasonable. 

We accept PJM’s proposed revisions to rules related to force majeure and generator 

 1 16 U.S.C. § 824d (2012). 

2 Id. § 824e. 

3 PJM notes that the Energy Market Filing revisions arise primarily under the PJM 

Operating Agreement, which requires PJM to obtain a two-thirds vote from its members 

to support a section 205 filing. PJM states, however, that its proposed revisions were 

considered by its stakeholders under a special procedure, without a vote. Accordingly, 

PJM requests approval of its Operating Agreement revisions, pursuant to section 206, and 

seeks approval of its proposed OATT provisions, pursuant to section 205. For the

reasons addressed by the Commission in its guidance on electronic filings, our review of 

the Energy Market Filing will be undertaken pursuant to section 206, i.e., by the filing 

code chosen by PJM. See Electronic Tariff Filings, 130 FERC ¶ 61,047 at P 8 (2010) 

(the treatment of any “combined filing,” i.e., a filing whose different parts would, if filed 

individually, have different Type-of-Filing codes, will depend on the code chosen by the 

filing entity). 

4 See Appendix C for a complete list of the conditions to acceptance in Docket 

No. ER15-623-000.

5 See Appendix D for a complete list of the compliance directives that PJM is to 

submit in Docket No. EL15-29-000.
Docket No. ER15-623-000, et al. - 5 -

outages, accept, in part, and reject, in part, PJM’s proposed revisions to rules related to 

operating parameters, and direct further modifications to the operating parameters rules. 

Lastly, we find that PJM has not demonstrated that its rules related to Maximum 

Emergency Offers are unjust and unreasonable and therefore deny this aspect of PJM’s 

complaint.

3. In the December 12, 2014 filing, PJM proposed to implement the tariff changes 

addressed in its filings effective April 1, 2015, in advance of a May 2015 Base Residual 

Auction, i.e., for the capacity procurements applicable to the 2018-19 delivery year. 

However, on March 31, 2015, the Commission notified PJM that the December 12, 2014 

filing was deficient and that the Commission would need further information to process 

the proposal (Deficiency Letter). On April 7, 2015, PJM filed a request for waiver of its 

OATT to delay the 2015 Base Residual Auction for the 2018-19 delivery year. On 

April 10, 2015, PJM supplemented the December 12, 2014 filing by submitting a 

response to the deficiency letter (Deficiency Letter Response). On April 24, 2015, the 

Commission granted PJM’s request to delay the 2015 Base Residual Auction for the 

2018-19 delivery year,6 which was previously scheduled for May 11-15, 2015, and 

instead conduct the auction within 30-75 days after the Commission issues a merits order 

in this proceeding, but no later than the week of August 10-14, 2015.7

 6 PJM Interconnection, L.L.C., 151 FERC ¶ 61,067 (2015).

7 On January 30, 2015, Essential Power Rock Springs, LLC, Essential Power OPP, 

LLC, and Lakewood Cogeneration, L.P. (Essential Power) filed a complaint with the 

Commission against PJM in Docket No. EL15-41-000. In it, Essential Power argues that 

capacity sellers’ decisions to seek, or not seek, a capacity market must-offer exception 

request by the tariff-determined deadline of January 11, 2015, should not be binding due 

to the pendency of the instant proceeding. In addition, Morgan Stanley submitted 

comments in the instant proceeding, requesting that the Commission require that PJM 

delay the date capacity sellers must submit a sell offer or seek an exception to the 

capacity market must-offer requirement until after a final order is issued in the 

proceeding. On February 5, 2015, Essential Power and PJM filed with the Commission a 

joint motion to dismiss the complaint, stating that they had reached an agreement 

whereby capacity sellers will be able to amend their must-offer exception requests within 

seven days after the Commission issues an order in the instant proceeding. We grant the 

request to dismiss Essential Power’s complaint. We note that, in its waiver request to 

delay the 2015 Base Residual Auction for the 2018-19 delivery year, PJM committed to 

announce the deadlines for market participants to update their pre-auction submissions, 

such as offer quantities, offer-price caps, and credit submissions, as necessary and 

appropriate to reflect the Capacity Performance rules accepted by the Commission, 

shortly after the Commission’s action on the deficiency letter response. See PJM 
Docket No. ER15-623-000, et al. - 6 -

I. Introduction

4. Today’s order approves, as modified, significant reforms to PJM’s capacity market 

construct, as well as corresponding changes within PJM’s energy markets. As discussed 

at length below, the Commission finds that PJM has demonstrated the need for these 

reforms to ensure the long-term reliability of electric supply in the PJM region. We also 

find that PJM has demonstrated that its proposal, as modified herein, is just and 

reasonable.

5. PJM relies on a three-year forward capacity market construct to ensure resource 

adequacy at a reasonable cost through the use of an annual auction and subsequent 

incremental auctions closer to the delivery year.8

 PJM states, however, that its construct 

has failed to keep pace with the level of resource commitments required, has applied 

inadequate charges for sub-par performance, and otherwise has not adequately ensured 

actual performance. PJM adds, and we agree, that a resource adequacy construct that 

fails to provide adequate incentives for resource performance can threaten the reliable 

operation of PJM’s system and force consumers to pay for capacity without receiving 

commensurate reliability benefits. 

6. To address these problems with its current capacity construct, PJM’s Capacity 

Performance Filing would establish, on a phased-in basis, a new capacity product, i.e., a 

Capacity Performance Resource, to provide greater assurance of delivery of energy and 

reserves during emergency conditions. PJM also proposes to establish charges for poor 

performance (Non-Performance Charges) and credits for superior performance 

(Performance Bonus Payments), a must-offer requirement as applicable to Capacity 

Performance Resources, and a transition mechanism to remain in effect through May 31, 

2020. PJM also proposes, in its Energy Market Filing, changes to its energy market tariff 

rules to implement the performance obligations and corresponding payments and 

penalties associated with its capacity market reforms. PJM proposes to implement its 

proposed changes for the 2018-19 delivery year, with a transition mechanism for the 

2016-17 and 2017-18 delivery years that will facilitate improved resource performance 

during those years. Ultimately, PJM proposes to procure 100 percent of the region’s 

capacity resources as Capacity Performance Resources.

 

Interconnection, L.L.C., 151 FERC ¶ 61,067 at P 6. We find that this commitment 

addresses the concerns of Essential Power, as well as Morgan Stanley. Specifically, PJM 

will announce the specific timing for the rescheduled 2018-19 Base Residual Auction, 

including an amended deadline for market participants to update their pre-auction 

submissions.

8 PJM Interconnection, L.L.C., 117 FERC ¶ 61,331 (2006). 
Docket No. ER15-623-000, et al. - 7 -

7. The Commission approves PJM’s proposed reforms, as modified herein, because 

we find that these reforms are a significant step toward addressing a confluence of 

changes in the PJM markets, including both recent performance issues that PJM has 

demonstrated are impacted by inadequate incentives and penalties for resource 

performance under its current construct,9 and ongoing changes in PJM’s resource mix 

that are projected to accelerate. Given the forward nature of PJM's capacity market, 

failure to act today to address recent generator performance issues and anticipated 

resource fleet changes could cause reliability issues years from now, at realized cost 

levels potentially significantly higher to customers -- in the form not just of extreme price 

spikes like those seen in January 2014, but potentially in loss of load or other reliability 

events. We find that taking action at this time to increase reliability, and to ensure 

incentives for resource performance (including both existing and new capacity), is both 

appropriate and necessary.

8. The Commission has been actively involved in the review of capacity markets and 

larger trends regarding resource adequacy and fuel assurance. In particular, we note that 

the Commission recently recognized the need to address resource performance issues in 

ISO New England Inc. (ISO-NE),10 and in a generic proceeding in which the 

Commission: (i) directed regional transmission organizations (RTOs) and independent 

system operators (ISOs) to file reports on the status of their efforts to address fuel 

assurance issues; and (ii) provided guidance to assist RTOs and ISOs in these efforts.11 

PJM states that its proposed reforms were prepared in the context of these related policy 

initiatives, and are designed to ensure that resources committed as capacity to meet 

PJM’s reliability needs will deliver the promised energy and reserves when called upon 

in emergencies, and thus will provide the reliability that the region expects and requires. 

We recognize that PJM’s reforms are part of a broader effort at the Commission to ensure 

that the competitive wholesale markets continue to meet the needs of customers, and to 

encourage evolution of the markets based on operational experience. 

9. Furthermore, we find persuasive PJM’s argument that its existing capacity 

construct must be substantially reformed to meet these challenges, and that incremental 

change to capacity or energy market rules alone might be inadequate to address the long-

 9 Although we do not base our approval today solely on the recent degradation of 

resource performance in PJM during times of system stress, we note that this poor 

performance has led to significant and expensive price spikes.

10 ISO New England Inc., 147 FERC ¶ 61,172 (2014) (ISO-NE Capacity 

Performance Order), reh’g pending. 

11 Centralized Capacity Markets in Reg’l Transmission Orgs. & Indep. Sys. 

Operators, 149 FERC ¶ 61,145 (2014) (Fuel Assurance Guidance Order). 
Docket No. ER15-623-000, et al. - 8 -

term resource concerns faced by the region. PJM raises serious and legitimate concerns 

regarding the adequacy of its current capacity market design to ensure the performance of 

capacity resources, which are critical to maintaining regional reliability.12 Although it is 

correct that PJM’s existing capacity construct has successfully provided an incentive for

the construction of new generation to both meet load growth and replace retiring 

resources, it is not enough simply to ensure that “capacity,” whether in the form of 

existing or new resources, is procured to meet reserve targets; rather, that capacity must 

carry with it meaningful performance obligations, and corresponding incentives and 

penalties, to ensure that those resources actually deliver when needed.13 PJM has 

convincingly argued not only that its current construct fails to provide appropriate 

incentives and penalties, but also that its proposed reforms, as modified herein, are a just 

and reasonable solution to address those deficiencies and will meaningfully improve 

resource performance in PJM.14 

10. Having concluded that PJM has met its burden under the FPA to justify substantial 

reforms to its capacity market construct, today’s order also addresses in detail the 

individual components of PJM’s proposed reforms. Given the length of this order, we 

will briefly address certain aspects of PJM’s proposal to provide clarity regarding the 

basis for the Commission’s action. 

 12 Although PJM has not argued that its existing capacity construct is unjust and 

unreasonable, we note that PJM was under no obligation to make that showing, as PJM 

has rights to seek changes to the capacity market provisions of its OATT pursuant to 

section 205 of the FPA, i.e., under the just and reasonable standard. We disagree with 

suggestions that PJM’s election to seek reforms pursuant to section 205 undermines 

PJM’s argument that its existing construct is not working; indeed, the fact that PJM 

argues that its energy market rules, which are located in the Operating Agreement and 

which require a two-thirds vote from its members to revise pursuant to section 205, are 

unjust and unreasonable highlights PJM’s view of the gravity of the needed reforms. 

Furthermore, following the issuance of the Commission’s March 31, 2015 deficiency 

letter, PJM took the unprecedented step of asking the Commission to delay its May 2015 

BRA to allow the Commission to rule on the merits of its proposed reforms. That PJM 

sought, and the Commission granted, a delay in the auction indicates how significant 

these reforms are to the PJM region and its long-term ability to ensure reliability.

13 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 36.

14 As noted below in paragraph 49, in making that case, PJM is not required by the 

FPA or Commission precedent to provide the mathematical specificity of a cost-benefit 

analysis to support a market rule change. 
Docket No. ER15-623-000, et al. - 9 -

11. PJM proposes to revise its market mitigation for capacity market offers to 

establish, consistent with the Commission’s acceptance of a similar proposal in 

ISO-NE,15 a default offer cap based on the estimated level of capacity revenues that a 

representative resource would require to incur a capacity obligation. Also consistent with 

the proposal accepted in ISO-NE,16 offers above the default offer cap are subject to a 

unit-specific review by PJM and the Market Monitor. PJM proposes to base its default 

offer cap, as well as its proposed penalty level (referred to as the Non-Performance

Charge), upon an assumption that PJM will experience 30 Emergency Action hours per 

year.

17 

12. As discussed below in section V.F, we find that PJM’s proposed market mitigation 

construct is just and reasonable. It is precisely because the PJM capacity market is 

structurally non-competitive that mitigation is necessary, and we conclude that PJM’s 

proposal, which is modeled on the construct previously accepted by the Commission in 

ISO-NE,18 is an appropriate mitigation construct. Indeed, we note that the Market

Monitor, who evaluates the competitiveness of PJM’s capacity markets, supports PJM’s 

proposed mitigation design, including its proposed default offer cap.19 We also disagree 

that PJM’s proposal creates improper arbitrage opportunities that could undermine the 

effectiveness of its reforms. PJM’s proposal does not create new or different drivers of

price difference between the Base Residual Auction and Incremental Auctions for the 

relevant delivery year. To the extent reforms to the number or design of PJM’s 

incremental auctions are needed, we note that the Commission has a pending proceeding 

under section 206 of the FPA to investigate whether PJM’s capacity market fails to 

promote long-term reliability by possibly permitting speculative sell offers.20

13. As discussed below in section V.C, we also accept PJM’s 30 hour proposal and 

find that it is a reasonable approximation of the upper bound of hours during which the 

 15 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 96.

16 Id. P 91.

17 The Emergency Action hours are, in turn, the Performance Assessment Hours 

during which a Capacity Performance Resource’s performance will be evaluated for, 

among other things, possible assessment of Non-Performance Charges (for underperformance) or receipt of bonus payments (for over-performance). 

18 PJM Deficiency Letter Response at 3.

19 Market Monitor comments to PJM’s Deficiency Letter Response at 2.

20 PJM Interconnection, L.L.C., 147 FERC ¶ 61,108 (2014). 
Docket No. ER15-623-000, et al. - 10 -

PJM system is likely to experience Emergency Actions over the relevant commitment 

period, and therefore reasonable to use in the calculation of both the default offer cap and 

Non-Performance Charge. PJM’s proposal is based on recent experiences with extreme 

weather across the PJM system and, given that PJM’s proposal is intended to ensure 

resource performance during times of system stress, is an appropriate number to use 

going forward. As a result, we also disagree with assertions that PJM’s assumption that 

its system will experience 30 Emergency Action hours each year leads to an improper 

imbalance of risks and rewards under PJM’s proposal, or otherwise constitutes a 

fundamental design flaw, that warrants rejection of PJM’s entire proposal. Nonetheless, 

as part of the Commission’s ongoing monitoring of PJM’s markets, we require that PJM 

submit informational filings with the Commission after the conclusion of each of the first 

five delivery years under PJM’s proposal, beginning with the 2016-2017 delivery year, to 

evaluate the impact of this 30 hour assumption on resource performance during 

Performance Assessment Hours, as well as the possible impact of alternative NonPerformance Charges based on higher and lower estimates of the number of Emergency 

Action hours during each delivery year. We also encourage PJM, as it gains more 

experience under its new capacity construct, to reassess the assumed number of 

Performance Assessment Hours and file with the Commission if it believes a revision is 

warranted.21 

14. In today’s order, the Commission also conditionally accepts in part, and rejects in 

part, PJM’s proposed changes to what a capacity market seller may reflect in its operating 

parameters in the energy market. The purpose of Capacity Performance is to ensure 

performance during extreme events. We find that PJM’s proposal, as revised below, 

undergirds the overall Capacity Performance proposal because it ensures that resources 

needed to perform during those events can also recover their costs of doing so.22 Lacking 

such assurance, resources faced with actual constraints will be in a position of weighing 

nonperformance penalties against costs of performance that are specifically disallowed in 

make-whole payments, which could discourage the very performance that PJM seeks to 

encourage. Further, we believe that today’s order appropriately ensures that resources 

cannot quantify and include in their capacity performance sell offer firm fuel costs and/or 

risks that will be recovered in make whole payments.

15. Ultimately, the Commission has an ongoing obligation to ensure that rates are just 

and reasonable, and that obligation does not end with today’s order. We note that while 

some have disagreed with the balance struck in the PJM proposal between capacity 

 21 Infra paragraph 163.

22 While we recognize that these resources may present PJM with limits on their 

flexibility, we do not believe our findings in today’s order discourage flexibility; in any 

event, the PJM markets provide numerous incentives to encourage resource flexibility.
Docket No. ER15-623-000, et al. - 11 -

payments, Non-Performance Penalties and Bonus Performance Payments, the 

Commission sees great value in a tariff-defined mechanism that establishes a transparent, 

operative framework to provide an incentive for resource reliability. Under PJM’s 

current capacity construct, resources may not have sufficient incentives to deliver on their 

capacity commitments when needed; under PJM’s proposal, which we accept today, 

capacity resources in PJM will face new and substantial penalties for non-performance 

that we conclude will help ensure the reliability of the PJM system. Maintaining 

reliability is not optional, and it is critical that PJM’s forward capacity market, which 

plays an essential role in that reliability effort, work to provide an incentive for resource 

performance during times of system stress. Therefore, while we accept PJM’s proposal 

(as modified), the Commission can and will actively monitor its implementation, and we 

will act where necessary to modify it to ensure the proper alignment of performance 

obligations, incentives, and penalties. 

II. Notice of Filing and Responsive Pleadings

16. Notice of PJM’s filing in Docket No. ER15-623-000 was published in the Federal 

Register, 79 Fed. Reg. 77,467 (2014) and notice of PJM’s filing in Docket No. EL15-29-

000 was published in the Federal Register, 79 Fed. Reg. 76,321 (2014), with 

interventions and protests due on or before January 20, 2014.23 Notices of intervention 

and timely-filed motions to intervene were submitted by the entities listed in the 

Appendices to this order.24 In addition, motions to intervene out-of-time were submitted, 

in Docket No. ER15-623-000, by Panda, Covanta, Noble, AEIF, and Morgan Stanley, 

and in Docket No. EL15-29-000, by Panda, EKPC, AEIF, and Morgan Stanley. 

17. Comments and/or protests were submitted by numerous entities, as summarized 

below. In addition, answers were submitted, in Docket No. ER15-623-000, by PJM, the 

Indiana Commission, the PJM Utilities Coalition, EKPC, Exelon, the Maryland 

Commission, Panda, Calpine, the Transition Coalition,25 Brookfield, EKPC, the Market 

Monitor, Direct Energy, Homer City, LS Power, Duke, AEMA, Joint Protestors,26

 23 See Notice Granting Extension of Time (issued Dec. 24, 2014).

24 The abbreviated names or acronyms by which these entities are referred to in 

this order are noted in the Appendices.

25 The Transition Coalition is comprised of the following entities: the Delaware

Commission, Duquesne Light Company, Direct Energy, NextEra, Noble, ODEC, PJM 

Industrial Coalition, Rockland, SMEC, and WGL Energy Services, Inc. 

26 Joint Protestors is comprised of the following entities: AMP, ODEC, and 

SMEC. 
Docket No. ER15-623-000, et al. - 12 -

NRG/Dynegy, Dominion, Moxie, Rockland, P3, Joint Consumers, RESA, and H.Q. 

Energy Service (U.S.) Inc. Answers were submitted, in Docket No. EL15-29-000, by 

PJM, Exelon, the Maryland Commission, the PJM Utilities Coalition, Calpine, the 

Market Monitor, Joint Protestors, Dominion, Rockland, and Joint Consumers. 

18. Notice of PJM’s Deficiency Letter Response was published in the Federal 

Register, 80 Fed. Reg. 21,716 (2015), with interventions and protests due on or before 

April 24, 2015. Timely motions to intervene were filed by Public Citizen, Inc and 

SunEdison Utility Holdings, Inc.

19. Comments and/or protests were submitted by numerous entities, as summarized 

below. 

III. Procedural Matters

20. Pursuant to Rule 214 of the Commission’s Rules of Practice and Procedure, 

18 C.F.R. § 385.214 (2014), the notices of intervention and timely, unopposed motions to 

intervene serve to make the entities that filed them parties to the proceedings in which 

these pleadings were filed. In addition, given their interest in the proceedings, the early 

stage of the proceedings, and the absence of undue prejudice or delay, we grant the 

unopposed, late-filed interventions submitted, in Docket No. ER15-623-000, by Panda, 

Covanta, Noble, AEIF and Morgan Stanley, and in Docket No. EL15-29-000, by Panda, 

EKPC, AEIF, and Morgan Stanley.

21. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure prohibits an 

answer to a protest and an answer to an answer unless otherwise ordered by the 

decisional authority. We accept the aforementioned answers, in the proceedings in which 

they were submitted, because they have provided information that has assisted us in our 

decision-making process.

IV. Capacity Market Revisions

22. As discussed more fully below, we conditionally accept PJM’s Capacity 

Performance filing, subject to PJM’s submitting a compliance filing within 30 days of the 

date this order issues. PJM has demonstrated that, in light of recent events and changes 

in the PJM region, its existing capacity market rules addressing capacity performance 

should be revised because they do not provide adequate incentives for resource 

performance and may negatively impact reliability. We find that most of the proposed 

tariff revisions in the Capacity Performance Filing, as modified by certain aspects of 

PJM’s Deficiency Letter Response, are just and reasonable and will provide appropriate 

incentives for resource performance. However, we condition our acceptance upon PJM’s 

submission of a compliance filing to effectuate the modifications outlined in Appendix C

and discussed in detail in the body of this order. 
Docket No. ER15-623-000, et al. - 13 -

23. Unless otherwise noted herein, we find that PJM’s Capacity Performance 

proposal, as modified by its Deficiency Letter Response,27 is just and reasonable.28 In the 

sections of this order that follow, we consider the specific elements of PJM’s proposal, 

beginning with the need for reforms to PJM’s capacity market.

A. PJM’s Justification for the Proposed Changes

1. PJM’s Proposal

24. PJM designed its existing capacity market construct (the Reliability Pricing 

Model, or RPM), to ensure resource adequacy at a reasonable cost through the use of an 

annual auction.29 PJM states, however, that these rules have failed to keep pace with the 

level of commitments required, apply inadequate charges for sub-par performance, and 

do not adequately ensure actual performance. PJM adds that a resource adequacy 

construct that fails to provide adequate incentives for resource performance can threaten 

the reliable operation of PJM’s system and force consumers to pay for capacity without 

receiving commensurate reliability benefits.

25. PJM explains that its existing rules compensate a capacity resource based on its 

real-time performance, by increasing, or decreasing, its total capacity revenue. Under 

these rules, a resource’s “availability” during peak hours is determined based on whether 

the resource is able to operate in a given hour at expected levels, subject to a Peak Hour 

Assessment Charge. PJM states, however, that this existing penalty structure is 

inadequate, given that it places most of the risk of resource under-performance on loads, 

not on resource owners or operators. PJM notes, in its answer, a seller can earn 

substantial revenues through PJM’s capacity auctions by committing its resource as 

capacity, with little concern that it will lose much of that revenue even if it performs 

poorly.30 As such, the Peak Hour Assessment Charge provides little incentive to the 

seller to make capital improvements, or increase its operating expenses for the purpose of 

enhancing the availability of its unit during emergency conditions.

 27 In its answer, PJM proposes to withdraw one element of its proposal in 

Schedule 8 of the RAA addressing load serving entity capacity obligation allocations. 

We therefore condition acceptance of PJM’s proposal on removal of this element. PJM 

may, at its election, make a separate filing with the Commission addressing this matter. 

28 Nothing in this order prevents the enforcement of the Commission’s AntiManipulation Rule. 18 C.F.R. § 1c.2 (2014).

29 PJM Interconnection, L.L.C., 117 FERC ¶ 61,331 (2006). 

30 See PJM answer at 7.
Docket No. ER15-623-000, et al. - 14 -

26. PJM states that its existing rules also limit a seller’s opportunity to recover

through the capacity market certain costs associated with improving the performance 

capability of its resource. Specifically, PJM’s currently-effective offer cap for existing 

generators (the Avoidable Cost Rate), while allowing for the recovery of certain capital 

costs (e.g., investments in dual-fuel capability), does not allow sellers to include in their 

sell offers the costs attributable to natural gas firm transportation arrangements. PJM 

states, however, that allowing capacity sellers to include costs of firm natural gas 

transportation in their capacity offers is not, alone, sufficient to fully address the problem. 

According to PJM, even if a seller could include such costs in its Avoidable Cost Rate, 

PJM’s existing rules provide inadequate deterrents to poor performance to incent it to 

incur such costs. PJM explains that doing so would reduce the seller’s probability of 

clearing the capacity market because the seller must compete with other sellers that can 

clear in the auction and receive all, or most, of their allotted capacity payments without 

making the same type of investments.

27. PJM contends that the deficiencies in PJM’s existing rules, in this regard, will 

only be exacerbated, if they remain in effect, as additional natural gas-fired resources 

come online. PJM states that in the years following its implementation of PJM’s capacity 

auctions, its generator forced outage rates have increased. In particular, PJM notes that 

resource performance fell well below expected levels during the extreme weather 

events of January 2014 (i.e., during the polar vortex), when PJM’s forced outage rate 

(22 percent) far exceeded its 7 percent historical average.31 

28. In response to these deficiencies, PJM proposes to replace its existing capacity 

products with a new capacity product, a Capacity Performance Resource, capable of 

sustained, predictable operation such that the resource will be reliably available to 

provide energy and reserves in an emergency condition. As a transition to the Capacity 

Performance product, PJM proposes a separate, interim capacity product with a lower 

performance expectation, referred to as a Base Capacity Resource, for the 2018-19 and 

2019-20 delivery years. PJM states that it will procure at least 80 percent of the region’s 

capacity requirement for those years in the form of Capacity Performance Resources, 

with the remainder composed of Base Capacity Resources. For the 2020-21 delivery year 

and beyond, PJM proposes to procure all of the region’s capacity requirement in the form 

of Capacity Performance Resources. 

29. PJM contends that because RPM secures capacity commitments on a three-year 

forward basis, RPM reforms, for the most part, can only take full effect on a three-yearforward basis. It notes that the next RPM Base Residual Auction will secure capacity 

commitments for the delivery year that starts on June 1, 2018. PJM states that if it 

deferred these proposed changes to the following Base Residual Auction, held in 

 31 See id. at 21-22. 
Docket No. ER15-623-000, et al. - 15 -

May 2016 for the delivery year that starts on June 1, 2019, five years would pass after 

2014 without implementing a full remedy to the manifestly deficient performance 

requirements in the current rules.

2. Protests and Comments

30. Intervenors protest PJM’s Capacity Performance proposal, and the associated 

energy market changes, as premature and insufficiently vetted with stakeholders. 

Numerous protestors argue that PJM sought, and received, inadequate stakeholder input 

on its proposal. APPA/NRECA protest the breadth and haste of PJM’s proposal, 

asserting a “dearth of evidence that such drastic changes are necessary” at this time. 

Allegheny likewise argues that a “comprehensive stakeholder process” is needed to more 

fully define and develop an appropriate solution. Direct Energy and Dominion argue that 

further stakeholder processes would allow market participants to discuss whether there 

are more appropriate solutions than PJM’s proposal. PHI asserts that, prior to approving 

the proposal, the Commission should require PJM to provide stakeholders a 

comprehensive financial impact analysis of the proposed changes.

31. Intervenors characterize PJM’s proposed establishment of a Capacity Performance 

Resource as a disproportionate response to the abnormal weather patterns experienced in 

January 2014. Joint Consumers assert that these conditions were anomalous, i.e., that 

they had not been experienced for many years and are not likely to recur during future 

delivery years. OPSI points out that PJM has undertaken other initiatives to address and 

resolve reliability concerns highlighted by the events in January 2014, including 

improvements to coordination of the natural gas and electric markets, transmission 

systems, and fuel assurance. Public Interest Organizations concur, noting that the onetime gap between capacity commitments and actual performance has decreased. 

Essential Power argues that PJM’s proposal is unjust and unreasonable because it fails to 

make changes to its day-ahead energy market scheduling practices so that generators 

have notice of their obligation to run in time to use their firm natural gas transportation 

rights.

32. APPA/NRECA, PHI, Allegheny, and Joint Protestors argue that PJM has not 

explained why less extensive measures to address unit performance currently being 

developed and implemented are insufficient. U.S. Agencies, the Delaware Commission, 

and Direct Energy, too, state their concern that PJM’s proposal appears to be an 

overreaction to potential supply shortages with low probabilities. Illinois Commission 

protests that PJM has not demonstrated why, after the transition period, it is necessary 

that all capacity in PJM be Capacity Performance Resources, suggesting that PJM 

consider the development of a capacity product with seasonal characteristics. Joint 

Protestors argue that the focus should be on addressing operational issues directly 
Docket No. ER15-623-000, et al. - 16 -

through improved price formation, noting that PJM reported improvements in unit 

availability during January 2014.32 

33. Intervenors challenge PJM’s proposal as unduly expensive and unsupported as to 

its cost impact. The Pennsylvania Commission asserts that PJM has not attempted to 

quantify the cost impact of its proposal. The Delaware Commission argues that there are 

many aspects of PJM’s proposal for which the costs and benefits cannot be estimated 

with any degree of certainty. Joint Consumers, CleanGrid, Allegheny, and 

APPA/NRECA argue that PJM’s proposal will increase capacity costs dramatically for 

consumers without providing any additional assurances of reliability that are not already 

being provided, or could not be provided, through more surgical means. OPSI and the 

Delaware Commission similarly argue that PJM has not provided sufficient data to show 

that the expenditures proposed are needed for reliability and asserts that the costeffectiveness of the proposal must be examined through a hearing. Direct Energy argues 

that PJM’s proposal will lead to significant unwarranted capacity cost increases, 

including during the proposed transition period.

34. Public Interest Organizations point out that while, in the Fuel Assurance Guidance 

Order, the Commission emphasized the need to consider both costs and benefits in 

evaluating any capacity performance proposal, PJM’s proposal fails to demonstrate that 

the asserted benefits outweigh the costs. Specifically, Public Interest Organizations cite 

to PJM’s cost-benefit study of its October 7, 2014 capacity performance proposal, 

showing net incremental costs (taking into account the savings from load payments and 

uplift) for the next three delivery years would be in the range of $1.4 to 4.0 billion, i.e., 

that it would be less costly to pay uplift during extreme weather conditions. CleanGrid 

argues that, by compromising the participation of renewables, demand response, and 

energy efficiency, which drives down market clearing prices, PJM’s proposal will lead to 

“dramatically higher” costs for consumers.

35. Intervenors also question whether the approach taken by ISO-NE to address 

capacity performance can be applied to PJM’s markets. Direct Energy argues that there 

are significant differences in the PJM and ISO-NE markets that warrant different capacity 

performance proposals. Public Interest Organizations argue the PJM region is larger than 

ISO-NE and requires a more diverse supply of resources. The PJM Utilities Coalition 

argues that the alternative approach to fuel assurance taken by ISO-NE (a price-incentive 

approach) would not be appropriate for PJM, given the speculative offer behavior in 

PJM’s capacity auctions and the fact that offers will not always reflect the physical 

attributes of the underlying resource.

 32 Joint Protestors comments to PJM’s Deficiency Letter Response at 14-15.
Docket No. ER15-623-000, et al. - 17 -

3. PJM’s Answer

36. PJM, in its answer, defends its proposal to improve resource performance in its 

markets. PJM argues that it did not file its Capacity Performance proposal to address one 

year or one set of circumstances. Rather PJM contends that its proposal is designed to 

address a fundamental shortcoming in PJM’s capacity construct. In response to claims 

that PJM’s proposal is an overreaction to the Polar Vortex, PJM asserts that while 

the Polar Vortex provided a dramatic demonstration of these adverse effects, the lack 

of similar disruptions this winter do not demonstrate that the conditions seen in 

January 2014 were a one-time event that could not be duplicated in the future. PJM 

contends that, given projected retirement trends and the region’s increased reliance on 

natural gas, it is prudent for PJM to eliminate disincentives to sound unit performance 

even if another Polar Vortex does not occur in the near future. 

37. PJM also responds to intervenors’ assertion that PJM’s proposal is deficient, 

absent the consideration of a cost-benefit analysis. PJM asserts that the Commission, 

generally, does not require such a showing, when the proposed changes are otherwise just 

and reasonable.33 PJM adds that, regardless, it did prepare a cost-benefit analysis for its 

stakeholders, with input from the Market Monitor, with findings that highlight the overall 

economic benefits of PJM’s proposal, including improved performance and a reduction in 

uplift. PJM asserts that, based on these findings, the economic benefits attributable to its 

proposal exceed the economic costs in years with extreme weather. 

4. Additional Answers

38. Calpine, in its answer, responds to the Joint Consumers’ claim that PJM’s filing 

represents an over-reaction to the Polar Vortex. Calpine argues that PJM’s filing 

addresses valid reliability concerns and the underlying deficiencies in PJM’s existing 

capacity market construct, including the incentives and allowances that give rise to PJM’s 

forced outage rates.34 The PJM Utilities Coalition notes that, in February, the PJM 

system has experienced its fifth and seventh highest winter peaks on record and that if 

nothing is done to improve performance, PJM could experience a loss-of-load event as 

early as delivery year 2015-16, if conditions similar to the events of January 2014 occur. 

 33 PJM answer at 15 (citing Sw. Power Pool, Inc., 141 FERC ¶ 61,048, at P 57 

(2012)).

34 Calpine adds that, while the Polar Vortex itself may have been a highly unusual 

event, the problems it highlighted have been developing for years and, if not addressed, 

will jeopardize reliability of the PJM grid, even if there is never another Polar Vortex.
Docket No. ER15-623-000, et al. - 18 -

39. Exelon answers that, without rule changes, capacity performance will continue to 

decline in the coming years, due to the failure of PJM’s existing rules to provide adequate 

incentives for performance. Exelon notes that operations and maintenance spending for 

coal units has declined, resulting in worsening forced outage rates; an unprecedented 

number of coal plants are scheduled to retire; and additional coal and nuclear plants are at 

risk of retirement. Exelon further notes that these units will be replaced by single-fuel 

natural gas plants that will draw on the same constrained supply infrastructure that 

resulted in the curtailment of one-fifth of PJM’s natural gas fleet last winter.

40. Exelon also responds to intervenors’ argument that PJM’s establishment of a 

Capacity Performance Resource product, as proposed, is too costly. Exelon argues that 

the Commission’s prior acceptance of PJM’s one-event-in-10-years loss-of-load 

expectation carries with it an implicit finding that the benefits attributable to achieving 

this standard are cost-justified. In response to intervenors’ claims that PJM’s proposal is 

too costly and is unsupported by any cost-benefit analysis, Exelon states that it conducted 

its own cost-benefit analysis and that the analysis demonstrates that the benefits of PJM’s 

proposal will outweigh its costs. 

5. Commission Determination

41. We find that PJM has provided sufficient justification for its proposed revisions to 

its capacity market rules. Under PJM’s existing rules, if PJM procures capacity in an 

amount that exceeds the region’s Net Installed Capacity Requirement, resource adequacy 

for the relevant delivery year is assumed to have been achieved. However, this existing 

procurement standard notwithstanding, PJM demonstrates that the combination of 

deteriorating resource performance and the ongoing change in the resource mix in the 

PJM region makes rule changes appropriate.

42. PJM presents evidence that generator equivalent forced outage rates have steadily 

increased since implementation of RPM and the Peak-Hour Period Availability charge 

with delivery year 2007-08.35 In addition, the Polar Vortex of January 2014 was notable 

not only for the 22 percent forced outage rate, but also for the scope and breadth of 

reasons resources were unable to deliver energy during the extreme cold temperatures. 

While PJM reports that natural gas interruptions accounted for the largest single cause of 

resource non-performance, on a MW basis, roughly three-quarters of the over 40,000 

MW on forced outage were due to other causes.36 This evidence reasonably supports 

PJM’s concern that the problem is one in which resources are not being properly incented 

 35 PJM transmittal at 15-16 (Docket No. ER15-623-000).

36 Id. at 17-18.
Docket No. ER15-623-000, et al. - 19 -

to make the investments required to perform reliably, including during extreme weather 

conditions.

43. PJM also presents evidence that, absent rule changes, resource performance will 

continue to decline in future delivery years, given the current retirement trends in the 

region and resource owners’ increasing reliance on natural gas as a fuel source. PJM 

states that “[c]umulatively since 2008, and projecting forward to 2019, over 26,000 MW

of coal and oil-fired generation in the PJM [r]egion have retired or are expected to 

retire.”37 PJM further states that the vast majority of resources seeking to enter the PJM 

region in every one of the past five years has been natural gas-fired, and that, currently, 

natural gas-fired projects account for approximately 82 percent of the projects listed in its 

interconnection request queue.38 Although the Fuel Assurance Guidance Order noted 

that the Commission’s concerns regarding fuel assurance issues are not limited to natural 

gas-fired resources,39 this resource type – and a re-weighting of PJM’s fleet toward 

natural gas – does present unique challenges. Accordingly, we find that these significant 

ongoing changes to the resource mix in PJM and the demonstrated deterioration in 

existing resource performance in recent years together provide sufficient justification for

PJM’s proposal to enhance the reliability of resources in the capacity market. 

44. Some parties argue that generators already improved cold-weather performance in 

response to the outages experienced during the Polar Vortex. In support of this assertion, 

these parties point to lower outage rates in the current 2014-15 delivery year. While 

encouraging, this does not assuage the long-term reliability concerns raised by historical 

unit performance. Moreover, it is not uncommon for performance to improve after an 

event, only to trail off later. PJM has shown that, although its capacity market construct 

has been successful in procuring commitments three years in the future, it has not been 

successful in ensuring that resources actually perform when called upon three years in the 

future. The record reflects that there are three primary reasons for this failure to perform: 

(1) a lack of an adequate penalty structure; (2) a limited ability to recover costs of 

necessary investments; and (3) an incentive to trim capital improvement plans and 

operating budgets.40 We discuss each of these shortcomings of the current market design, 

below.

 37 Id. at 12.

38 Id. at 12-13.

39 Fuel Assurance Guidance Order, 149 FERC ¶ 61,145 at P 7.

40 PJM transmittal at 23-25 (Docket No. ER15-623-000); Exelon January 20, 2015 

comments at 11, 16-17 (citing PJM Interconnection L.L.C., 2014 Reserve Requirement 
Docket No. ER15-623-000, et al. - 20 -

45. As to the lack of an adequate penalty structure, while PJM’s existing OATT 

includes charges for capacity resources that fail to perform when called upon, PJM’s 

experience has shown these charges to be insufficient. As PJM indicates, even poorly 

performing resources can expect to pay only minimal penalties, placing most of the risk 

of under-performance on load. For example, PJM’s Peak-Hour Period Availability 

Charge applies when a resource’s actual availability, during 500 peak hours of the 

delivery year, is worse than the resource’s five-year average annual outage experience. 

As PJM demonstrates, this charge creates a perverse incentive, whereby a poorlyperforming resource can avoid penalties by improving its performance only slightly over 

its five-year average. It also applies to too many hours of the delivery year, allowing 

resources to offset poor performance during critical emergency hours with adequate 

performance during other peak hours. As PJM shows, for the 2013-14 delivery year that 

saw the significant forced outage rates during Polar Vortex days described above, PeakHour Period Availability Charges totaled approximately $38.9 million, or just 0.6 percent 

of total capacity revenues.41 While PJM will also reduce a capacity resource’s saleable 

megawatt (MW) value to reflect its forced outage history, such reductions are only 

realized in subsequent years, and will typically only change a resource’s saleable capacity 

by a few percentage points each year. Without more stringent penalties, PJM has shown 

there is little incentive for a seller to make capital improvements, or increase its operating 

maintenance for the purpose of enhancing the availability of its unit during emergency 

conditions.

46. As to limited recovery of costs for necessary investments, PJM shows that its 

existing rules also limit the seller’s opportunity to recover, as a capacity resource, the 

costs it must incur to improve the performance capability of its resource. Specifically, 

PJM’s currently-effective offer cap for existing generators (the Avoidable Cost Rate), 

while allowing for the recovery of certain capital costs (e.g., investments in dual-fuel 

capability), skews investment decisions toward capital procurement and does not allow 

sellers to include in their sell offers costs attributable to other means of securing reliable 

fuel, such as natural gas firm transportation arrangements or priority fuel procurement 

contracts. PJM asserts that the deficiencies in its existing rules, in this regard, will only 

be exacerbated if they remain in effect as additional natural gas-fired resources come on 

line.

47. Additionally, PJM explains that its existing rules operate in manner that 

encourages a seller to trim its capital improvement plans and operating budgets to remain 

competitive with resources that can clear in PJM’s auction. As PJM indicates, faced with 

 

Study, October 9, 2014, at 8-9, http://www.pjm.com/~/media/planning/res-adeq/2014-

pjm-reserve-requirementstudy.ashx.)

41 PJM transmittal at 9 (Docket No. ER15-623-000).
Docket No. ER15-623-000, et al. - 21 -

only minimal penalties, many resources offer into PJM’s auction as price-takers, 

displacing resources that submit higher priced bids that account for such investments and 

incenting resources to delay prudent investments that would enhance fuel security or 

otherwise improve their performance capability. 

48. For the reasons discussed above, we find that PJM adequately demonstrates the 

appropriateness of revising its existing capacity market construct at this time. PJM has 

shown that its existing payment features not only inadequately incent resource 

performance, but may perversely select less reliable resources over more reliable 

resources because a capacity seller’s decision to forego investments that would improve 

resource performance allows it to offer in PJM’s capacity market at a lower price and be 

paid the clearing price while providing less reliable service. 

49. As to intervenors’ arguments that PJM’s proposal lacks the supportive findings of 

a cost-benefit analysis, we note, as a threshold matter, that the Commission does not 

generally require the mathematical specificity of a cost-benefit analysis to support a 

market rule change. Rather, the Commission considers the proposal in light of the 

currently effective tariff and comments in support and opposition to reach its 

determination. Here, on balance and in light of other changes on which we condition our 

acceptance, we find the proposal to be just and reasonable. 

50. Intervenors’ argue that better incentives for performance could be achieved

through other means, including energy and ancillary services markets reforms. As 

discussed above, PJM has provided sufficient justification for its proposal and has shown 

that acting at this time to revise the existing capacity market construct is appropriate. We 

are unpersuaded that any of the reforms identified by intervenors are substitutes for this 

proposal or render it unjust and unreasonable. For example, although better alignment of 

electric market and natural gas pipeline scheduling deadlines would improve operations, 

it would not provide capacity market sellers the incentive to perform. We nevertheless 

note that the Commission will continue to take appropriate steps to encourage proper 

incentives and improved price formation in energy markets.42 

B. Performance Requirements

1. PJM’s Proposal

51. PJM states that a Capacity Performance Resource must be capable of sustained, 

predictable operation that allows the resource to be available to provide energy and 

 42 See Price Formation in Energy and Ancillary Services Markets Operated by 

Regional Transmission Organizations and Independent System Operators, Docket 

No. AD14-14-000.
Docket No. ER15-623-000, et al. - 22 -

reserves whenever PJM determines an emergency condition exists. PJM states that, 

rather than establishing prescriptive eligibility requirements such as delineating 

acceptable fuel transportation arrangements, storage requirements for dual fuel capable 

units, or weatherization requirements, PJM proposes that an offer as a Capacity 

Performance Resource include a representation, described in more detail below, that the 

Capacity Market Seller has made, or will make, the necessary investment to ensure the 

resource has the capability to provide energy when called upon by PJM. 

52. PJM proposes that all annual Capacity Resources are eligible to offer in as 

Capacity Performance Resources, unless such resources qualify for an exception under 

the new proposed must-offer requirement in section 6.6A of Attachment DD.43 PJM also 

proposes that an Annual Demand Resource be permitted to aggregate with other eligible 

resource types to submit a Capacity Performance offer.44 

53. PJM notes that, as it moves towards a single Capacity Performance product, 

certain resources, including Intermittent Resources and Capacity Storage Resources, may 

not be capable of sustained, predictable operation and may not be able to provide energy 

during both summer and winter emergency conditions. PJM states, however, that 

resources of this sort should be encouraged to continue to participate in PJM’s capacity 

market. Accordingly, PJM proposes that sellers that own one or more Capacity Storage 

Resources, Intermittent Resources, Demand Response Resources, or Energy Efficiency 

Resources that are located within the same Locational Deliverability Area be permitted to 

submit an offer as a Capacity Performance Resource, as represented by the aggregated 

unforced capacity value of such resources (aggregated offer).

54. PJM proposes that, given the application of Non-Performance Charges and 

Performance Bonus Payments under the Capacity Performance design (as discussed in 

Section V.C, below), compliance for PJM-dispatched load reductions should be based on 

real-time energy load reductions provided using the same Customer Baseline Load 

methodology that PJM currently utilizes for measuring load reductions in the energy 

market.45 PJM proposes to determine the unforced capacity value of Demand Resources, 

 43 PJM thus proposes to eliminate Limited Demand Resources and Extended 

Summer Demand Resources.

44 See proposed OATT at Attachment DD, section 5.6.1(h).

45 See proposed RAA at Schedule 6, section G and proposed OATT at Attachment 

DD-1, section G. PJM states that for Demand Resources that employ direct load control 

to measure and ensure reductions in load based on the time period of the control signal, it 

does not propose to change non-summer compliance measurement to the customer 

baseline load method because direct load control-based resources have established the 

ability to reduce load in response to a control signal and thus the control signal is 
Docket No. ER15-623-000, et al. - 23 -

starting with the 2018-19 delivery year, as the nominated value times the forecast pool 

requirement and to eliminate the step of multiplying that product by the “demand 

response factor.”46 PJM asserts that, under its proposal, demand response factor 

discounting due to assumed constant quantities of load reductions at high load levels is no 

longer necessary.47 

55. PJM also proposes rule changes applicable to Energy Efficiency Resources, 

similar to those summarized above for Demand Resources. First, PJM proposes to 

broaden the definition of Energy Efficiency Resources to allow for winter-peak 

reductions, in addition to summer-peak reductions. PJM also proposes to establish a new 

energy efficiency resource product, called Annual Energy Efficiency Resource, and to 

rename the existing product as Base Capacity Energy Efficiency Resource.48

56. PJM proposes that an Annual Energy Efficiency resource be permitted to offer as 

either (or both) a Capacity Performance Resource or a Base Capacity Resource, while a 

Base Capacity Energy Efficiency Resource be permitted to offer only as a Base Capacity 

Resource. PJM also proposes that Energy Efficiency Resources be permitted to 

 

sufficient to determine compliance. PJM also proposes no change in the measurement of 

load reductions during the summer months, regardless of whether the Demand Resource 

is a Base Capacity Resource or a Capacity Performance Resource. 

46 Proposed RAA at Schedule 6, section L and proposed OATT at Attachment DD, 

section 5.11(a)(iii). The demand response factor is the increase in the peak load carrying 

capability in the PJM region due to demand response resources divided by the total 

nominated value of demand response resources in the PJM region. It is determined using 

a probabilistic approach to determine reliability. See e.g. RAA at Schedule 6, section B 

and proposed OATT at Attachment DD-1, section B.

47 For this same reason, PJM also proposes to eliminate consideration of the 

demand response factor from the determination of an Energy Efficiency Resource’s 

unforced capacity value. See proposed RAA at Schedule 6, section L(3) and proposed 

OATT at Attachment DD-1, section L(3)

48 See proposed RAA at Schedule 6, section L(2) and proposed OATT at 

Attachment DD-1, section L(2). PJM adds that an Annual Energy Efficiency Resource is 

designed to achieve a continuous reduction in energy consumption in both the summer 

and winter peak seasons, with a reduction time-frame from 2:00 p.m. to 6:00 p.m. over 

the summer months (June through August) – the same summer time-frame as will apply 

to Base Capacity Energy Efficiency Resource. PJM states that the winter peak season 

will be from January through February, with a reduction time-frame from 7:00 a.m. to 

9:00 a.m. and from 6:00 p.m. to 8:00 p.m. each day. Id.
Docket No. ER15-623-000, et al. - 24 -

aggregate and submit offers, whether coupled or not, as a Base Capacity Resource or a 

Capacity Performance Resource. 

57. PJM also proposes that a Capacity Performance offer be accompanied by a good 

faith representation as to the seller’s performance ability.49 With respect to External 

Generation Capacity Resources, PJM proposes that any such resource be required to 

represent that it meets the criteria for obtaining an exception to the Capacity Import Limit 

as contained in section 1.7A of the RAA.

50 PJM also proposes that knowingly false 

representations may be determined by PJM to constitute a violation of, and may subject 

the seller to penalties under, PJM’s market rules and/or the Commission’s market rules. 

58. PJM also proposes to reserve the ability for PJM or the Market Monitor to obtain 

information and documentation from a seller to evaluate whether a given resource can 

meet the operational and performance requirements applicable to a Capacity Performance 

Resource. PJM states that this review allowance is similar to the process currently in 

 49 Proposed PJM OATT at Attachment DD, section 5.5A(c). Specifically, the 

seller would be required to represent that it: (i) “has made, or is capable of demonstrating 

that it will make, the necessary investment to ensure the Capacity Resource has the 

capability for the entire such Delivery Year to provide energy at any time when called 

upon by the Office of the Interconnection”; (ii) “shall be capable of complying with the 

performance obligations specified in this Attachment DD and in Schedule 1 of the 

Operating Agreement, by the relevant Delivery Year”; (iii) “meets the criteria for 

obtaining an exception to the Capacity Import Limit as contained in section 1.7A of the 

[RAA], to the extent the underlying Capacity Resource is an external Generation 

Capacity Resource”; and (iv) “contemplates the physical delivery of the Capacity 

Performance Resource underlying such Sell Offer by no later than the commencement of 

the applicable delivery year.” PJM notes that an offer would not be deemed to meet the 

standard of physical delivery if, at the time it was submitted, the seller intended to satisfy 

its obligation for the applicable delivery year by subsequently securing a replacement 

Capacity Performance Resource through either an Incremental Auction or a bilateral 

transaction. 

50 The criteria for an exception are that the external resource: (i) has met all 

applicable requirements to be treated as equivalent to PJM region internal generation that 

is not subject to North American Electric Reliability Corporation (NERC) tagging as an 

interchange transaction; (ii) has long-term firm transmission service confirmed on the 

complete transmission path from the resource into PJM; and (iii) will be subject to the 

same obligations imposed on Generation Capacity Resources located in the PJM region 

by section 6.6 of Attachment DD of the OATT, including the capacity market must-offer 

requirement. RAA at Article 1 – Definitions, 1.7A.
Docket No. ER15-623-000, et al. - 25 -

place with respect to demand response sell offers. PJM adds that, if the seller can provide 

a satisfactory explanation of how it intends to meet the standard of performance to deliver 

energy during emergency conditions, with supporting documentation, if requested, PJM 

will accept the seller’s offer. PJM states that, under its proposal, it would be required to 

provide the seller and the Market Monitor with any determination to reject an offer no 

later than 65 days prior to the commencement of the offer period for the relevant capacity 

auction. The seller would thereafter be permitted to seek recourse with the Commission 

if it does not agree with PJM’s determination.

59. PJM asserts that, in response to its proposed rule changes (including its proposed 

Non-Performance Charges, as discussed in Section V.C of this order, below), market 

participants will be encouraged to invest in plant redesign changes or new equipment, or 

increase operating budgets to accommodate more staff, firm fuel delivery arrangements, 

greater inventories, or changed operating practices. PJM emphasizes that, while it is not 

prescribing the manner in which sellers will ensure that their resources perform, PJM’s 

capacity auctions, by clearing some but not all offers, will reveal which strategies are 

cost-effective. In further support of its proposal, PJM cites to its existing rules requiring 

reasonable assurances that Demand Response Resources submitting offers into PJM’s 

capacity market will, in fact, be able to provide the offered capacity.51 PJM asserts that 

this expectation and its corresponding requirement are as applicable to Generation

Capacity Resources as they are to Demand Response Resources. 

2. Protests and Comments 

60. Some intervenors argue in their protests that PJM should clearly define eligibility 

requirements for Capacity Performance Resources. Joint Protestors and Exelon suggest 

that PJM’s definitions should consist of specific criteria, not aspirational statements. 

Joint Protestors contend that as set forth in the proposed tariff, the eligibility criteria are:

(1) the resource has either cleared a capacity auction or is otherwise committed as a 

capacity resource; and (2) the resource is obligated to deliver energy during the relevant 

delivery year as scheduled and/or dispatched by the Office of Interconnection during the 

Performance Assessment Hour.52 Joint Protestors and Exelon recommend that PJM’s 

eligibility requirements and process be modified such that there are clear and 

 51 PJM transmittal at 24 (Docket No. ER15-623-000) (citing PJM Interconnection, 

L.L.C., 146 FERC ¶ 61,150 at P 22 (2014)).

52 Proposed PJM OATT at Attachment DD, section 2.48A. (“‘Performance 

Assessment Hour’ shall mean each whole or partial clock-hour for which an Emergency 

Action has been declared by the Office of the Interconnection, provided, however, that 

Performance Assessment Hours for a Base Capacity Resource shall not include any hours 

outside the calendar months of June through September.”)
Docket No. ER15-623-000, et al. - 26 -

understandable eligibility requirements, which would eliminate both opportunities for 

conflict and manipulation by sellers and the necessity for PJM or the Market Monitor to 

judge whether the resources qualify. Joint Protestors claim that PJM’s proposal will be 

unworkable and overly cumbersome and therefore unjust and unreasonable. Exelon 

requests that the Commission direct PJM to create Capacity Performance eligibility 

screens for units that historically have performed poorly.

61. Intervenors protest PJM’s proposed treatment of renewable resources. Wind 

Energy and Renewables Coalition argues that PJM’s proposal would incent renewable 

and intermittent resources to offer less capacity than their true value and does not account 

for all resources’ full contribution to the total power system capacity. U.S. Agencies,

Public Interest Organizations, and CleanGrid argue that PJM’s proposal fails to value 

renewable resources, conflicts with important state and federal public policies, and 

functionally eliminates the participation of renewables, demand response, and energy 

efficiency and storage in PJM’s capacity market. 

62. Intervenors also argue that PJM’s proposal creates unnecessary barriers to entry to 

demand response, potentially reducing the absolute volume of Demand Resources that 

may participate and decreasing the forms of demand response available. The 

Pennsylvania Commission characterizes PJM’s existing demand response rules as welldesigned and argues that PJM’s proposed expansion of its existing hours-of-performance 

requirements for Demand Resources represent a disproportionate response that will likely 

lead to less demand response participation, less reliability, higher costs to consumers, and 

less resource diversification. Intervenors also object to PJM’s proposed elimination of 

Limited and Extended Summer Demand Response. Joint Consumers and Rockland argue 

that there are cost savings associated with these summer peaking resources and that a mix 

of resource types, including Limited Demand Response, Extended Summer Demand 

Response, and peaking generation resources, is appropriate to meet PJM’s expected peak 

load service obligations.53 

63. Public Interest Organizations assert that PJM’s proposal to allow for aggregated 

offers from certain resources (i.e., from Capacity Storage Resources, Intermittent 

Resources, Demand Resources, or Energy Efficiency Resources) will help alleviate the 

 53 See also Public Interest Organizations comments at 12 (arguing that eliminating 

sub-annual demand response will increase costs to consumers by more than $2.2 billion, 

as shown by the Market Monitor’s 2017-18 Base Residual Auction sensitivity analysis); 

Rockland protest at 6-7 (arguing that it is unreasonable to assume that Limited and 

Extended Summer Demand Response will be able to pool with other demand response to 

participate as Capacity Performance Resources and that PJM’s proposal fails to 

adequately recognize steps already taken to address concerns that such resources have 

limited availability). 
Docket No. ER15-623-000, et al. - 27 -

adverse impact that PJM’s Capacity Performance Resource requirements will have on 

these resources. Nonetheless, Public Interest Organizations, and others, assert that 

clarification of this allowance is required, given that the proposed language could be read 

to require that aggregated resources must come from the same seller or be controlled by 

the same seller, an interpretation they argue could unduly favor sellers with large 

portfolios. The Illinois Commission and Essential Power agree, arguing that PJM’s 

proposal to prohibit resource aggregation across companies or across Locational 

Deliverability Areas will foreclose competition from companies that do not own a diverse 

portfolio of different resource types. Joint Protestors similarly claim that PJM’s proposal 

discriminates against single-plant capacity owners by not allowing them to aggregate

with other units. ESA requests clarification that the intent of PJM’s proposal is to allow 

resources to be aggregated, so long as they are located within the same unconstrained

Locational Deliverability Area group, rather than the same Locational Deliverability 

Area. Wind Energy and Renewables Coalition assert that PJM should also allow variable 

resources to aggregate with any other type of resource. 

64. The Pennsylvania Commission characterizes PJM’s proposal to exclude resources 

other than Capacity Storage Resources, Intermittent Resources, Demand Resources, and 

Energy Efficiency Resources as unsupported. Joint Protestors argue that the proposal 

gives undue preference to variable resources because the differing treatment has no valid 

basis in reliability considerations or other relevant factors.

65. EPSA protests that allowing Demand Resources to submit aggregated offers is 

contrary to the intent underlying PJM’s Capacity Performance construct and is at odds 

with PJM’s efforts in other proceedings to require demand response to participate on an 

equal or more comparable footing with generation resources. 

66. Covanta asserts that small power production facilities operating as qualifying 

facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA)54 should be 

allowed to use fossil fuels to deliver energy and reserves when participating as Capacity 

Performance Resources.55

 54 16 U.S.C. § 2601 et seq. (2012).

55 Covanta therefore requests that the Commission exempt such qualifying 

facilities’ use of fossil fuels, when called upon by PJM during emergencies, from the 

25 percent limitation set forth in Section 292.205(b) of the Commission’s regulations. In 

the alternative, Covanta asks the Commission to require PJM to revise its proposal to 

permit such qualifying facilities that are waste resources to participate as Capacity 

Performance Resources in a way that will not jeopardize their status under PURPA. See 

Covanta comments at 5 (asserting that such an exemption would be consistent with 

Section 292.204(b)(2) of the Commission’s regulations which permits the use of fossil 
Docket No. ER15-623-000, et al. - 28 -

67. Intervenors protest PJM’s proposal to reserve for itself the ability to evaluate 

whether a given resource meets the operational and performance requirements applicable 

to a Capacity Performance Resource. NRG/Dynegy asserts that the provisions allowing 

PJM to reject a resource’s Capacity Performance offer are too ambiguous and give PJM 

excessive discretion. NRG/Dynegy adds that PJM’s proposal creates un-hedgeable risks 

for suppliers. The Market Monitor asserts that PJM’s proposal fails to set clear, 

appropriately stringent standards regarding the ability of a resource to be physically 

delivered, particularly as this requirement will apply to Demand Resources, planned 

generation, and imports. The Market Monitor further argues that in addition to the 

authority that PJM seeks to review and, when appropriate, reject a sell offer, the Market 

Monitor should also be authorized to reject an offer. The PJM Utilities Coalition 

characterizes, as unduly rushed, PJM’s proposed process by which a seller deemed 

ineligible to perform could appeal that ruling to the Commission in advance of the 

relevant auction. 

68. Intervenors also object to PJM’s proposed good faith representation requirement. 

The PJM Utilities Coalition argues that such a requirement will be difficult to enforce, 

especially in the case of a resource that is simply unrealistic (but strategic) about its 

ability to secure firm fuel arrangements. Wind Energy and Renewables Coalition assert 

that market forces alone are sufficient to meet PJM’s underlying objective. Brookfield 

requests clarification that a capacity market seller’s good faith representation cannot be 

deemed to be knowingly false or inconsistent, or in violation of PJM or Commission 

market rules, if it is given in accordance with Good Utility Practice. With respect to 

PJM’s proposal that a seller be required to make a good faith representation that its offer 

contemplates the physical delivery of its Capacity Performance Resource, the 

Pennsylvania Commission objects to the proposed corollary requirement that such an 

offer will not be found to have met this standard if, at the time it is submitted, the seller 

intends to satisfy its obligation by subsequently securing a replacement resource through 

an Incremental Auction or a bilateral transaction. The Pennsylvania Commission argues 

that such a rule could have a negative impact on the procurement of demand response, 

given that customers who participate in demand response markets, through curtailment 

service providers, often switch providers. 

69. The PJM Utilities Coalition requests that PJM be required to adopt tariff language 

specifying that, to qualify as a Capacity Performance Resource, a resource will either 

have on-site fuel back-up or firm natural gas supply. The PJM Utilities Coalition further 

argues that “firm natural gas supply” should be defined as firm natural gas supply 

commodity and firm natural gas supply transportation, storage, or the equivalent, and that 

 

fuels for “emergencies, directly affecting the public health, safety, or welfare which 

would result from electric power outages”).
Docket No. ER15-623-000, et al. - 29 -

any resource failing to meet this criteria should be required to submit an officer-certified 

plan demonstrating its reasonable expectation to meet this standard by the required 

delivery year. The PJM Utilities Coalition argues that such plan would be consistent with 

the Commission’s approvals in the case of PJM’s Demand Resources.56 

70. Intervenors also challenge the eligibility requirements that will apply to the 

designation of a Capacity Performance Resource. UGI raises the issue of a natural gasfired generator subject to a state law-based natural gas curtailment process. UGI argues 

that, in this circumstance, it cannot be concluded that such a resource is categorically 

unable to perform, or otherwise not similarly situated to other natural gas-fired 

generators. Gas Alliance seeks clarification regarding the treatment of natural gas-fired 

generators receiving fuel from a local distribution company behind the city gate. 

Essential Power argues that generators that are unable to perform due to tariff-based 

limitations that preclude their operation (i.e., due to the need to preserve natural gas 

service to other customers), should not be penalized, as ineligible, under PJM’s proposal. 

Shell argues that PJM’s proposal fails to describe what investment is adequate to 

demonstrate eligibility. Specifically, Shell argues that it is unclear how a generator could 

qualify as a Capacity Performance Resource when it does not own the relevant resource, 

but rather operates that unit under a long-term contract. 

71. The Illinois Commission and Joint Consumers argue that planned generation 

resources should not be required to execute an Interconnection Facilities Service 

Agreement before being eligible to offer into PJM’s capacity markets, arguing that such a 

requirement would act as a barrier to entry and reduce competition. The Illinois 

Commission asserts that such a requirement is unwarranted, unless and until PJM can 

identify any negative market outcomes from allowing planned generation resources to 

offer into PJM’s capacity markets. Joint Consumers assert that, given the three-year 

forward nature of PJM’s capacity market, a System Impact Study should be sufficient for 

a resource to qualify as a Planned Generation Capacity Resource. 

72. Finally, intervenors address the effect of PJM’s proposed designations on external 

resources. Brookfield requests clarification that, during an Emergency Action, PJM will 

not be authorized to recall a resource that is physically located within the PJM region but 

either has not cleared in a capacity auction or has secured replacement capacity, if such 

resource is exporting energy or capacity to another region. Joint Protestors and the 

Illinois Commission protest PJM’s proposal to limit external resources’ Capacity 

Performance offers to those resources that have exceptions to PJM’s Capacity Import 

Limit, which include a requirement that the external generation become pseudo-tied by 

the beginning of the delivery year. The Illinois Commission argues that this requirement 

 56 PJM Utilities Coalition protest at 53 (citing PJM Interconnection, L.L.C., 146 

FERC ¶ 61,150 (2014)). 
Docket No. ER15-623-000, et al. - 30 -

will unreasonably deter the entry of external resources into PJM’s capacity market and 

exacerbate seams issues between PJM and adjacent regions. In addition, Joint Protestors 

and the Illinois Commission assert that the Commission has already rejected similar 

recommendations that the pseudo-tie requirement be made a requirement for all external 

resources seeking to participate in PJM’s capacity auctions.57

3. PJM’s Answer

73. PJM responds to intervenors’ arguments regarding PJM’s proposed treatment of 

renewable resources. PJM asserts that requiring these resources to perform as a Capacity 

Performance Resource presents opportunities for these resources, not obstacles. PJM 

explains that none of these resource types will be obligated to offer as a Capacity 

Performance Resource during the transition period (as discussed in Section V.E, below) 

and, if they do choose to submit an offer, it may be aggregated. PJM adds that Demand 

Resources, Capacity Storage Resources, and Intermittent Resources will have the 

flexibility to determine the amount of capacity to offer into PJM’s Base Residual 

Auctions, and, with this flexibility, will have the opportunity to profit by their overperformance. 

74. PJM asserts that the aggregated offer option for Intermittent Resources, Capacity 

Storage Resources, Energy Efficiency Resources, and Demand Resources should 

alleviate intervenors’ concerns regarding the potential for under-estimating the value of 

these resource types. PJM also clarifies how resources in different Locational 

Deliverability Areas, and resources that are owned by multiple entities, can be aggregated 

in the capacity account of a single market participant. Specifically, PJM states that 

aggregation will be feasible across Locational Deliverability Areas. PJM also states that, 

if directed to do so, it will submit revised tariff language addressing this proposed 

allowance. 

75. PJM also responds to intervenors’ argument that aggregation among any resource 

type should be permitted. PJM argues that such an approach would transform PJM’s 

capacity bidding process from an individual unit approach to a portfolio bidding 

approach. PJM asserts that such an approach would be unwarranted. Nevertheless, PJM 

states that a traditional generation resource that is environmentally limited as a result of a 

government regulation, and which therefore could not otherwise offer as a Capacity 

Performance Resource, could potentially aggregate with another such limited resource or 

with an Intermittent Resource, Capacity Storage Resource, Demand Resource, or Energy 

Efficiency Resource. PJM also clarifies that aggregated resource offers are not required 

 57 Illinois Commission comments at 7 (citing PJM Interconnection, L.L.C., 147 

FERC ¶ 61,060, at P 21 (2014) (Capacity Import Limit Order); see also Joint Protestors 

protest at 68-70.
Docket No. ER15-623-000, et al. - 31 -

to be from the same entity and that it will consider resources to be in the same portfolio, 

to the extent such arrangements are reflected in the seller’s account. 

76. PJM also responds to intervenors’ arguments regarding PJM’s proposed good faith 

representation requirements. PJM clarifies that, under its proposal, Demand Resources 

will not be required to go beyond the requirements, including the “reasonable 

expectation” standard, as accepted by the Commission in Docket No. ER13-2108-000.58 

PJM further proposes to add additional guidelines to its good faith representation 

requirement, as applicable to fossil-fueled generation resources.59

77. PJM also clarifies that, under its proposal, a Capacity Performance Resource will 

not be required to operate during all hours of a delivery year; rather, it need only be 

 58 See PJM February 13, 2015 answer at 31 (citing PJM Interconnection, L.L.C., 

146 FERC ¶ 61,150 (2014)).

59 Specifically, PJM proposes to revise Attachment DD, section 5.5A(a)(i) to 

provide that, in submitting a sell offer for a Capacity Performance Resource, the seller 

represents that 

[E.] to the extent that the Capacity Performance Resource is not an 

Intermittent Resource, Capacity Storage Resource, Demand Resource or 

Energy Efficiency Resource, has obtained and holds, or reasonably expects 

to obtain and hold, the contractual and other rights necessary to ensure firm 

fuel supply to each of its affected units during the delivery year. For such 

purpose, units intending to rely on on-site fuel storage must be able to 

demonstrate, as needed, the basis for their reasonable expectation that such 

arrangements as may be necessary to replenish the on-site fuel on a rolling 

basis will be in place by the start of the delivery year in order to assure unit 

performance at all times throughout such delivery year; and units not 

intending to rely on on-site fuel storage must be able to demonstrate, as 

needed, the basis for their reasonable expectation that sufficient 

transmission, storage and fuel commodity supply contracts or arrangements 

will be in place by the start of the delivery year to assure unit performance 

at all times throughout the delivery year. 

[F.] to the extent the Capacity Market Seller proposes to offer a Demand 

Resource as a Capacity Performance Resource, the representation in this 

subsection shall not be read to impose any greater, or lesser, obligation on a 

Capacity Market Seller offering a Demand Resource into [a capacity 

market] Auction than is established by Section A.1 of Schedule 6 to the 

RAA, or any officer certification provided thereunder. 
Docket No. ER15-623-000, et al. - 32 -

capable of delivering energy and reserves when needed, including during emergency 

conditions. In response to UGI’s concerns about single-fueled resources behind a local 

natural gas distribution company, PJM clarifies that there may be legitimate ways in 

which such a resource can meet its performance obligations, and that for this reason, PJM 

will request additional information from that resource at the outset and work with that 

resource to understand the basis for its sell offer and representation. 

78. With respect to PJM’s proposal to vest authority in itself to approve or reject a sell 

offer, PJM asserts that it must have this ability, consistent with its existing rules allowing 

PJM to reject a sell offer if it determines that the relevant resource does not qualify as a 

capacity resource. 

79. PJM also responds to the objection made by the Illinois Commission and Joint 

Protestors in opposition to PJM’s proposal that external resources, in order to submit a 

Capacity Performance Resource offer, must obtain an exception to PJM’s Capacity 

Import Limit, which requires external resources to be pseudo-tied to PJM. PJM argues 

that its proposal is appropriate because it will ensure that external resources are on equal 

footing with internal resources. PJM asserts that it must be able to monitor what these 

resources are doing during the operating day. PJM adds that the exception requests it has 

received to its capacity import limit demonstrate that this requirement will not create a 

barrier to entry. 

80. PJM also responds to intervenors’ objections to PJM’s proposed method for 

measuring demand response performance during non-summer emergency and compliance 

events. PJM argues that non-summer consumption that falls below the summer-based 

peak load contribution is insufficient to demonstrate performance, because any seasonal 

difference in demand is already accounted for in the planned outage schedules that PJM 

uses in calculating its installed reserve margin.60 

81. Finally, PJM responds to the Illinois Commission’s argument that a planned 

generation resource should not be required to execute a Facilities Study Agreement as a 

condition to its right to submit an offer into PJM’s Base Residual Auction. PJM argues 

that its proposal is appropriate given its operational experience, i.e., that historically, 

project developers that have executed a Facilities Study Agreement have been more 

likely to complete their project in advance of the relevant delivery year. 

 60 PJM argues that, in the absence of a non-summer equivalent of peak load 

contribution, it must use an alternative measure of performance and customer baseline 

load is an appropriate alternative. PJM adds that any end user may have a lower 

nominated demand response value in non-summer months, and that if the resource wishes 

to submit an offer as a Capacity Performance Resource, it may do so at the non-summer 

capacity value or aggregate with another resource.
Docket No. ER15-623-000, et al. - 33 -

4. Additional Answers 

82. Exelon, in its answer, also responds to AMP’s argument that an eligibility standard 

requiring external resources to be tied to PJM under a long-term firm transmission 

service agreement, and subject to PJM’s must-offer requirement, is unduly 

discriminatory. Exelon argues that PJM’s proposed rules, as to external resources, are 

based on a reasonable classification that recognizes the degree to which firm transmission 

into PJM has been curtailed. Exelon also cites the Commission’s prior finding that the 

risk of non-performance attributable to external resources, seeking to participate in PJM’s 

capacity auctions, suggests that, in satisfying a capacity requirement, these resources may 

not be equal to internal resources.61

83. LS Power, in its answer, opposes PJM’s proposed additions to Attachment DD, 

section 5.5A(a)(i), as addressed in PJM’s answer. LS Power asserts that, on its face, 

PJM’s proposed language would appear to require generators that do not have on-site 

storage to have firm fuel supply arrangements in place to assure performance at every 

moment of every day of the delivery year. LS Power asserts, however, that such a 

requirement is inconsistent with PJM’s general approach to resource eligibility. 

Accordingly, LS Power seeks clarification that under PJM’s proposed language, sellers 

will only be required to have the fuel supply arrangements necessary to provide a 

reasonable expectation, based on individual unit characteristics and the sellers’ 

experiences with such units, that their generation facilities will be able to satisfy the 

Capacity Performance Resource obligations.

84. Joint Protestors, in their answer, argue that PJM’s proposed eligibility 

requirements for a Capacity Performance Resource, as clarified by PJM in its answer, 

remain ill-defined and will subject reliable resources to the risk of not qualifying as 

Capacity Performance Resource or incurring excessive penalties based on excessively 

narrow excuses for non-performance. Joint Protestors also characterize PJM’s review 

criteria as non-transparent and overly-subjective. 

5. Deficiency Letter, PJM’s Response, and Protests and Comments

85. The Deficiency Letter asked what mechanisms, other than the proposed seller 

representations, could be used to supplement the Non-Performance Charge to better 

incent resource performance. In addition the Deficiency Letter requested PJM to 

describe how it evaluates the performance of external resources that are not pseudo-tied 

to PJM, specifically, how and when PJM receives the data necessary to perform its 

evaluation. 

 61 See Exelon answer at 41 (citing PJM Interconnection, L.L.C., 150 FERC 

¶ 61,041 at P 14 (2015)).
Docket No. ER15-623-000, et al. - 34 -

86. In its answer, PJM states that it proposed an increased market seller offer cap 

which will allow resources to include the increased operating and capital costs necessary 

to improve resource performance. PJM posits that varying strategies will allow resources 

to determine the most efficient and cost effective ways to improve resource 

performance.62 PJM contends that the opportunity to earn additional revenues with 

Performance Bonus Payments coupled with the Non-Performance Charge incent 

resources to perform because those resources with the highest performance will have the 

opportunity to earn the most revenue. PJM notes that, when coupled with its proposed 

rules regarding operating parameter limitations, resources are incented to increase 

performance at least cost. PJM contends that its proposed rules are designed to work 

together to reflect supply and demand fundamentals and rules that prevent units from 

avoiding the obligation to provide energy when needed.

87. In response to questions about measuring external resource performance, PJM 

states that external resources that are not dynamically transferred into PJM through either 

a pseudo-tie or a dynamic schedule are required to schedule their energy delivery into 

PJM via external interchange transactions.63 PJM states that, for external resources using 

external interchange transactions, PJM does not receive unit-specific performance

information.

64 Rather, PJM states that external interchange transactions are identified by 

customer account and the external balancing authority from which the energy being 

scheduled into PJM is sourced. 

88. PJM contends that the fact that external interchange transactions are not unitspecific, and therefore cannot be tied to any specific external resource, is one of the 

reasons underlying the PJM proposal to require that external units be pseudo-tied into 

PJM to qualify as Capacity Performance Resources. PJM argues that without the benefit 

of the pseudo-tie, PJM cannot accurately determine whether an external capacity resource 

owner met its commitment to deliver energy to PJM from the specific resource 

committed as a Capacity Performance Resource. PJM contends that this information is 

critical to ensure that the performance assessment evaluations are completed accurately 

and that any Non- Performance Charges are applied correctly.

89. The PJM Utilities Coalition reiterates its request that PJM be required to adopt 

tariff language specifying more stringent and objective qualification criteria for capacity 

 62 PJM Deficiency Letter Response at 26.

63 Id. at 29. 

64 Id.
Docket No. ER15-623-000, et al. - 35 -

market participation, arguing that such criteria would have an even greater impact on 

ensuring reliable performance than the deterrent effect of Non-Performance Charges.

65

90. Joint Protestors request that PJM modify the Capacity Performance seller 

representation that the seller “has made or is capable of demonstrating that it will make,

the necessary investment to ensure the Capacity Resource has the capability for the entire 

such delivery year to provide energy at any time when called upon by the Office of the 

Interconnection.” Joint Protestors argue that it is physically impossible for any 

generation resource, even a Capacity Performance Resource, to be available 100 percent 

of the time and requiring such a certification as a condition precedent to qualify as a 

Capacity Performance Resource unreasonably exposes the certifying official to civil and 

criminal charges and significant penalties for making knowingly false statements.66

6. Commission Determination

91. For the reasons discussed below, we accept, subject to conditions, PJM’s proposal 

addressing the performance requirements and expectations applicable to Capacity 

Performance Resources. 

92. We find that PJM’s proposed mechanism for reviewing and, when appropriate, 

rejecting a sell offer is just and reasonable, subject to PJM removing the phrase “to the 

satisfaction of the Office of the Interconnection” from proposed section 5.5A(ii)(B) of 

Attachment DD. PJM’s existing tariff gives PJM the authority to reject a seller offer, as 

applicable to a capacity resource.67 We find that this same authority is generally 

appropriate in the case of a Capacity Performance Resource offer, given that it will 

enable PJM to reject offers from resources that: (i) cannot reasonably be relied on to 

perform, as required, during emergency conditions; (ii) are purely speculative; or 

(iii) would otherwise undermine the intent of PJM’s Capacity Performance construct. 

We also accept PJM’s commitment to modify this provision, so that PJM will only reject 

an offer when a resource fails to demonstrate that it can reasonably be expected to meet 

Capacity Performance obligations consistent with the resource’s offer by the relevant 

delivery year. However, as the Commission has found previously, the scope of PJM’s 

 65 PJM Utilities Coalition comments to PJM’s Deficiency Letter Response at 11.

66 Joint Protestors protest to PJM’s Deficiency Letter Response at 16 (citing 18 

C.F.R. section 1c (2014) and FPA section 316A).

67 See PJM OATT at Attachment DD, sections 5.6.6 and 5.8(i).
Docket No. ER15-623-000, et al. - 36 -

review authority must be appropriately defined and limited.68 The phrase “to the 

satisfaction of the Office of the Interconnection” is too ambiguous and allows PJM too 

much discretion in determining whether a resource can meet the operational and 

performance requirements of Capacity Performance Resources. 

93. We disagree with the Market Monitor’s argument that, in addition to PJM’s 

authority to review and, as appropriate, reject the sell offer of a Capacity Performance 

Resource, the Market Monitor should also be given the authority to reject an offer. 

Under PJM’s proposal, PJM will be required to consult with the Market Monitor and seek 

the Market Monitor’s advice and recommendations concerning a sell offer. We are not 

persuaded that the separate layer of review requested by the Market Monitor is required. 

We further note that, under Order No. 719, it is the RTO that is responsible for a 

prospective determination of this sort.69

94. PJM proposes to require a market seller submitting a Capacity Performance offer 

to make a good faith representation that (i) it has made, or will make, the necessary 

investment to ensure that its resource has the capability to provide energy when called 

upon; (ii) the resource meets the operational requirements and performance obligations 

applicable to Capacity Performance Resources; and (iii) the seller’s offer contemplates 

the physical delivery of the Capacity Performance Resource by no later than the 

commencement of the applicable delivery year. PJM also proposes that knowingly false 

representations may be determined by PJM to constitute a violation of, and may subject 

the seller to penalties under, PJM’s market rules and/or the Commission’s market rules. 

We are not persuaded that PJM’s proposed good faith representation requirement would 

provide any added value in incenting resource performance, and the scope of the required 

representations is unclear and could serve as an unnecessary barrier to entry for new 

Capacity Performance Resources. 

95. In particular, we are concerned that significant aspects of the required 

representation are inappropriately vague and this ambiguity could incent well-performing 

resources to elect not to participate in the capacity market to avoid the risk of sanction 

under the provision, PJM’s market rules and/or the Commission’s authority. For 

 68 See PJM Interconnection, L.L.C., 121 FERC ¶ 61,089 at P 35 (2007) (finding, in 

the case of credit requirements, that the review standard, “to PJM’s satisfaction,” is 

ambiguous and would grant undue discretion to PJM).

69 See Wholesale Competition in Regions with Organized Electric Markets, Order 

No. 719, 73 Fed. Reg. 64,100 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 31,281 at P 375

(2008), order on reh’g, Order No. 719-A, FERC Stats. & Reg. ¶ 31,292 (2009), FERC 

Stats. & Regs. ¶ 31,292 (2009), order on reh’g, Order No. 719-B, 129 FERC ¶ 61,252 

(2009)
Docket No. ER15-623-000, et al. - 37 -

example, whether a resource meets “the operational requirements and performance 

obligations applicable to Capacity Performance Resources” may not be clear until a 

resource performs, or fails to perform. Given the significant ambiguity inherent in this 

requirement, and in light of the specific tariff provision designed to elicit performance 

and penalize failure to perform, we find that PJM has not demonstrated that the required 

good faith representation is either necessary or just and reasonable. Accordingly, we 

conditionally accept PJM’s filing, subject to the removal of this provision from its 

proposed tariff changes. We further note that PJM’s tariff reflects requirements that 

generally pertain to the good faith representations PJM seeks to elicit. PJM’s tariff 

currently provides, for example, that a resource with a capacity commitment must offer 

into the day-ahead and real-time energy markets, must leave its real-time offer open 

throughout the operating day, and must follow PJM’s dispatch instructions.70 In addition, 

as discussed above, PJM will be authorized to review Capacity Performance Resource 

sell offers in order to mitigate speculative participation in PJM’s capacity market. 

96. Notwithstanding the above finding, we find merit in PJM’s proposal that External 

Generation Capacity Resources be required to meet the criteria for obtaining an exception 

to PJM’s Capacity Import Limit (including the requirement that such resources be 

pseudo-tied to PJM by the relevant delivery year) to be eligible to submit a Capacity 

Performance Resource offer.71 PJM proposes this requirement as a seller representation, 

but we interpret it as an eligibility requirement for External Generation Capacity 

Resources. The Illinois Commission and Joint Protestors assert that PJM has not shown 

why the required three conditions to receive an exception to the Capacity Import Limit 

(i.e., pseudo-tie, firm transmission service, and must-offer) must be made mandatory for 

all external resources to qualify as Capacity Performance. However, we agree with the 

clarification PJM provides in its Deficiency Letter Response and find that this 

requirement is necessary to ensure that external resources are accountable for their 

individual performance when PJM’s system is experiencing Emergency Actions. 

Regarding the Illinois Commission’s argument that requiring external resources to 

become pseudo-tied will exacerbate seams issues between PJM and adjacent regions, we 

find that the Illinois Commission fails to specify what seams issues would be exacerbated 

or how such result would occur. We note that PJM is required to reach agreement with 

 70 See PJM Operating Agreement at Schedule 1, section 1.10.1A(d) (Day-ahead 

Energy Market Scheduling); and section 1.10.4(b) (Capacity Resources). Such a resource 

is also required to demonstrate that it has the capability to provide its capacity on, or 

before, the start of the delivery year. See PJM OATT at Attachment DD, section 5.5. In 

addition, such a resource is required to comply with PJM’s capacity import limit to the 

extent it is an external resource. Id. at section 5.5.

71 Proposed OATT Attachment DD.5.5A Capacity Resource Types, 0.0.0.
Docket No. ER15-623-000, et al. - 38 -

external Balancing Authorities regarding all implementation issues associated with a 

pseudo-tied resource, including reliability and commercial obligations,72 and that this 

process should minimize any resulting seams issues.

97. In its Deficiency Letter Response,73 PJM explains that under existing rules, PJM 

evaluates the availability of external capacity resources based on the quantity of energy

scheduled (as an external interchange transaction into PJM) or reported on outage by an 

external capacity resource owner. PJM explains, however, that external interchange 

schedules are not unit-specific and cannot be tied to any specific external resource and, 

therefore, PJM proposes to require that an external resource be pseudo-tied into PJM to 

qualify as a Capacity Performance Resource. PJM states that absent the pseudo-tie 

requirement, PJM will not have the unit-specific visibility of external resource 

performance necessary to accurately apply Non-Performance Charges to external 

resources. Based on the information that PJM has provided, we agree that this 

component of the Capacity Performance design is just and reasonable. We therefore 

accept PJM’s proposal, subject to PJM including in its tariff revisions a requirement that 

an External Generation Capacity Resource must demonstrate that it meets – or will meet 

by the start of the delivery year – the criteria for an exception to the Capacity Import 

Limit in order to offer as a Capacity Performance Resource.

98. We accept PJM’s proposed milestone modification requiring that planned 

resources execute a Facilities Study Agreement before being permitted to offer into a 

Base Residual Auction.74 Despite the Illinois Commission’s claims that PJM has not 

adequately supported this provision, we agree with PJM that requiring resources to 

complete the Facilities Study Agreement will help prevent resources that are unlikely to 

be in service by the relevant delivery year from clearing in a Base Residual Auction and 

potentially artificially suppressing prices for the region.75 

 72 NERC Reliability Standard INT-004-3.1, Requirement R3, available at

http://www.nerc.com/pa/Stand/Reliability%20Standards/INT-004-3.1.pdf. In order for a 

pseudo-tie to be included in the NAESB Electric Industry Registration (EIR) publication, 

all entities listed in the EIR registration must approve the registration, including the 

source Balancing Authority. See NAESB Guide for Implementing EIR 13001, available 

at https://www.naesb.org/pdf4/weq_jess080514a5.docx.

73 PJM Deficiency Letter Response at 24-25.

74 Proposed RAA, sections 1.69B and 1.70.

75 PJM February 13, 2015 answer at 116.
Docket No. ER15-623-000, et al. - 39 -

99. We next consider PJM’s proposed Capacity Performance construct as it relates to 

Demand Resources, Energy Efficiency Resources, Capacity Storage Resources, and 

Intermittent Resources, including PJM’s proposal to permit aggregated offers. As a 

general matter, we accept PJM’s proposal to establish, on a phased-in basis, an Annual 

Demand Resource product that will: (i) replace PJM’s existing demand response 

capacity products; and (ii) require conformance with the standards applicable to a 

Capacity Performance Resource, as modified herein. We agree with PJM that, as 

modified, PJM’s proposal is appropriate, because it creates the same expectations for all 

Capacity Performance Resources (i.e., the expectation that such resources will be 

available to provide energy and reserves when called upon), without regard to technology 

type. We note that currently the vast majority of Demand Resources are available to PJM 

during the summer peak season only, with Limited Demand Response available for 

10 days and for a maximum of 6 hours a day.76

100. We also find PJM’s proposal, as clarified in its answer, to permit Demand 

Resources, Energy Efficiency Resources, Capacity Storage Resources, and Intermittent 

Resources offer as stand-alone Capacity Performance Resources to be just and 

reasonable. Therefore, we accept this aspect of PJM’s proposal, subject to PJM

submitting tariff revisions clarifying that, as PJM states in its answer,77 Capacity Storage 

Resources, Intermittent Resources, Energy Efficiency Resources, and Demand Resources 

may submit stand-alone Capacity Performance sell offers in a MW quantity consistent 

with their average expected output during peak-hour periods.

101. Next we address PJM’s proposal to allow certain types of resources to combine 

with other resources to submit a Capacity Performance sell offer representing the total 

Unforced Capacity value of the aggregated resources. In its initial filing, PJM proposed 

to allow Capacity Storage Resources, Intermittent Resources, Demand Resources, and 

Energy Efficiency Resources to submit aggregated offers. In its answer, PJM offers to 

additionally permit aggregated offers from environmentally-limited resources, and to 

permit aggregated offers composed of resources from different entities so long as the 

associated bilateral arrangements are reflected in PJM’s system.

78 We find merit in 

PJM’s proposal to allow resources that would generally not be able to offer as Capacity 

Performance Resources to aggregate their capabilities in order to reliably perform during 

emergency conditions. Permitting such resources to submit aggregated offers as Capacity 

 76 PJM transmittal at 34, n.96 (Docket No. ER15-623-000) (noting that in the most 

recent Base Residual Auction, for the 2017-18 delivery year, only 13.6 percent of the 

Demand Resources that cleared were Annual Demand Resources). 

77 PJM February 13, 2015 answer at 23-24.

78 Id. at 27-28.
Docket No. ER15-623-000, et al. - 40 -

Performance will likely enhance their ability to provide reliability benefits to the PJM 

region and may increase competition in the capacity market. We also agree with PJM 

that extending this allowance to environmentally-limited resources and permitting 

aggregated offers from different entities are appropriate modifications. We therefore 

accept this aspect of PJM’s proposal, subject to PJM submitting tariff revisions consistent 

with its commitment to clarify that: (i) aggregated offers from environmentally-limited 

resources are permitted; and (ii) aggregated offers composed of resources from different 

entities, so long as the associated bilateral arrangements are reflected in PJM’s system, 

are permitted. 

102. Although some intervenors argue that permitting aggregated offers from only 

certain resource types is unduly discriminatory and request that PJM provide the same 

allowance to all resources types, we do not find that such a change is necessary. The 

aggregated offer allowance is designed to provide an avenue to Capacity Performance 

participation by resources that otherwise may be unable or unwilling to participate on a 

stand-alone basis because no reasonable amount of investment in the resource can 

mitigate non-performance risk to an acceptable level within the Capacity Performance 

market design. Generally speaking, other resource types do not face this same limitation. 

We also agree with PJM that allowing aggregated offers from all resources could 

transform the RPM bidding process from an individual unit approach to a portfolio 

bidding approach, which is a change that we do not find necessary for PJM’s proposal to 

be just and reasonable. 

103. Regarding PJM’s proposal to allow eligible resources in different Locational 

Deliverability Areas to submit aggregated offers, we find that PJM has failed to show 

how this provision is necessary and appropriate. PJM has not demonstrated why 

Capacity Emergency Transfer Limits should not be taken into account for purposes of 

aggregating a Capacity Performance offer.79 PJM’s Capacity Emergency Transfer Limits 

recognize system constraints and the ability to provide capacity across Locational 

Deliverability Areas. We are not persuaded that aggregation will be feasible across 

Locational Deliverability Areas in all circumstances, or would be able to provide the 

required resource adequacy during emergency conditions. Moreover, allowing 

aggregation across Local Deliverability Areas appears inconsistent with the design of 

PJM’s Capacity Performance proposal. As discussed in greater detail in sections V.C and 

V.F of this order, several Capacity Performance rate parameters, such as the NonPerformance Charge rate, Performance Bonus Payment rate, stop-loss limits, and default 

offer caps, are designed to be Locational Deliverability Area-specific. Although there 

may be value in permitting aggregation across Locational Deliverability Areas, PJM has 

not adequately supported how it would determine clearing prices, Non-Performance 

 79 See PJM Manual 14B at Attachment C.
Docket No. ER15-623-000, et al. - 41 -

Charges, and Performance Bonus Payments across multiple Locational Deliverability 

Areas.

104. Brookfield requests clarification that during an Emergency Action PJM will not be 

authorized to recall a resource that does not hold a capacity commitment for that delivery 

year but which is physically located within the PJM region and is exporting energy or 

capacity to another region. We dismiss Brookfield’s request as beyond the scope of this 

proceeding because PJM proposes no such ability for itself in the instant filing.

105. We deny Covanta’s requests that the Commission exempt Qualifying Facilities’ 

use of fossil fuels from the 25 percent limitation set forth in Section 292.205(b) of the 

Commission’s regulations. To the extent such resources are unable to meet the Capacity 

Performance Resource obligations, they can seek an exception to PJM’s Capacity 

Performance must-offer requirement. We also note that, consistent with our findings in 

section VI.C below, Qualifying Facilities may use Maximum Emergency Offers if they 

are only able to deliver energy during emergencies. 

C. Non-Performance Charges

106. Under PJM’s existing rules, a capacity resource commitment that fails to provide 

energy and reserves, when needed, is subject to certain charges and adjustments. A 

capacity resource’s saleable MW value, for example, is subject to discount, to reflect that 

resource’s forced outage history.80 In addition, a generation capacity resource is subject 

to a Peak-Hour Period Availability charge or credit, employing a peak-period availability 

metric to assess whether generation resources committed as capacity are available at 

expected levels during peak periods.81 

107. PJM asserts, however, that the Peak-Hour Period Availability charge is flawed. 

Specifically, PJM asserts that this charge assesses the performance or availability of a 

resource over too many hours, allowing poor performance during the most critical times 

to be masked by adequate performance during other, less critical times. In addition, PJM 

argues that its Peak-Hour Period Availability charge broadly excuses unavailability. 

 80 See RAA at Schedule 5 (describing PJM’s existing demand-equivalent forced 

outage rate, or EFORd, calculation).

81 See PJM OATT at Attachment DD-1, section 10.
Docket No. ER15-623-000, et al. - 42 -

1. PJM’s Proposal

108. PJM proposes to replace the existing Peak-Hour Period Availability Charge and 

certain related charges82 with a new Non-Performance Charge. PJM states that its 

proposed charge is generally modeled on a comparable charge recently accepted by the 

Commission in the ISO-NE Capacity Performance Order.

83 PJM states that its proposed 

charge will be based on the expected performance of each Capacity Resource, as 

compared to its actual performance during an Emergency Action declared by PJM.84

109. PJM proposes that it will measure capacity resources’ performance during 

Performance Assessment Hours, which will be triggered when PJM declares an 

Emergency Action.

85 PJM explains that it bases the definition of Emergency Action on 

the conditions and events identified in PJM’s Manual 13, section 2.3, as “Warnings” or 

“Actions” for capacity emergencies. PJM also states that its declarations of these actions 

must be consistent with the operating procedures specified by NERC and the 

corresponding regional reliability entity for the PJM region, ReliabilityFirst Corporation. 

110. PJM states that, if a capacity resource’s actual performance falls short of its

expected performance, this shortfall will be subject to a Non-Performance Charge, absent 

a valid excuse (as summarized below), or the application of a stop-loss limit (as also 

 82 In addition to the Peak-Hour Period Availability Charge, additional currentlyeffective provisions of PJM’s OATT addressing resource availability and performance 

include the Peak-Season Maintenance Compliance Penalty Charge (see OATT at 

Attachment DD, section 9) and the Demand Resource Compliance Penalty Charge (see 

id. at Attachment DD, section 11). PJM notes that any resources that voluntarily commit 

to being a Capacity Performance Resource for the 2016-17 or 2017-18 delivery years will 

be subject on the Non-Performance Charge provisions in section 10A and will not be 

subject to the capacity performance provisions in sections 9 or 10. 

83 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 4.

84 See proposed PJM OATT at Attachment DD, section 10A.

85 Proposed PJM OATT at Attachment DD, section 2.23A. (“‘Emergency Action’ 

shall mean any Emergency Action for locational or system-wide capacity shortages that 

either utilizes pre-emergency mandatory load management reductions or other emergency 

capacity, or initiates a more severe action including, but not limited to, a Voltage 

Reduction Warning, Voltage Reduction Action, Manual Load Dump Warning, or Manual 

Load Dump Action.)
Docket No. ER15-623-000, et al. - 43 -

summarized below). PJM adds that while certain existing capacity deficiency charges86

will remain in place after implementation of the new Non-Performance Charge, and 

operate in tandem with the Non-Performance Charge, it will assess only the greater of the 

two charges when they apply to the same event or occurrence.

111. PJM states that the measure of expected performance and actual performance will 

differ based on the resource type at issue and PJM’s existing rules governing these 

resources. PJM notes, for example, that a Generation Capacity Resource is expected to 

provide a share of the PJM system’s hourly needs for energy and reserves based on a 

ratio of its capacity commitment to the total capacity commitment of all Generation 

Capacity Resources.87 On the other hand, for a Qualifying Transmission Upgrade or an 

Energy Efficiency Resource, expected performance is defined as the MW quantity of that 

resource’s cleared capacity commitment. For a Demand Resource, actual performance 

will be based on the load reduction provided during the relevant emergency, as 

determined through the load response settlement process. 

112. PJM proposes to base the Non-Performance Charge on yearly Net CONE for a 

Capacity Performance Resource (i.e., the value of a performance shortfall), or the yearly 

resource clearing price for a Base Capacity Resource, divided by 30 (the assumed 

Emergency Action hours per year).88 PJM states that while its proposed NonPerformance Charge will apply to both a Base Capacity Resource and a Capacity 

Performance Resource, it is appropriate that a Base Capacity Resource be subject to a 

lower exposure, given that it is an interim product not intended to incent investment. 

PJM also proposes that a Base Capacity Resource be subject to a Non-Performance 

Charge only for its performance shortfalls during Emergency Actions in the summer 

months, consistent with PJM’s classification of summer-only Demand Resources and 

Energy Efficiency Resources as a Base Capacity Resource. 

 86 These include the generator testing provision (see OATT at Attachment DD, 

section 7), the capacity deficiency charge provision (see OATT at Attachment DD, 

section 8), and the Demand Resource testing provision (see OATT at Attachment DD, 

section 11A).

87 See PJM OATT at Attachment DD, section 10A(c). 

88 PJM asserts that a rate divisor based on 30 hours of total annual Emergency 

Actions is reasonable, given its experience over the 2013-14 delivery year during which 

Emergency Actions were in effect for 23 hours. PJM argues that it would not be 

appropriate to set its rate divisor any lower than that level and that the additional hedge it 

is proposing is appropriate, given the possibility of supply shortages, and given the fact 

that increased hours in the divisor will moderate the hourly rate. 
Docket No. ER15-623-000, et al. - 44 -

113. PJM also proposes to exempt from its charges a performance shortfall attributable 

to: (i) a planned or a maintenance outage approved by PJM; (ii) non-dispatch by PJM; or 

(iii) a reduced-level dispatch by PJM.89 PJM adds, however, that it will not be an 

acceptable excuse if the resource was not dispatched, or was dispatched down, due to 

resource parameter limitations specified by the seller, or due to the seller’s submission of 

a market-based offer in excess of a cost-based offer.

114. PJM also proposes to place a cap, or “stop-loss” limit, on the total NonPerformance Charges it will be authorized to assess, for the purpose of limiting a seller’s 

financial exposure. PJM asserts that such a provision is necessary, given that the 

combination of an unusually high number of Emergency Actions and/or poor 

performance could lead to a total net charge liability that would be disproportionate to the 

risks that a resource reasonably should undertake in committing capacity. Accordingly, 

PJM proposes that, for a calendar month, its maximum charge for each resource, i.e., its 

monthly stop-loss limit, will be 0.5 times Net CONE times the relevant resource’s 

installed capacity.90 For a calendar year, PJM proposes a maximum charge equal to 

1.5 times Net CONE times the relevant resource’s installed capacity. PJM adds that, for 

Base Capacity Resources, a calendar year limit will apply that is equal to the relevant 

resource’s total capacity revenues for that delivery year.

115. PJM states that revenue collected from payment of Non-Performance Charges will 

be distributed, as a bonus, to resources that perform above expectations, based on the 

ratio of the relevant resource’s bonus performance level to the total bonus performance 

from all resources over the same Performance Assessment Hour. Specifically, PJM 

proposes to distribute Non-Performance Credits for a Performance Assessment Hour “to 

each Market Participant, whether or not such Market Participant committed [capacity] for 

[that hour], that provided energy or load reductions above the levels expected for such 

resource during such hour.”91 PJM states, however, that, contrary to the approach taken 

by ISO-NE, its proposed mechanism will assess performance during Emergency Actions, 

 89 See proposed PJM OATT at Attachment DD, section 10(A)(d). 

90 PJM notes that its proposed use of Net CONE, in this context, corresponds to 

the maximum clearing price allowed by PJM’s Variable Resource Requirement curve, 

i.e., PJM’s capacity auction clearing mechanism, and is appropriate, given that that 

PJM’s capacity auction could clear at 1.5 times Net CONE. 

91 See proposed PJM OATT at Attachment DD, section 10(A)(g).
Docket No. ER15-623-000, et al. - 45 -

which include warnings and pre-emergency actions, rather than only during shortage or 

scarcity conditions.92

116. Finally, PJM proposes to limit its currently effective excuses for non-performance. 

PJM notes that, currently, an event classified by NERC as “outside management control” 

is not considered a forced outage for the purpose of calculating a forced outage rate or 

peak-hour period penalties. PJM proposes, however, that beginning with the 2018-19 

delivery year, such events will be treated as forced outages.93 PJM also proposes that a 

performance shortfall not be assessed a charge if the resource was unavailable during the 

hour solely because it was on an approved Generator Planned Outage.

2. Protests and Comments

117. Intervenors challenge PJM’s claim that PJM’s proposed penalty provisions will, in 

fact, penalize non-performance during the hours when capacity is needed most. Some 

argue that PJM’s penalty mechanism will not operate to recover capacity market revenues 

from non-performing resources, given the number of hours used to compute the charge, 

i.e., the divisor of 30 performance hours in PJM’s formula. Joint Consumers argue that 

the use of 30 hours, as the devisor, represents an unwarranted 30 percent increase over 

the anomalous totals represented by the extreme weather events of January 2014 and 

should be revised to reflect no more than an actual, historically-experienced number of 

performance hours in a single delivery year, or an averaging of prior delivery years.94 

Joint Consumers note that, in the three delivery years prior to 2013-14, the cumulative 

number of hours during which Emergency Actions were in effect totaled only nine such 

hours, such that PJM’s charge will only rarely, if ever, apply. Accordingly, Joint 

Consumers request that PJM’s proposed charge be rejected, or in the alternative, set for 

hearing. 

 92 See proposed PJM OATT at Attachment DD, section 2.23A (defining 

Emergency Actions as locational or system-wide capacity shortages, including Voltage 

Reduction Warnings, Manual Load Dump Warnings, Voltage Reduction Actions, and 

Manual Load Dump Actions, that cause pre-emergency mandatory load management 

reductions or a more severe action).

93 See proposed RAA at Schedule 5.

94 See also Wind Energy and Renewables Coalition comments at 10-11 (asserting 

that the proposed stop-loss provisions are unjust and unreasonable, arguing that the 

provisions would lead to excessively high and excessively punitive charges. Wind 

Energy and Renewables Coalition add that the stop-loss limit proposal is a barrier to 

entry to small generation, because it drives high credit requirements, and should instead 

be calculated as a function of capacity revenues). 
Docket No. ER15-623-000, et al. - 46 -

118. Exelon, too, argues that PJM’s proposed Non-Performance Charge rate, coupled 

with the proposed stop-loss provisions, will result in inappropriately low penalty charges 

and, therefore, will not adequately incent resources to make the investments necessary to 

enhance reliability. Exelon asserts that PJM must revise its methodology for calculating 

the hourly penalty and, instead, use a probabilistic modeling approach to determine the 

expected number of Performance Assessment Hours, based upon all potential weather 

scenarios and capacity supply performance at the target levels consistent with a 0.1 loss 

of load expectation. Exelon argues that relying on capacity resources’ poor performance 

in a single year with very extreme weather, January 2014, is inappropriate, particularly 

because the historical average number of Performance Assessment Hours is significantly 

less. Exelon acknowledges that it is unlikely this probabilistic approach could be 

effectuated for the Base Residual Auction for the 2018-19 delivery year or the Transition 

Incremental Auctions, given the complexity of the modeling that would be needed. 

Nevertheless, Exelon maintains that it is critical that PJM’s hourly penalty be calibrated 

to the expected number of Performance Assessment Hours. Thus, Exelon argues, PJM 

should revise the divisor for the Non-Performance Charge formula for the transition 

period to 20 and increase the monthly stop-loss limit to 0.75 times Net CONE.

119. The Market Monitor and Joint Consumers protest that PJM’s proposal does not 

provide adequate performance incentives, because the parameters are not defined 

correctly. Joint Consumers argue that the stop-loss provisions compound the 

unlikelihood of non-performing resources facing significant capacity revenue forfeiture. 

Joint Consumers contend that there is no logical basis for limiting the exposure of nonperforming resources through a monthly stop-loss provision, arguing that this provision 

must be eliminated. The Market Monitor argues that the Non-Performance Charge 

should not be based on the distribution of emergency events within a delivery year, but 

rather should be based on performance anytime the system is in a critical capacity 

scarcity condition. The Market Monitor adds that, by preventing the forfeiture of 

capacity revenue for non-performance, the monthly stop-loss provision reduces 

resources’ incentives to make the investments needed to improve reliability, and 

therefore, should be eliminated. The Market Monitor also argues that the estimated 

number of Performance Assessment Hours should be reduced from 30 and calculated 

based on a defined method that considers specific forecasts, such as forecast weather 

conditions and forecast resource mix and availability. In addition, the Market Monitor 

argues that PJM’s proposal must define how expected performance is calculated for 

emergencies that are declared at the zonal or sub-zonal levels. The Market Monitor also 

contends that PJM’s proposed Balancing Ratio95 fails to appropriately incorporate 

performance of energy efficiency and Demand Resources.

 95 As proposed in section 10A of Attachment DD of the OATT, the Balancing 

Ratio is a determinant of any capacity resource’s Expected Performance during a 
Docket No. ER15-623-000, et al. - 47 -

120. Other intervenors object to PJM’s proposed Non-Performance Charge for 

Capacity Performance Resources as excessive and inconsistent with those charges 

accepted by the Commission in the ISO-NE Capacity Performance Order.

96 The PJM 

Utilities Coalition argues that, as compared to ISO-NE’s phased-in penalty structure, 

PJM’s proposed rate is approximately double the ISO-NE initial rate, in place over the 

first several years, with monthly and annual stop-loss provisions resulting in penalty caps 

that are approximately four times as high. Coalition of Resource Projects similarly 

objects to PJM’s comparison with the stop-loss provisions adopted in ISO-NE, arguing 

that PJM’s proposal is “far more likely” to result in excessive penalties on generators. 

Coalition of Resource Projects argues that PJM’s proposed Non-Performance Charge, 

coupled with the proposed stop-loss provisions, are unfairly punitive and place 

unsustainable risk upon generators. Dominion argues that PJM’s proposed penalty 

structure may be too punitive and, as such, could undermine the incentives it is intended 

to create. Dominion requests that PJM revise the Non-Performance Charge to allow 

“minor deviations from expected performance” with less substantial penalties.

121. Intervenors also protest PJM’s proposal to base the Non-Performance Charge on 

Net CONE. Invenergy, Coalition of Resource Projects, and Dominion assert that PJM’s 

proposed penalty and stop-loss provisions should be revised to ensure an appropriate 

relationship between revenues resources receive as capacity payments and penalties.97 

Invenergy argues that the penalty amount should be tied to annual capacity market 

revenues, namely the capacity market clearing price, rather than Net CONE. Invenergy 

argues that this flaw in PJM’s proposal is particularly egregious when clearing prices 

differ significantly from Net CONE, because the relationship between risk and reward is 

distorted. Coalition of Resource Projects argues that it is inappropriate to base the Non-

 

Performance Assessment Hour (i.e., the quantity of energy or reserves that the capacity 

resource must deliver is order to exactly fulfill its capacity obligation within the twosettlement capacity market design). PJM proposes that the Balancing Ratio equal the 

sum of all actual generation performance, storage resource performance, net energy 

imports, and demand response bonus performance divided by the sum of all committed 

generation and storage capacity (these components are defined in section 10A of 

Attachment DD), and that a capacity resource’s Expected Performance during any 

Performance Assessment Hour equal the resource’s committed capacity times the 

Balancing Ratio.

96 See, e.g., PJM Utilities Coalition comments at 12; Rockland comments at 7; 

Coalition of Resource Projects protest at 6; and AEP/Duke Energy protest at 33. 

97 See Invenergy comments at 7 (proposing the use of 1.25 times a resource’s total 

annual revenue for the annual stop-loss limit). 
Docket No. ER15-623-000, et al. - 48 -

Performance Charge on Net CONE, when capacity auctions in the region routinely may 

clear at far less than Net CONE. In addition, Coalition of Resource Projects believes the 

monthly stop-loss limit should be calculated using a 30-day period, rather than a calendar 

month. The PJM Utilities Coalition argues that PJM’s proposed stop-loss provisions fail 

to take account of the energy price penalties to which Capacity Performance Resources 

will be exposed during shortage conditions, i.e., the fact that generators that are forced 

out during emergency hours are also likely replacing their day-ahead energy commitment 

through higher energy purchases. Dominion argues that PJM should include a daily stoploss provision that would limit resources’ exposure for an individual emergency event. 

122. The PJM Utilities Coalition also argues that basing performance penalties for a 

Capacity Performance Resource on Net CONE, and not on the relevant Locational 

Deliverability Area clearing price, has a discriminatory effect on resources in western 

PJM (i.e., on resources located in zones with lower clearing prices) that are not similarly 

situated to resources located in eastern PJM. The PJM Utilities Coalition adds that, while 

ISO-NE has tied its penalties to auction prices, and not to zonal clearing prices, ISO-NE 

has not experienced PJM’s persistent price separation. To remedy this discriminatory 

effect, the PJM Utilities Coalition proposes a stop-loss provision tied to an historical, 

three-year rolling average of capacity clearing prices similar to the method by which the 

energy and ancillary services offset is determined for purposes of calculating Net CONE. 

123. AEMA argues that Demand Resource performance during Emergency Actions 

should be measured against their capacity commitment rather than Customer Baseline 

Load because PJM and the Market Monitor have previously stated that it would be 

inappropriate to measure demand reductions in the capacity markets through performance 

in the energy market.98 AEMA also asserts that PJM’s proposal to base performance 

penalties on Net CONE is inappropriate because Net CONE does not represent the true 

cost of new entry and the rate would be discriminatory against Demand Resources 

because “demand response resources have no relationship to Net CONE.” 99 

Furthermore, AEMA claims that Demand Resources already have sufficient penalties in 

place and should not be subject to PJM’s proposed penalties.100 Finally, AEMA argues 

that the stop-loss limits should be based on 1.2 times the Base Residual Auction clearing 

price to reduce unnecessary risk exposure.101

 98 AEMA protest at 18-20.

99 Id. at 22-23.

100 Id. at 20-22.

101 Id. at 23-24.
Docket No. ER15-623-000, et al. - 49 -

124. Public Interest Organizations argue that PJM’s proposed charges are unduly 

discriminatory as to non-fueled resources who do have the ability to supply year-round 

capacity by way of resource upgrades, and thus cannot be incented to do so through the 

risk of penalty exposures. Public Interest Organizations argue that an alternative 

approach would be to exempt non-fuel based resources from PJM’s proposed penalties, 

or to reduce the penalties.102 

125. The PJM Utilities Coalition also notes that PJM has proposed duplicative 

transition penalties, perhaps inadvertently. Specifically, the PJM Utilities Coalition 

asserts that, under PJM’s proposed tariff language, a Capacity Performance Resource will 

pay both the currently-effective Peak-Hour Period Availability Charge and PJM’s 

proposed Non-Performance Charge, as applicable. The PJM Utilities Coalition requests 

that PJM be directed to correct this error by limiting the application of Peak-Hour Period 

Availability Charges to annual resources, extended summer demand resources, and 

limited summer demand resources for the 2016-17 and 2017-18 delivery years.

126. Intervenors also protest PJM’s proposal to impose Non-Performance Charges on a 

resource that is uncommitted due to the seller’s submission of a market-based offer that is 

higher than its cost-based offer. NRG/Dynegy and the PJM Utilities Coalition argue that 

the proposal is unsupported, adding that PJM has not provided evidence demonstrating 

that such resources possess the market power to incent them to manipulate their bidding 

strategy. The PJM Utilities Coalition argues that, while the ostensible rationale for this 

proposed rule change is the deterrence of economic withholding, such a concern is not at 

issue here, given that PJM’s software screens for the ability to exercise market power 

through the application of the three-pivotal supplier test on every five-minute dispatch 

interval and imposes cost-based mitigation when this test is failed. LS Power protests 

that the effect of this aspect of PJM’s proposal is to effectively eliminate sellers’ ability 

to submit market-based offers for Performance Assessment Hours. Dominion similarly 

argues that PJM’s proposal effectively nullifies price offers in emergency situations and 

unreasonably exposes market sellers to penalty risk, particularly where resources have no 

opportunity to update their price offer.103 

 102 Public Interest Organizations comments at 15; see also Solar Association 

comments at 4 (requesting clarification that solar generators either can serve as Capacity 

Performance Resources alone or are exempt from PJM’s proposed must-offer 

requirement). 

103 See also NRG/Dynegy protest at 27-28 (arguing that PJM’s proposal will 

convey improper price signals by encouraging certain resources to submit energy market 

offers below their actual marginal cost of operating).
Docket No. ER15-623-000, et al. - 50 -

127. Coalition of Resource Projects protests PJM’s proposal to impose NonPerformance Charges on resources during “catastrophic weather conditions, such as 

hurricanes or tornadoes,” arguing that PJM has offered no explanation why it continues to 

excuse non-performance by transmission owning utilities during such weather conditions 

but not Capacity Performance Resources. Coalition of Resource Projects similarly 

objects to imposing penalties on resources “behind citygates” subject to state-based 

interruptible service. 

128. Dominion protests that PJM’s proposal would impose Non-Performance Charges 

on resources that PJM did not commit, or dispatched down, due to parameter limitations 

that account for the resources’ physical operating characteristics. Citing pumped storage 

as an example, Dominion argues that PJM could conceivably exhaust all of a pumped 

storage resource’s capability during or prior to an Emergency Action and then ask for 

more, even though PJM is fully aware that energy storage has been exhausted. In this 

situation, Dominion states, the resource would still be penalized for non-performance

even though it fully performed to its known physical capability as directed by PJM.

129. Intervenors protest PJM’s proposal to allocate the revenue collected from payment 

of Non-Performance Charges, the Performance Bonus Payment, only to those resources 

that perform above expectations. The Pennsylvania Commission argues that load should 

also receive a reasonable share of these revenues, to the extent it is forced to bear the 

additional costs of higher locational marginal prices and energy uplift costs associated 

with net-generator non-performance. Homer City argues that the Commission should 

clarify that market participants that act as energy importers are likewise eligible to 

receive the Performance Bonus Payments. 

130. Calpine protests PJM’s process for billing and crediting the Non-Performance 

Charge. Calpine asserts that, according to PJM’s proposal, Non-Performance Charges 

may not be collected within three months, but rather may be collected in installments 

over the balance of the relevant delivery year. Calpine argues that this “delayed 

invoicing mechanism” increases risk to over-performers, and should either be revised or 

allowed to accrue interest.

131. Brookfield protests that it is unclear how PJM will assess Non-Performance 

Charges during the transition period, particularly for resources (or coupled resources) that 

submit offers as both Capacity Performance Resources and Base Capacity Resources. 

Brookfield argues that PJM should clarify that it will attribute the output of such a 

resource first to any Capacity Performance obligations and any remaining output to Base 

Capacity. In addition, Brookfield argues, PJM should assess the Non-Performance 

Charge for any shortfall first based on the Base Capacity amount and only second as 

Capacity Performance. Brookfield argues that this approach is just and reasonable 

because the output of an offer made jointly as Capacity Performance and Base Capacity 

during the transition period is fungible, regardless of the amount that cleared as a Base 

Capacity Resource versus a Capacity Performance Resource.
Docket No. ER15-623-000, et al. - 51 -

132. Intervenors also protest PJM’s proposed trigger for Performance Assessment 

Hours. The Market Monitor argues that PJM should define the trigger for Performance 

Assessment Hours clearly, using a calculated metric based on the available reserves, and 

should use an “annual probabilistic analysis” with the same inputs used for the installed 

reserve margin study to approximate the appropriate Non-Performance Charge rate. 

Invenergy protests that there is no limit on the number of hours each year during which 

PJM could implement Emergency Actions. Invenergy argues that, while some flexibility 

is warranted, PJM must recognize that the number of hours will drive capacity market 

sellers’ penalty risk exposure. Therefore, Invenergy asserts, PJM must revise its proposal 

to incorporate a process by which PJM will review and identify the circumstances under 

which Emergency Actions are declared and a trigger for that review. Specifically, 

Invenergy argues that, if the total number of hours during which Emergency Actions are 

implemented in a single year exceeds 40, PJM should be required to conduct this review 

process. Invenergy argues that this review will allow the Commission to consider 

whether the Non-Performance Charge should be modified to reflect more than 30 hours 

of expected Emergency Actions. Exelon argues that PJM should have flexibility to revise 

both the triggers for Performance Assessment Hours and the stop-loss provisions, in the 

event the calculation results in unacceptably high or low Non-Performance Charges. 

133. Dominion argues that PJM’s proposed changes are unjust and unreasonable 

because they could penalize a resource for following PJM’s instructions or due to a 

transmission maintenance outage outside of the generator’s control.104 Dominion argues 

that the Commission should reject this aspect of PJM’s proposal because the proposed 

penalty for generator outages caused by transmission system outages bears no relation to 

PJM’s goal of incenting performance. 

3. PJM’s Answer

134. In response to protestors, PJM asserts that the Non-Performance Charge is 

reasonably based on Net CONE regardless of the clearing price for any particular 

capacity auction. PJM argues that Net CONE is an appropriate measure because it 

reflects the cost of new capacity under equilibrium conditions, an accepted reference 

point for the value of capacity. In contrast, PJM responds, using the energy market 

shortage price as Coalition of Resource Projects suggests is inappropriate, because the 

shortage price is an energy market value. 

135. PJM disagrees with the Market Monitor’s and Exelon’s suggested approaches for 

calculating a performance penalty. PJM asserts that either method could result in 

changes to the performance penalty rate after the relevant Base Residual Auction is 

cleared. Thus, PJM concludes, such approaches “appear to sacrifice rate predictability.” 

 104 See also Essential Power protest at 12.
Docket No. ER15-623-000, et al. - 52 -

Nevertheless, PJM explains that it is willing to revise the OATT to state that the 

denominator in the Non-Performance Charge calculation will contain a number of hours 

equal to the annual average of the Performance Assessment Hours in the three calendar 

years preceding PJM’s posting of parameters for the Base Residual Auction for a delivery 

year.105 

136. PJM disagrees with the Market Monitor’s assertion that the Balancing Ratio 

should include actual performance and commitments of Demand Resources and Energy 

Efficiency Resources. PJM argues that including these factors incorrectly assumes that 

the expected performance of Demand Resources and Energy Efficiency Resources is 

based on the Balancing Ratio itself, which, thereby, leads to an inflated figure. PJM 

explains that it measures performance by demand response and energy efficiency 

resources through a separate calculation, because such resources are always expected to 

provide their full committed load reduction values. Thus, PJM argues that the Market 

Monitor’s calculation does not correspond to what the system expects or needs and 

should be rejected. 

137. PJM also disagrees with protestors seeking to require a lower penalty charge for 

Demand Resources. PJM argues that it is reasonable for Demand Resources to be subject 

to the same penalty provisions as generators, regardless of whether they cleared as Base 

Capacity or Capacity Performance. PJM adds that the new capacity construct should not 

have differentiated penalties based on how well different resource types have performed 

in the past.

138. In response to intervenors’ arguments seeking exemptions from the NonPerformance Charge for resources that do not perform in specific circumstances, PJM 

argues that granting such exemptions unreasonably seeks to shift to loads the adverse 

effects of poor performance that is traceable to an economic decision of the capacity 

provider. For example, PJM explains that when a resource submits a market-based offer 

that is higher than its cost-based offer, the resource indicates its economic choice not to 

be dispatched at its cost-based level. PJM adds that, in this situation, the financial 

consequences of the offer strategy should fall on the market seller.106 

 105 PJM adds that, to ensure market seller expectations are honored, this 

denominator will not change once it is used in the Base Residual Auction. PJM asserts 

that this approach would afford market sellers notice of the Non-Performance Charge rate 

at the time they submit their capacity offers for the relevant delivery year. See PJM 

February 13, 2015 answer at 65.

106 Similarly, PJM argues, physical resource limitations are a “design and 

economic choice by the resource provider” and exposing resources to the consequences 
Docket No. ER15-623-000, et al. - 53 -

139. PJM reiterates that the proposed Non-Performance Charge and performance 

payment “closely track” the approach the Commission recently approved for ISO-NE, 

with “only one notable departure,” the proposed stop-loss limit mechanism. PJM argues 

that this departure is warranted, because utilizing the ISO-NE method in the PJM region 

would effectively eliminate the threat of loss of all revenues for a delivery year. In 

particular, PJM explains, under the ISO-NE stop-loss method, a resource would have to 

trigger the monthly stop-loss limit in eight months in order to lose its capacity auction 

revenue for the year. This result is nearly impossible in PJM, PJM argues, and would 

inhibit the performance incentives it seeks to establish and dampen its ability to shift 

performance risk from load to suppliers.

140. With regard to Joint Consumers’ protest that Base Capacity Resources should be 

subject to a performance penalty that exceeds the capacity auction clearing price, PJM 

responds that Base Capacity Resources are only transitional under the new construct. 

PJM adds that units that clear as Base Capacity Resources will become subject to the 

Non-Performance Charge for Capacity Performance after the end of the transition period, 

so market sellers will know that they will face more stringent penalty provisions in the 

future. PJM argues that this eventuality “should provide all the incentive the seller 

needs” to make appropriate investments now and in the future.

141. PJM also responds to intervenors’ arguments regarding the ability of PJM to 

appropriately calculate performance for coupled offers. PJM explains that, under its 

proposal, output will be attributed first to the Capacity Performance Resource 

performance requirement, with any output over and above that quantity attributed to the 

Base Capacity performance requirement.107 PJM disagrees with protestors who assert 

that PJM should distribute Non-Performance Charge revenues to load rather than overperforming resources. PJM argues that its approach corresponds to the method accepted 

for ISO-NE, reflects the logic that resource owners are responsible for resource 

performance, and will promote competition among better-performing resources. In 

return, PJM adds, load receives the reliability the capacity market is intended to provide. 

4. Additional Answers

142. Exelon, in its answer, renews its objections to PJM’s proposed hourly penalty rate 

because it is too low. Exelon notes that, while PJM’s proposal is based on the 

 

of such choices will result in more flexible and better performing resources over time. Id. 

at 70.

107 PJM also commits to include in its Manuals the methodology for calculating 

capacity values for Intermittent Resources, Capacity Storage Resources, Demand 

Resources, and Energy Efficiency Resources. 
Docket No. ER15-623-000, et al. - 54 -

assumption that there will be approximately 30 Performance Assessment Hours a year 

going forward, creating a static divisor based on the worst performance PJM has ever 

experienced will establish penalties that will forever be too low. 

143. Exelon also responds to the PJM Utilities Coalition’s argument that an hourly 

penalty paid by a non-performing resource located in a Locational Deliverability Area

that has a relatively low capacity clearing price will be unduly discriminatory, given that 

it will constitute a larger share of that resource’s total capacity revenues relative to the 

hourly penalty paid by a non-performing resource in a Locational Deliverability Area that 

has a relatively high clearing price. Exelon argues that, in fact, PJM’s proposal will 

penalize non-performance in the same manner, regardless of location or technology, 

based on the cost of replacement capacity valued at Net CONE. Exelon asserts that, 

regardless, any resource will be free to incorporate the exposure risk attributable to a 

penalty into its sell offer. 

144. The PJM Utilities Coalition, in its answer, responds to Exelon’s argument that the 

fixed denominator established under PJM’s proposed hourly penalty rate relies on an 

excessive estimate as to poor performance. The PJM Utilities Coalition argues that 

PJM’s divisor is appropriate, given the recent increase in unit retirements.

145. The PJM Utilities Coalition also responds to the Pennsylvania Commission’s 

argument that the revenue collected from payment of Non-Performance Charges should 

be allocated to load, to the extent that load is forced to bear the additional costs of higher 

locational marginal prices and energy uplift costs associated with net-generator nonperformance. The PJM Utilities Coalition argues that, to generate the revenues required 

to maintain reliability and to properly incent resource performance, it is critical that 

PJM’s capacity rules allocate performance payments to suppliers.108 

146. Finally, the Market Monitor, in its answer, responds to arguments made by 

NRG/Dynegy and LS Power, in opposition to PJM’s proposal to impose NonPerformance Charges on a resource that is uncommitted due to the seller’s submission of 

a market-based offer that is higher than its cost-based offer. The Market Monitor asserts 

that PJM’s proposal is appropriate, given that the risk of non-performance in the capacity 

market is explicitly incorporated into a seller’s offer. The Market Monitor argues that, 

under these circumstances, performance should not be excused on the basis of an energy 

offer. 

 108 The PJM Utilities Coalition adds that allocating performance payments to load 

would incent offers that reflect only a downside risk attributable to the capacity being 

offered, with the resulting clearing price not reflecting the risk-adjusted value of capacity. 

See PJM Utilities Coalition Answer at 15. 
Docket No. ER15-623-000, et al. - 55 -

5. Deficiency Letter, PJM’s Response, and Protests and Comments

147. The Deficiency Letter asked whether it is appropriate for PJM to phase-in its NonPerformance Charge by transitioning from its proposed rate, based on 30 expected 

Performance Assessment Hours, to a more stringent penalty assessment.

148. The Deficiency Letter also requested PJM to provide any analysis it has completed 

that indicates the expected frequency with which a Capacity Performance Resource

would hit the monthly or the annual stop-loss limit and any analysis it has completed of 

expected performance charges and bonus payments for Capacity Performance Resources 

under PJM's Capacity Performance proposal.

149. Regarding the proposed stop loss provisions, PJM indicates that while it has not 

performed unit-specific analysis to determine when or the frequency with which a 

Capacity Performance Resource can be expected to hit the monthly or annual stop-loss

limits, it paid careful attention to the number of full non-performance hours required for 

any capacity resource to reach either the monthly or annual stop-loss limits.

109 PJM notes 

that using the data from Emergency Actions declared by PJM during the 2013-14 

delivery year that ran from June 1, 2013 through May 31, 2014, the Market Monitor 

calculated the Non-Performance Charges that would have been paid by a non-performing 

resource.110 PJM indicates that the analysis shows the monthly stop-loss limit would 

have reduced a resource’s exposure to the Non-Performance Charge by $6.5 million

compared to the outcome without a stop-loss limit. Similarly, PJM states that on a 

per-MW basis, the total Non-Performance Charge is $13,626/MW lower with the stoploss limit compared to what it would have been without the stop-loss limit.

111

150. PJM states that it is willing to eliminate the proposed monthly stop-loss limit in 

this proceeding or to commit to review the monthly stop-loss limit and any impact on 

performance incentives at an appropriate time after implementing the Capacity 

Performance design.112 PJM contends that, while the monthly stop-loss limit is beneficial 

from the market seller’s perspective because it reduces exposure to the Non-Performance 

Charge in a month like January 2014, the monthly stop-loss limit dilutes the core 

incentives by allowing under-performance without consequence once a resource has 

 109 PJM Deficiency Letter Response at 20. 

110 Id. at 21-22. 

111 Id. at 21-22. 

112 Id. at 23.
Docket No. ER15-623-000, et al. - 56 -

reached the monthly stop-loss limit.

113 Additionally, PJM states that the monthly stoploss limit decreases the total pool of dollars collected from Non-Performance Charges, 

thereby reducing the size of Performance Bonus Payments available to resources that 

exceed their commitments. PJM states that the annual stop-loss limit is based on the 

premise that no resource should be penalized more than 1.5 times Net CONE times its 

capacity commitment because the Variable Resource Requirement curve sets 1.5 times

Net CONE as the maximum price load will pay for capacity. 

151. Finally, PJM suggests that, given its proposed transition mechanism, there is no 

need for any further phase-in of the Non-Performance Charge rate.114 PJM contends that 

its transition mechanism assures load that Capacity Performance Resources have the full 

incentive to invest appropriately in their resources from the 2018-19 delivery year

forward. PJM believes that phasing in the Non-Performance Charge rate beyond what 

PJM has already proposed in its transition mechanism would inappropriately dilute 

incentives to perform. PJM suggests that a stringent Non-Performance Charge is critical 

to ensure that sufficient incentive exists for Capacity Market Sellers to invest any

increased capacity payments in preparing their resources to be capable of providing 

energy to the system when they are most needed for reliability. 

152. Exelon states that it would not object to PJM using a divisor of 30 Performance 

Assessment Hours to calculate the penalty rate for the Transition Incremental Auctions 

and for the Base Residual Auction for delivery year 2018-19, and then moving to a more 

accurate and stringent penalty assessment based on the annual average of Performance 

Assessment Hours over the last three years preceding the Base Residual Auction.115 

Dominion, in contrast, opposes a phase-in of the penalty rate.116 Panda argues that 

allowing the rate to fluctuate would perversely cause the Non-Performance Charge rate to 

increase as reliability, and thus expected performance, improves.117 The Pennsylvania 

Commission argues that PJM’s assumption of non-performance hours should reflect a 

more current number of emergency events.118

 113 Id. at 22. 

114 Id. at 24. 

115 Exelon comments to PJM’s Deficiency Letter Response at 10.

116 Dominion comments to PJM’s Deficiency Letter Response at 6-9.

117 Panda comments to PJM’s Deficiency Letter Response at 3-4.

118 Pennsylvania Commission comments to PJM’s Deficiency Letter Response 

at 8.
Docket No. ER15-623-000, et al. - 57 -

153. Regarding PJM’s proposed Non-Performance Charge mechanism, the 

Pennsylvania Commission and Joint Consumers argue that an appropriate penalty for 

non-performance is based on actual capacity market clearing prices. Joint Consumers 

contend that the relationship between the penalty rate and the opportunity cost component 

of the Revised Offer Cap would result in escalated RPM clearing prices if penalties are 

based on Net CONE, regardless of the actual marginal units’ operating costs.119 The 

Pennsylvania Commission suggests that basing the penalty rate on Net CONE effectively 

requires a capacity resource to “return a payment which it has not earned.”120 The 

Pennsylvania Commission argues that, if PJM eliminates the monthly stop-loss limit, it 

should adjust the base penalty rate calculation to reflect actual capacity market clearing 

prices, rather than Net CONE. AEMA contends that penalties that are too high, increase 

risk, possibly deter market entry, and increase capacity costs for ratepayers. AEMA 

suggests that, in years during which there are very few emergency hours, the NonPerformance Charge rate and Performance Bonus Payment rate could rise to astronomical 

levels, potentially compressing a year’s worth of penalty into a single hour.121 AEMA 

contends that PJM’s proposed Balancing Ratio discriminates against Demand Resources

and that future Performance Bonus Payments are diluted, because such resources are not 

eligible to have their expected performance during Performance Assessment Hours 

reduced by the Balancing Ratio.

122 Panda agrees, adding that PJM’s proposal appears to 

discriminate against Energy Efficiency Resources as well.123

154. Panda and the Coalition of Resource Projects state that it appears the value for the 

Balancing Ratio could exceed one, both in concept and in practice, and that a resource 

delivering its contractually committed capacity during a compliance hour might still be 

exposed to paying the Non-Performance Charge.124 Panda adds that it is illogical to 

 119 Joint Consumers comments to PJM’s Deficiency Letter Response at 15.

120 Pennsylvania Commission comments to PJM’s Deficiency Letter Response 

at 3.

121 AEMA comments to PJM’s Deficiency Letter Response at 18. 

122 Id. at 21-22.

123 Panda comments to PJM’s Deficiency Letter Response at 7.

124 Id. at 9-11 (referring to testimony from Dr. Poray); Coalition of Resource 

Projects comments to PJM’s Deficiency Letter Response at 9.
Docket No. ER15-623-000, et al. - 58 -

include Net PJM Energy Imports in the Balancing Ratio for a Locational Deliverability 

Area, but that this appears to be PJM’s proposed approach.125 

155. Some intervenors support PJM’s commitment to eliminate the monthly stop-loss 

limit. The Market Monitor requests that the Commission condition approval of the 

Capacity Performance Proposal on elimination of the monthly stop-loss provision.126 

Exelon agrees, arguing that the monthly stop-loss limit dilutes the core incentives by 

allowing under-performance without consequence any time a resource has reached the 

monthly stop-loss limit.

127 Additionally, Exelon argues, it decreases the total pool of 

money funding Performance Bonus Payments. PSEG argues that eliminating the 

monthly stop-loss provision is consistent with the overall goal of the Capacity 

Performance Proposal – to shift the risk of non-performance to suppliers. PSEG adds 

that the Commission should direct PJM to include a provision that requires the periodic 

review of the impact of the monthly stop-loss limit and considers whether it is necessary 

once PJM gains operational experience with the Capacity Performance design.128

156. Others protest PJM’s proposed elimination of the monthly stop-loss provision. 

Multiple intervenors contend that, due to the probable discrepancy between the penalty 

rate, based on Net CONE, and capacity revenues that will likely be lower than Net 

CONE, eliminating the monthly stop loss would tip the risk-to-reward balance of PJM’s 

Capacity Performance proposal.

129 In particular, such intervenors are concerned that 

eliminating the monthly stop-loss limit could threaten a resource’s financial viability and

create an inappropriate level of risk in the market. Essential Power argues that it is 

ineffective to attempt to balance total Non-Performance Charge revenue with expected 

Performance Bonus Payments when, in reality, such speculative revenues are highly 

discounted in the financing process.

130 PJM Utilities Coalition adds that unreasonably 

 125 Panda comments to PJM’s Deficiency Letter Response at 8-9.

126 Market Monitor comments to PJM’s Deficiency Letter Response at 3.

127 Exelon comments to PJM’s Deficiency Letter Response at 8-9.

128 PSEG comments to PJM’s Deficiency Letter Response at 4.

129 Rockland comments to PJM’s Deficiency Letter Response at 2-6; Essential 

Power comments to PJM’s Deficiency Letter Response at 6-7; Dominion comments to 

PJM’s Deficiency Letter Response at 3-4; Panda comments to PJM’s Deficiency Letter 

Response at 6-7; Pennsylvania Commission comments to PJM’s Deficiency Letter 

Response at 8; PJM Utilities Coalition comments to PJM’s Deficiency Letter Response 

at 6-10.

130 Essential Power comments to PJM’s Deficiency Letter Response at 6-7.
Docket No. ER15-623-000, et al. - 59 -

high penalty exposure will forestall, not encourage, needed capital investments.131 PJM 

Utilities Coalition and Pennsylvania Commission argue that a monthly stop-loss limit 

reduces risk and thus capacity prices borne by consumers.132 Panda adds that PJM does 

not justify or explain the significantly higher risk, particularly in light of the 

Commission’s finding that ISO-NE’s stop-loss limit was sufficient to incent reliable 

performance.133 Panda requests that, if the Commission accepts the stop-loss limits as 

proposed, the provisions be subject to the review conducted under Section 5.10 of 

Attachment DD of the Tariff.134

157. Dominion disagrees with PJM that the monthly stop-loss limit could undermine 

incentives by allowing a capacity resource to under-perform without incurring additional 

penalties once the stop-loss limit is reached. Dominion points out that there are 

numerous consequences outside of the capacity market penalty structure that incent 

resources to perform, for example, the fact that Capacity Performance Resources that fail 

to perform will also forego all revenues from the energy markets.135

6. Commission Determination

158. For the reasons discussed below, we accept PJM’s proposed Non-Performance 

Charge mechanics, subject to the condition that PJM modify certain aspects in a 

compliance filing. We generally find the proposed mechanics to be a just and reasonable 

alternative to PJM’s existing rules to adjust a capacity resource’s compensation based on 

its real-time performance. PJM argues, and we agree, that under the existing rules a 

seller can earn substantial revenues through PJM’s capacity auctions by committing its 

resource as capacity, with little concern that it will lose significant revenue even if it 

performs poorly.136 PJM’s experience in the winter of 2013-14 demonstrated that, while 

the system suffered from outage rates two to three times that of historical norms, 

 131 PJM Utilities Coalition comments to PJM’s Deficiency Letter Response at 9.

132 Id. at 6-7; Pennsylvania Commission comments to PJM’s Deficiency Letter 

Response at 8.

133 Panda comments to PJM’s Deficiency Letter Response at 6-7.

134 Id. at 7-8.

135 Dominion comments to PJM’s Deficiency Letter Response at 4-5.

136 PJM transmittal at 9 (Docket No. ER15-623-000); PJM February 13, 2015 

answer at 7 (Docket No. ER15-623-000).
Docket No. ER15-623-000, et al. - 60 -

penalties constituted just 0.6 percent of total capacity revenue.137 The existing rules 

therefore place most of the risk of resource under-performance on load, not on capacity 

sellers, and provide little incentive to capacity sellers to make capital improvements or 

increase operating expenses to enhance the performance of its unit during emergency 

conditions. By contrast, we find that PJM’s proposed Non-Performance Charge, and the 

mechanics by which it will be applied, will provide incentive to capacity sellers to invest 

in and maintain their resources by tying capacity revenues more closely with real-time 

delivery of energy and reserves during emergency system conditions. 

159. Consistent with the Commission’s finding in the ISO-NE Capacity Performance 

Order, we find reasonable PJM’s proposal to base the Non-Performance Charge rate on 

Net CONE.138 We disagree with the assertions of multiple intervenors that relying on 

Net CONE would result in a punitive or inappropriate penalty rate.139 We continue to 

find that Net CONE is a reasonable estimate of the cost of providing new capacity.140 

We find that it is appropriate to set the penalty rate at a level that would require resources 

that fail to perform for any Emergency Action hours of a commitment period to pay the 

expected full cost of replacement capacity for that period. Furthermore, a NonPerformance Charge rate based on Net CONE is more likely to prevent non-performing 

resources from receiving positive net capacity revenues over the long run. We find that 

this is consistent with the overall Capacity Performance market design that aims to 

provide incentives for resource owners to make appropriate investments and maintain 

their resources.

141 In addition, a Non-Performance Charge rate based on Net CONE is

likely to discourage non-performing resources from taking on capacity obligations, 

because over time the penalties are likely to fully offset the capacity revenues from the 

capacity market auctions.

160. In addition, by relying on Net CONE, which is known in advance of the auction,

as the basis for a capacity Non-Performance Charge rate, participants know the rate 

 137 PJM transmittal at 9, 17 (Docket No. ER15-623-000).

138 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 74.

139 PJM Utilities Coalition comments at 12, 61-62, 65-67; Rockland comments 

at 7; Coalition of Resource Projects protest at 6-8; AEP/Duke Energy protest at 32-33; 

Invenergy comments at 5-6; Dominion protest, Docket No. ER15-623-000, at 33-35; 

AEMA comments at 22-23; Wind Energy and Renewables Coalition comments at 10-11.

140 See PJM Interconnection, L.L.C., 149 FERC ¶ 61,183, at PP 55 & n.41, 125-

126 (2014); PJM Interconnection, L.L.C 143 FERC ¶ 61,090 (2013). 

141 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 70.
Docket No. ER15-623-000, et al. - 61 -

before they submit their offers. This is a reasonable component of the penalty mechanics 

as it allows for some degree of certainty before the capacity auction. While resource 

owners will not know the quantity and timing of Performance Assessment Hours in the 

relevant delivery year, they will at least be able to rely on a known Non-Performance 

Charge rate as a basis to assess risk and develop sound investment decisions and offer 

strategies.

161. Intervenors request that PJM base the capacity Non-Performance Charge rate on 

energy prices or actual clearing prices, or some variant thereof, rather than on Net CONE. 

While multiple reasonable approaches could exist, we find, on balance, that the Net 

CONE penalty approach is just and reasonable. With regard to the PJM Utilities 

Coalition’s concerns about the lack of a penalty phase-in, we note that we are accepting 

PJM’s proposed transition mechanism, which provides for incremental quantities of 

resource participation and lower Non-Performance Charge rates for Base Capacity 

Resources, as discussed further below in Section V.E of this order (addressing PJM’s 

proposed transition mechanisms).

162. The PJM Utilities Coalition also asserts that the Non-Performance Charge rate for 

Base Capacity Resources is too low. We find it acceptable to have a lower NonPerformance Charge rate for Base Capacity Resources than for Capacity Performance 

Resources, given that Base Capacity Resources will not receive the higher revenues 

associated with the Capacity Performance product. A lower Non-Performance Charge 

rate for Base Capacity Resources also allows resources the opportunity to gain experience 

with the new mechanism and gives Base Capacity Resources that may later offer as 

Capacity Performance the time to make the investments necessary to meet the stringent 

requirements of the full Capacity Performance product while still providing strong 

incentives to perform during summer Performance Assessment Hours.

163. We also accept PJM’s proposal to rely on an estimate of 30 hours of Emergency 

Actions to formulate the Non-Performance Charge rate. PJM’s reliance on the historical 

Emergency Action hours experienced during the 2013-14 commitment period to 

approximate the number of Performance Assessment Hours, with an adder for the 

possibility that even more Emergency Action hours may occur, represents a reasonable 

approximation of the upper bound of hours during which the system is likely to 

experience Emergency Actions over the relevant commitment period. However, given 

that the Performance Assessment Hour estimate affects core components of the Capacity 

Performance design, including the Non-Performance Charge rate and the default offer 

cap, we condition our acceptance of PJM’s proposal on PJM making annual 

informational filings with the Commission to provide updates on the use of 30 hours for 
Docket No. ER15-623-000, et al. - 62 -

this parameter.142 PJM should submit an informational filing within 180 days of the 

conclusion of each delivery year for five years, beginning with the 2016-2017 delivery 

year. Each informational filing should describe average net capacity revenues (i.e.

capacity auction revenues plus Performance Bonus Payments minus Non-Performance 

Charges) for groups of Capacity Performance Resources with varying levels of 

performance during Performance Assessment Hours (i.e. with varying values for the 

parameter “A,” as described in the Deficiency Letter Response and in section V.F of this 

order) under: (i) the actual Non-Performance Charge rate based on 30 hours; and 

(ii) higher and lower alternative Non-Performance Charge rates based on less than and 

greater than 30 hours.143 We also encourage PJM to reassess the assumed number of 

Performance Assessment Hours after it has gained more experience with Capacity 

Performance and submit a filing if it finds a revision is warranted. 

164. We also accept, as just and reasonable, PJM’s proposed annual Non-Performance 

Charge stop-loss limit equal to 1.5 times annual Net CONE. We agree with intervenors 

that, because PJM’s annual stop-loss limit is based on Net CONE rather than the auction 

clearing price, PJM’s stop-loss limit will likely be higher than ISO-NE’s.144 However, 

this discrepancy does not alone render PJM’s approach unjust or unreasonable. First, as 

noted above, an important element of PJM’s overall proposal is to put at risk full capacity 

auction revenues if a resource completely fails to perform during Performance 

Assessment Hours. Because the proposed annual stop-loss limit is equal to the maximum 

clearing price allowed by PJM’s Variable Resource Requirement curve, it meets this 

criterion. In addition, basing the limit on Net CONE ensures that market participants will 

know their maximum risk exposure in assuming a Capacity Performance commitment 

and be in a position to formulate their sell offers accordingly.

 142 The filing will be for informational purposes only and will not be noticed for 

comment or subject to Commission order.

143 For example, PJM could present the average net capacity revenues of groups of 

Capacity Performance Resources with “A” values in the 25th, 50th, and 75th percentiles of 

all Capacity Performance Resources under (i) the actual Non-Performance Charge rate 

based on 30 hours, and (ii) higher and lower alternative Non-Performance Charge rates 

based on less than and greater than 30 hours.

144 ISO-NE’s annual stop-loss limit is set at a resource’s annual capacity revenues 

plus three months of the difference between the auction clearing price and the auction 

starting price (the greater of gross CONE or 1.6 times Net CONE). See ISO New 

England Inc. Transmission, Markets and Services Tariff at III.13.7.3.2 Annual Stop-Loss 

(38.0.0). 
Docket No. ER15-623-000, et al. - 63 -

165. However, we agree with PJM that the monthly stop-loss limit equal to 0.5 times 

annual Net CONE significantly weakens the incentives created by the Non-Performance 

Charge by allowing under-performance without consequence once a resource has reached 

the monthly stop-loss limit. A monthly stop-loss limit at this level could mean that a 

Capacity Performance Resource’s penalties would be capped after failing to perform in 

only 15 Performance Assessment Hours in a month. Historical data submitted by PJM in 

its Deficiency Letter Response suggests that the majority of Performance Assessment 

Hours in PJM are likely to occur during a few peak months of the year.145 For any 

delivery year during which Performance Assessment Hours are highly concentrated in a 

single month, such as delivery year 2013-14, the monthly stop-loss limit will 

inappropriately increase the likelihood that a non-performing resource could earn positive 

net capacity revenues over the long run, and thus severely dilute the very performance 

incentives that the Capacity Performance design is intended to create. We find that the 

likely high concentration of Performance Assessment Hours in a few peak months in 

PJM warrants removal of PJM’s proposed monthly stop-loss limit, and we therefore 

recognize PJM’s commitment to eliminate the monthly stop-loss limit and condition our 

acceptance of PJM’s proposal on such removal.

166. We are not persuaded by PJM Utilities Coalition’s argument that the stop-loss 

levels fail to account for energy price penalties that non-performing resources may face. 

PJM’s proposed stop-loss provisions are intended to limit the amount of capacity revenue 

that can be lost due to failures to perform in the energy market. They are not designed to 

provide absolute limits to all forms of risk that resources may face.

167. PJM proposes two Non-Performance Charge exemptions whereby a capacity 

resource that does not deliver its share of energy or reserves during a Performance 

Assessment Hour will nonetheless not be assessed a Non-Performance Charge.146 The 

first is if the resource is on a PJM-approved Generator Planned Outage or Generator 

Maintenance Outage and PJM determines that the resource was unavailable during the 

hour solely because it was on such an outage. The second is if PJM did not schedule the 

resource to operate for reasons other than seller-specified operating parameter limitations 

or the seller’s submission of a market-based offer price higher than its cost-based offer 

price. As PJM indicates, these exemptions are strictly circumscribed and can be traced to 

a determination by PJM that the resource’s unavailability is appropriate in a given hour. 

PJM’s proposal also reinforces the incentive to follow PJM’s dispatch instructions, 

 145 PJM Deficiency Letter Response at Appendix 2. We note that, in the 2013-14 

delivery year, over 70 percent of the RTO-wide Performance Assessment Hours occurred 

in one month, and in each of the 2012-13 and 2011-12 delivery years, 100 percent of the 

RTO-wide Performance Assessment Hours occurred in one month.

146 Proposed OATT, Attachment DD, section 10A(d). 
Docket No. ER15-623-000, et al. - 64 -

because capacity resources are not penalized for being on an PJM-approved outage or for 

PJM’s determination, based on its independent assessment of the needs of the bulk power 

system at a given point in time, not to schedule a capacity resource or to dispatch the 

capacity resource down. For these reasons, we find the proposed exemptions reasonable 

and unlikely to undermine the resource performance incentives that are at the core of the 

Capacity Performance construct.147 We therefore accept them, subject to the condition 

described below. 

168. PJM Utilities Coalition, LS Power, and Dominion protest an aspect of PJM’s 

proposed scheduling exemption whereby a resource will not be exempt from NonPerformance Charges if the resource is not scheduled by PJM due to the seller’s 

submission of a market-based offer price greater than its cost-based offer price. The 

parties state that this application of the scheduling exemption will serve as additional 

mitigation of resources’ energy market offers without those resources having been found 

to possess market power. We disagree that the scheduling exemption as proposed will 

serve as de facto mitigation. Without the limited application of the exemption that PJM 

proposes, a resource that is experiencing performance challenges could attempt to avoid 

Non-Performance Charges by offering well above cost in the hope of not being 

scheduled. Therefore, we find that PJM’s proposed application of the scheduling 

exemption is needed to preserve the incentives embodied by the rest of its proposal. 

PJM’s proposal does not preclude resources from submitting market-based offers in 

excess of their cost-based offers. We recognize that the scheduling exemption rules

could have the effect of compelling a capacity resource to submit a market-based offer 

price equal to its cost-based offer price at times when the resource perceives that a 

 147 As discussed in greater detail in section VI.C, we recognize value in allowing a 

Capacity Performance Resource to designate all or a portion of its capacity as a 

Maximum Emergency offer in all conditions, and therefore determine that it is not just 

and reasonable to preclude Capacity Performance Resources from submitting Maximum 

Emergency offers during emergency conditions and hot or cold weather alerts. 

Nevertheless, consistent with PJM’s proposal and our finding in the paragraph above, we 

note that PJM should treat any portion of a Capacity Performance Resource’s cleared 

capacity that is designated as a Maximum Emergency offer as non-performing for 

purposes of applying Non-Performance Charges if, due to the capacity’s designation as a 

Maximum Emergency offer, the offer does not reflect the unit-specific operating 

parameter limits and PJM does not schedule that capacity during a Performance 

Assessment Hour for that reason. Similarly, any portion of the Maximum Emergency 

offer capacity that PJM schedules and that is delivered to the system as energy or 

reserves during a Performance Assessment Hour should be credited to the resource’s 

performance when determining Non-Performance Charges or Performance Bonus 

Payments.
Docket No. ER15-623-000, et al. - 65 -

Performance Assessment Hour may occur. However, we agree with PJM that a seller 

exercising its option to only be scheduled based on its market-based offer price is making 

an economic decision. In such a scenario, we find it reasonable for the seller to assume 

the risk of non-performance resulting from its offer strategy. 

169. NRG/Dynegy argues that a resource’s short-run marginal cost for a given hour 

will often exceed the price of its cost-based offer, particularly during Performance 

Assessment Hours when fuel prices can be highly volatile, and that this possibility 

renders the proposed scheduling exemption unjust and unreasonable. We appreciate the 

issue raised by NRG/Dynegy, but we are not persuaded that the Capacity Performance 

proposal exacerbates it. NRG/Dynegy is arguing that a resource’s cost-based offer may 

not reflect the resource’s true marginal costs, but PJM’s cost-based offer rules are not

directly before us in this proceeding.148 We also anticipate that NRG/Dynegy’s concern 

will be limited by the fact that during the emergency conditions that trigger Performance 

Assessment Hours, PJM will typically be scheduling all resources that are available to 

perform. 

170. While we accept the proposed scheduling exemption, we find that two

clarifications are appropriate with regard to the tariff language in proposed section 

10A(d) of the OATT to avoid ambiguity or misinterpretation. In relevant part, 

section 10A(d) states the following:

[A] Capacity Resource or Locational UCAP of a Capacity 

Market Seller or Locational UCAP Seller shall not be 

considered in the calculation of a Performance Shortfall for a 

Performance Assessment Hour to the extent such Capacity 

Resource or Locational UCAP was unavailable during such 

Performance Assessment Hour solely because the resource on 

which such Capacity Resource or Locational UCAP is 

based...was not scheduled to operate by the Office of the 

Interconnection, or was online but was scheduled down, by 

the Office of the Interconnection, for reasons other than 

(i) limitations specified by such seller in the resource 

 148 See Duke Energy Corp., et al. v. PJM Interconnection, L.L.C., 151 FERC 

¶ 61,206 (2015) (directing PJM to submit a filing either to: (1) report whether it will 

propose tariff changes that (a) allow market participants to submit day-ahead offers that 

vary by hour and to update their offers in real time, including during emergency 

situations, and (b) make any associated modifications to its market power mitigation 

rules; such report must include a proposed timeline from PJM explaining how it will 

implement such changes by November 1, 2015, or as soon as practicable thereafter; or (2) 

explain why such changes are not necessary).
Docket No. ER15-623-000, et al. - 66 -

operating parameters, or (ii) the submission by such seller of 

a market-based offer higher than its cost-based offer.149

171. First, we interpret the clause on seller-specified limitations on resource operating 

parameters to mean that if PJM does not schedule a resource during a Performance 

Assessment Hour due to any operating parameter limitation specified in a market seller’s 

energy offer,

150 the resource will be subject to Non-Performance Charges. In other 

words, a capacity resource will only be exempt from Non-Performance Charges if it is 

not scheduled by PJM because the resource was not needed to alleviate the capacity 

shortage. This interpretation is consistent with PJM’s statements in its transmittal letter, 

including the following:

[N]ot scheduling a resource, or dispatching it down, due to 

parameter limitations specified by the seller in its energy 

market offer are attributable to choices made by the seller, 

rather than actions dictated by PJM. Even physically based 

resource parameter limits reflect choices controlled by the 

seller as to the nature of the resource that it is offering to the 

PJM Region as capacity. Parameter limits should not be 

viewed as a permanent entitlement to underperform. Instead, 

those limits should be exposed to financial and market 

consequences: if sellers of resources with fewer operating 

limits earn more from the capacity market (after taking NonPerformance Charge and Performance credits into account) 

than sellers of resources with more restrictive operating 

limits, then all sellers will be incented to find ways to 

minimize those operating limits, which should over time 

increase overall fleet performance and benefit loads in the 

region.151

Thus, we find that the proposed wording, “limitations specified by such seller in the 

resource operating parameters,” could be misinterpreted to mean only those operating

parameter limitations that are less flexible than a resource’s pre-determined parameterlimited schedule and, in turn, allow less flexible resources to avoid Non-Performance 

 149 PJM OATT Attachment DD, section 10A - Charges for Non-Performance and 

Credit for Performance (emphasis added).

150 Including limitations consistent with the resource’s pre-determined parameterlimited schedule in Attachment K, section 6.6, of the OATT.

151 PJM transmittal at 46 (Docket No. ER15-623-000).
Docket No. ER15-623-000, et al. - 67 -

Charges more often than more flexible resources. To prevent misinterpretation, we find 

that a clarification is warranted to make clear what parameter limitations are at issue in 

this provision. 

172. Second, we interpret the clause on submission of a market-based offer higher than 

the cost-based offer to mean that if a capacity resource is not scheduled by PJM after 

submitting a market-based offer higher than it cost-based offer, but would also not have 

been scheduled even if its market-based offer had been equal to its cost-based offer, any 

undelivered megawatts will not be counted as a performance shortfall. In this scenario, 

the reason that PJM did not schedule the resource is not that the resource’s market-based 

offer was higher than its cost-based offer. Rather, PJM did not schedule the resource 

because it was not needed, even at its cost-based offer price. This interpretation is based 

on our literal reading of the provision, and we find it to be the appropriate interpretation 

in light of PJM’s stated intent for the scheduling exemption. Nonetheless, we find that, 

as written, this provision may be ambiguous and open to different interpretations. 

173. Accordingly, to provide maximum clarity, we accept PJM’s proposal, subject to 

the condition that PJM submit modifications to proposed section 10A(d) of the OATT to 

make clear that: (i) if a capacity resource is not scheduled by PJM due to any operating 

parameter limitations submitted in the resource’s offer, any undelivered megawatts will 

be counted as a performance shortfall; and (ii) if a capacity resource is not scheduled by 

PJM after submitting a market-based offer higher than its cost-based offer but would 

have been scheduled if its market-based offer had been equal to its cost-based offer, any 

undelivered megawatts will be counted as a performance shortfall.

174. Several intervenors152 request that PJM extend additional performance exemptions 

to resources for a number of reasons. However, in submitting proposed tariff changes 

pursuant to a FPA section 205 filing, PJM need only demonstrate that its proposed 

revisions are just and reasonable, not that its proposal is the most just and reasonable 

among all possible alternatives. Therefore, having found PJM’s proposed exemptions to 

be just and reasonable and not unduly discriminatory, subject to the condition described 

above, we decline to address the proposed alternative or additional exemptions in the 

context of this section 205 proceeding.153 

 152 See Coalition of Resource Projects protest at 15; Dominion protest at 38. 

153 City of Bethany v. FERC, 727 F.2d 1131, 1136 (D.C. Cir. 1984) (the 

Commission's authority to review rates under the FPA is limited to an inquiry into 

whether the rates proposed by a utility are reasonable – and not to extend to determining 

whether a proposed rate schedule is more or less reasonable than alternative rate designs); 

Louisville Gas and Elec. Co., 114 FERC ¶ 61,282 at P 29 (2006) (the just and reasonable 

standard under the FPA is not so rigid as to limit rates to a “best rate” or “most efficient 
Docket No. ER15-623-000, et al. - 68 -

175. Turning now to PJM’s proposed performance evaluation mechanics, we agree 

with the Market Monitor that PJM’s proposal does not specify how PJM will assess 

performance for energy imports and when Emergency Action hours only occur within 

individual zones or sub-zones.154 In proposed PJM OATT Attachment DD, section 

10A(c), PJM proposes to measure a resource’s actual performance against its expected 

performance to determine performance payments. For generation and storage resources, 

PJM proposes to calculate the expected performance by multiplying the resource’s 

cleared UCAP quantity by the Balancing Ratio, which is the ratio of all actual generation 

and storage performance, Net Energy Imports, and demand response bonus performance 

to all committed generation and storage. PJM proposes to define Net Energy Imports as 

“the sum of interchange transactions importing energy into PJM not including those 

associated with external Capacity Resources and therefore included in All Actual 

Generation Performance minus the sum of interchange transactions exporting energy out 

of PJM, but not less than zero.”155 However, PJM does not explain why system-wide net 

imports and exports for PJM would factor into the calculation of the Balancing Ratio for 

a zonal- or sub-zonal-only Emergency Action. We agree with the Market Monitor that if 

an Emergency Action is limited to a zone or sub-zone region, transmission into the 

affected region is likely restricted, so including a system-wide measure of Net Energy 

Imports would likely distort the Balancing Ratio. 

176. Additionally, proposed PJM OATT Attachment DD, section 10A(c), indicates that 

PJM will apply the performance assessment calculation only to resources “located in the 

area defined by the Emergency Action.” Proposed section 10A(g) also points to 

proposed section 10A(c) as governing PJM’s calculation of actual performance in 

determining Performance Bonus Payments. Together, the proposed sections imply that 

energy imported from resources outside the Emergency Action area will not be eligible 

for Performance Bonus Payments. To the extent that the Emergency Action area is at the 

zonal or sub-zonal level, we find this treatment reasonable. However, if the Emergency 

Action area is PJM-wide, these tariff sections imply that PJM will not calculate either an 

expected performance value or an actual performance value for resources external to the 

 

rate” standard; rather, a range of alternative approaches often may be just and 

reasonable), reh'g denied, E. ON U.S. LLC, 116 FERC ¶ 61,020 (2006); see PJM 

Interconnection, L.L.C., 147 FERC ¶ 61,103, at P 59 (2014); Cal. Indep. Sys. Operator 

Corp., 149 FERC ¶ 61,058, at P 38 (2014); Cal. Indep. Sys. Operator Corp., 128 FERC 

¶ 61,265, at P 21 (2009).

154 See Market Monitor January 20, 2015 comments at 23-24 and Market Monitor 

February 25, 2015 answer at 7.

155 See proposed OATT at Attachment DD, section 10A(c).
Docket No. ER15-623-000, et al. - 69 -

PJM region, regardless of whether or not they have capacity commitments in PJM. As a 

result, external resources would neither be subject to Non-Performance Charges nor be 

eligible for Performance Bonus Payments. With respect to external resources with 

capacity commitments, such treatment would be inconsistent with PJM’s proposed 

treatment of internal capacity resources within the Capacity Performance design. We 

find that a clarification is warranted to avoid any ambiguity as to how PJM will assess the 

performance of external resources.

177. We also agree with Panda and the Coalition of Resource Projects that, as 

proposed, the Balancing Ratio could exceed one and, thereby, cause capacity resources’

expected performance during a Performance Assessment Hour to exceed their full cleared 

UCAP quantity. Such an outcome is inconsistent with the capacity obligation within the 

Capacity Performance design. 

178. For the reasons discussed above, we accept PJM’s proposed performance 

evaluation mechanics, subject to PJM submitting tariff revisions to clarify the definition 

of Net Energy Imports156 to avoid the distortion of the Balancing Ratio described above 

for Emergency Action hours limited to a zonal or sub-zonal area, and to reflect the 

performance calculation for imports from outside an Emergency Action area to ensure 

proper compensation for Performance Bonus Payments to resources outside the 

Emergency Action area. In addition, we accept PJM’s proposed performance evaluation 

mechanics, subject to PJM clarifying how it will apply the performance assessment 

calculation to external resources with and without a capacity commitment when an 

Emergency Action is triggered PJM-wide. Lastly, we accept PJM’s proposed 

performance evaluation mechanics, subject to PJM clarifying in section 10A(c) that a 

capacity resource’s expected performance for any Performance Assessment Hour shall 

not exceed 100 percent of its cleared UCAP quantity, or explaining why the absence of 

such a statement is just and reasonable.

179. Regarding the Market Monitor’s concern about how Demand Resource and 

Energy Efficiency Resource performance is incorporated into the Balancing Ratio, we 

agree with PJM’s answer157 that incorporating such resources would produce a ratio that 

does not correspond to what PJM’s system expects or needs because these resources are 

subject to different performance expectations. We find that PJM’s proposal to measure 

performance of demand response and energy efficiency resources using a different 

Balancing Ratio accurately accounts for differences inherent in these products.

 156 Id. 

157 PJM February 13, 2015 answer at 35-38.
Docket No. ER15-623-000, et al. - 70 -

180. We also accept PJM’s proposal to use Customer Baseline Load as the measure of a 

Demand Resource’s performance during non-summer Emergency Action hours.158 We 

are not persuaded by AEMA’s claims that it is inappropriate to use an energy market 

measure for performance of a capacity resource. We note that the stated aim of PJM’s 

capacity performance revisions is to tie capacity revenue to resource’s performance in the 

energy markets during Emergency Action hours. Because Customer Baseline Load is an 

appropriate measure of such performance, we find that it is a reasonable measure for 

assessing performance and penalties during non-summer Emergency Action hours. 

181. Concerning the penalty assessment calculation for resources that submit coupled 

offers, we find that the clarification PJM has provided in its answer – that credit for 

performance will be assigned to a resource’s Capacity Performance obligation first with 

any remaining performance awarded to the resource’s Base Capacity obligation159 – to be 

just and reasonable because it allows resources to satisfy their highest priority obligations 

first. We therefore accept PJM’s proposed treatment of coupled offers, subject to PJM 

modifying the relevant tariff provisions to reflect the clarification that PJM provides in its 

answer.

182. Regarding PJM’s proposal to allocate Non-Performance Charge revenues to overperforming resources, we find PJM’s proposal to distribute these penalties to generators 

to be just and reasonable. The redistribution of capacity revenues from under-performing 

resources to over-performing resources provides the appropriate incentives for all 

resources to perform when they are most needed. PJM’s proposal balances a capacity 

resource’s risk of paying Non-Performance Charges against the potential to receive 

Performance Bonus Payments. Distributing all or a portion of Non-Performance Charge 

revenues to load would de-link the Performance Bonus Payment rate from the NonPerformance Charge rate, reduce the Performance Bonus Payment rate, and

disproportionately increase the risk exposure of capacity resources. To the extent their 

additional risk is reflected in capacity offers, it may raise capacity auction clearing prices 

such that the increased cost to load exceeds the amount of Non-Performance Charge

revenue being distributed to load. Further, a reduced Performance Bonus Payment rate 

would also dampen the incentive for resources without capacity commitments to provide 

energy during emergency conditions. 

183. The strong incentives for resources to perform should reduce the number of hours 

that the system is in or approaching shortage conditions, resulting in a more reliable 

system. Over the long term, the fleet-wide outage rate may even decrease to an extent 

 158 See proposed RAA, Schedule 6, section G; proposed PJM OATT, 

Attachment DD-1, section G.

159 See PJM February 13, 2015 answer at 22. 
Docket No. ER15-623-000, et al. - 71 -

that PJM can achieve its reliability goals with fewer MWs of installed capacity, and 

therefore lower costs, per unit of demand. For these reasons, we find that PJM’s 

proposed method of allocating Non-Performance Charge revenues is appropriate. 

184. With regard to PJM’s proposal to assess Non-Performance Charges no later than 

three calendar months after the calendar month of the Performance Assessment Hour and 

to bill and credit appropriate charges over the remaining months of the relevant delivery 

year,160 Calpine argues that PJM should be required to bill and credit the NonPerformance Charges at the time of assessment or allow the balances to accrue interest.161 

While PJM’s proposal to delay payment without interest may reduce the value of overperformance payments by not accounting for the time-value of such funds, we find 

reasonable PJM’s argument162 that not assessing interest reduces the liquidity risk for 

resources that may be subject to Non-Performance Charges and increases the probability 

of full recovery of Performance Bonus Payments by the over-performer. We thus find 

PJM’s proposed process to be just and reasonable and accept it. 

185. The PJM Utilities Coalition notes that PJM’s proposed tariff revisions contain an 

apparent drafting error whereby a Capacity Performance Resource can face both NonPerformance Charges, per section 10A of Attachment DD of the OATT, and Peak Season 

Maintenance Compliance penalties or Peak Hour Period Availability penalties, per 

sections 9 and 10 of Attachment DD of the OATT, for the same event during the 

transition period. Such application runs contrary to PJM’s statement in its transmittal 

letter that any resource that voluntarily commits to be a Capacity Performance Resource 

for the 2016-17 or 2017-18 delivery years will be subject only to the Non-Performance 

Charge provisions in section 10A and will not be subject to the penalty provisions in 

sections 9 and 10.163 Accordingly, we accept PJM’s proposal subject to PJM correcting

this apparent oversight, or otherwise clarifying how its proposed tariff provisions achieve 

the stated intent.

186. Finally, we accept PJM’s proposal to use the declaration of Emergency Actions as 

the trigger for Performance Assessment Hours. We note that ISO-NE triggers 

performance assessments when it experiences a shortage of system 30-minute reserves, 

system 10-minute reserves, or zonal 30-minute reserves.164 While PJM’s proposed 

 160 PJM transmittal at 48 (Docket No. ER15-623-000).

161 Calpine comments at 9-10.

162 PJM February 13, 2015 answer at 96 (Docket No. ER15-623-000). 

163 PJM transmittal at 53 (Docket No. ER15-623-000). 

164 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at 5 (2014).
Docket No. ER15-623-000, et al. - 72 -

trigger is more expansive, to include certain warnings and pre-Emergency Actions,

165

we 

find that PJM’s approach would accurately correspond with conditions and events during 

which the system is experiencing, or may reasonably expect to experience, a shortage of 

capacity. We find that this approach will appropriately trigger Performance Assessment 

Hours when performance is most critical to the PJM system.

D. Fixed Resource Requirement Plans

187. Under PJM’s existing rules, the capacity requirements of a load serving entity may 

be met either through participation in PJM’s capacity auctions, or through the submission 

of an alternative Fixed Resource Requirement plan, i.e., through a self-supply 

arrangement providing for the long-term commitment of resources.166 PJM’s rules 

require a Fixed Resource Requirement entity to submit its plan at least one month prior to 

the Base Residual Auction and subject that entity to deficiency and Non-Performance 

Charges similar to those applicable to auction participants. 

1. PJM’s Proposal

188. In conjunction with its transition mechanisms, as discussed in Section V.D, below, 

PJM proposes to limit the quantity of Base Capacity that a Fixed Resource Requirement 

entity will be permitted to include in its plan for the 2018-19 and 2019-20 delivery years, 

consistent with the limitations proposed as to auction participants.167 PJM proposes that, 

 165 Proposed PJM OATT at Attachment DD, section 2.23A (“‘Emergency Action’ 

shall mean any Emergency Action for locational or system-wide capacity shortages that 

either utilizes pre-emergency mandatory load management reductions or other emergency 

capacity, or initiates a more severe action including, but not limited to, a Voltage 

Reduction Warning, Voltage Reduction Action, Manual Load Dump Warning, or Manual 

Load Dump Action.”).

166 See RAA at Schedule 8.1. A load-serving entity seeking to satisfy its capacity 

obligation, through such plan, is required to obtain sufficient capacity for all load and 

expected load growth in its service area.

167 PJM proposes that these limitations also be applied to any updated amounts that 

the Fixed Resource Requirement entity may be required to include in its plan due, for 

example, to increased load expectations. See proposed RAA at Schedule 8.1, section 

D.2. PJM also proposes that resources committed in a Fixed Resource Requirement plan 

not be permitted to participate in PJM’s proposed Transition Incremental Auctions (see 

Section V.D of this order, below), given that these plans are submitted and approved 

three years in advance of the delivery year. 
Docket No. ER15-623-000, et al. - 73 -

at the conclusion of the transition period, all resources included in a Fixed Resource 

Requirement plan meet the requirements of a Capacity Performance Resource. 

189. PJM also proposes to permit Fixed Resource Requirement entities to choose 

between financial or physical satisfaction of the Non-Performance Charge when a 

resource in the entity’s Fixed Resource Requirement plan fails to meet its expected 

performance during a Performance Assessment Hour.168 Under the financial option, the 

entity pays the same Non-Performance Charge that applies to RPM Capacity 

Performance Resources. Under the physical option, the entity must commit an additional

0.5 MW of capacity in the subsequent delivery year for each MW of performance 

shortfall.169 

2. Protests and Comments

190. The Ohio Commission argues that, because PJM’s Capacity Performance proposal 

is predicated on a demonstrated reliability need, it must be applied on equal terms to all 

resources, including any resource commitments, as reflected in a Fixed Resource 

Requirement plan. 

191. Other intervenors object to PJM’s proposal to require a resource included in a 

Fixed Resource Requirement plan to meet the requirements applicable to a Capacity 

Performance Resource. The Indiana Commission and Indiana Consumer Counselor 

assert that applying these requirements to Fixed Resource Requirement entities is 

unnecessary, given that the states overseeing these entities’ supply arrangements have not 

experienced the performance degradation issues giving rise to PJM’s filing. The Indiana 

Commission and Indiana Consumer Counselor add that the incentives that resources face 

in these retail jurisdictions differ from the circumstances at play in PJM’s markets. 

AEP/Duke Energy agree, noting that Fixed Resource Requirement entities are already 

subject to strong performance incentives and that applying PJM’s additional 

requirements, as proposed, could subject these entities to conflicting reliability 

requirements. 

192. Intervenors also argue that PJM’s proposal is incompatible with the cost-ofservice model under which a Fixed Resource Requirement entity operates and the extent 

to which this model may prohibit such an entity to pass through penalty charges. 

AEP/Duke Energy argue that the Fixed Resource Requirement model was adopted 

because a utility that would continue to operate as a vertically-integrated utility should 

not be forced to participate in PJM’s bid-based auctions. The Indiana Commission and 

 168 Proposed RAA at Schedule 8.1, sections G.1. 

169 Proposed RAA at Schedule 8, section G. 
Docket No. ER15-623-000, et al. - 74 -

Indiana Consumer Counselor argue that applying PJM’s proposed Capacity Performance 

requirements to these entities runs contrary to the carefully constructed settlement giving 

rise to PJM’s capacity market. OPSI adds that, as proposed, PJM’s approach would 

impermissibly infringe on state authority by altering the Fixed Resource Requirement 

option to the extent that it no longer meets the opt-out requirement. Michigan 

Commission also expresses concern that PJM’s proposal infringes on state jurisdictional 

authority by limiting the types of generation resources that Fixed Resource Requirement 

entities can rely upon. For example, Michigan Commission observes that PJM’s 

definition of capacity resources excludes Intermittent Resources such as wind and solar, 

and these resources have made significant contributions to reliability during emergency 

conditions. 

193. AEP/Duke Energy argue that subjecting a Fixed Resource Requirement entity to 

PJM’s Capacity Performance requirements would unduly impede upon that entity’s 

reasonable expectations, as manifested in its long-term resource commitments. The 

Indiana Commission and Indiana Consumer Counselor add that PJM’s proposal would 

place unreasonable financial burdens on such an entity, noting that as few as one or two 

outages at an entity’s larger facilities could result in significant penalties that could 

threaten its economic viability. AEP/Duke Energy argue that, if the Commission accepts 

PJM’s proposal, a Fixed Resource Requirement entity should be permitted to elect 

between the physical and financial Non-Performance Charge at the time that the NonPerformance Charge is assessed, not at the time proposed by PJM, i.e., when the plan is 

submitted. AEP/Duke Energy further argue that PJM’s proposed physical satisfaction 

option should be based on 0.5 times the average performance shortfall, not on the 

maximum shortfall, as proposed by PJM.170 Michigan Commission also argues that 

PJM’s proposal is unjust and reasonable because PJM has failed to adequately support its 

reasoning for not allocating performance payments to over-performing resources that 

select the physical payment option.171

194. Finally, AEP/Duke Energy further argue that the effective date proposed by PJM, 

as to the 2015 auction, is unworkable, requiring that a Fixed Resource Requirement entity 

give notice to PJM by March 11, 2015 and submit a plan by April 11, 2015, leaving little 

time for that entity to evaluate its options following the Commission’s issuance of its 

order herein.

 170 See also Market Monitor comments at 24 (characterizing PJM’s proposed 

physical alternative as inadequate). 

171 Michigan Commission protest at 9-10.
Docket No. ER15-623-000, et al. - 75 -

3. PJM’s Answer

195. PJM, in its answer, responds to intervenors’ concerns regarding its proposal to 

allow Fixed Resource Requirement entities to elect either financial or physical 

satisfaction of any Non-Performance Charges they incur. With respect to PJM’s 

proposed physical option (requiring the commitment of increased capacity in the entity’s 

plan for the following delivery year), PJM states that it is willing to include a monthly 

stop-loss limit similar to the monthly stop-loss limit that will apply under the financial 

option, i.e., a stop-loss limit equal to one third of the maximum Non-Performance Charge 

for each month in which there are Performance Assessment Hours. Under the monthly 

stop-loss limit, PJM explains that a resource would accrue an obligation to add no more 

than 0.166 MW to its plan for the next delivery year for any one month during which it 

incurs a Non-Performance Charge. PJM also states that, if directed to do so, it will 

include an annual stop-loss limit whereby an entity choosing the physical option will 

incur an obligation for the following delivery year to add no more than 0.5 MW for each 

MW of non-performance.172 

196. PJM also responds to AEP/Duke Energy’s request that PJM allow Fixed Resource 

Requirement entities to elect financial or physical payment at the time of the nonperformance assessment. PJM states that it would be willing to revise its proposal to 

allow such an election prior to the start of each delivery year. PJM explains that this 

proposal would be consistent with its goal of aligning the election with the time Fixed 

Resource Requirement entities submit their first Fixed Resource Requirement capacity 

plans.

197. PJM also responds to AEP/Duke Energy’s concerns regarding the timing aspects 

relating to the May 2015 auction. PJM asserts that if a load serving entity needs 

additional time to make its election as to a submission of a plan following the 

Commission’s issuance of its order in this proceeding, PJM would be agreeable to a 

waiver of the March 11 notice deadline. 

4. Additional Answers

198. The Indiana Commission, in its answer, responds to the Ohio Commission’s 

argument that Fixed Resource Requirement entities should not be permitted to opt out of 

PJM’s Capacity Performance requirements (as PJM proposes) in order to treat these 

entities on an equal basis vis a vis sellers participating in PJM’s capacity market. The 

Indiana Commission argues that this asserted equality is inappropriate and unnecessary, 

given that traditionally regulated states already have adequate mechanisms in place to 

assure reliable performance. 

 172 See PJM February 13, 2015 answer at 114 (Docket No. ER15-623-000). 
Docket No. ER15-623-000, et al. - 76 -

199. Exelon, in its answer, responds to the AEP/Duke Energy argument that PJM’s 

Capacity Performance proposal should not be applied to Fixed Resource Requirement 

entities, given that the Commission lacks jurisdiction to require these entities to procure 

Capacity Performance Resources. Exelon argues that Non-Performance Charges are 

deficiency charges that will be imposed in order to prevent Fixed Resource Requirement 

entities from relying on resources located elsewhere in PJM to meet their peak load 

requirements. Exelon asserts that, as such, Non-Performance Charges are a federal 

wholesale charge. 

200. Duke, in its answer, argues that PJM’s proposal, even as revised by PJM in its 

answer, should be rejected, given that any such rules, as designed for PJM’s capacity 

auctions, should not apply to existing Fixed Resource Requirement entities. Duke argues 

that if the Commission does accept PJM’s proposal, Fixed Resource Requirement entities 

should be given a reasonable period, namely until 2020-21 delivery year, to adjust to 

these rule changes.

201. Finally, Duke responds to PJM’s proposal to allow Fixed Resource Requirement 

entities to choose between the financial or the physical penalty prior to the start of a 

delivery year, rather than three years in advance of that delivery year. Duke argues that 

the physical option, while a potential beneficial alternative to the financial penalty, would 

be viable only if the Fixed Resource Requirement entity has a reasonable opportunity to 

obtain additional capacity.173 

5. Commission Determination

202. For the reasons discussed below, we accept PJM’s Fixed Resource Requirement 

proposal, subject to the modifications outlined in this section. As an initial matter, we 

find it generally appropriate to apply the increased performance expectations, including 

more stringent consequences for failing to deliver energy or reserves during emergency 

conditions, to Fixed Resource Requirement entities. 

203. Intervenors argue that PJM’s proposal should be rejected, given that Fixed 

Resource Requirement entities are already subject to strong performance incentives from 

state regulators. Fixed Resource Requirement entities that already meet comparable 

performance standards, however, will not be unduly burdened by a requirement that they 

also meet PJM’s standards. To the contrary, these resources can be expected to benefit, 

 173 Duke adds that if a non-performance event occurs late in the delivery year, 

Fixed Resource Requirement entities may not have a reasonable way to purchase capacity 

to meet the physical assessment in time for the upcoming delivery year. See Duke 

answer at 8.
Docket No. ER15-623-000, et al. - 77 -

to the extent that their good performance, relative to other PJM resources, yields 

additional revenue in the form of Performance Bonus Payments. 

204. We are not persuaded that a strong historical record of performance supports the 

conclusion that Fixed Resource Requirement entities warrant exemption from PJM’s 

Capacity Performance requirements. In fact, while Fixed Resource Requirement entities 

do not procure their capacity commitments through PJM’s capacity auctions, the ability 

of these resources to perform is equally critical to system reliability. Under these 

circumstances, applying a lesser performance standard to such entities could undermine 

the very purpose of PJM’s Capacity Performance proposal – to ensure resources that 

receive capacity payments perform reliably. 

205. With regard to OPSI’s argument that PJM’s proposed revisions would 

impermissibly infringe on state authority by effectively eliminating states’ choice to opt 

out of the RPM auction process,174 we note that PJM is making additional changes 

outlined below to ensure that the Fixed Resource Requirement option remains a viable 

mechanism to afford states such a choice. We are not persuaded that further changes are 

necessary to satisfy the opt-out requirement. 

206. Regarding the Michigan Commission’s allegation that PJM’s proposal infringes 

on state jurisdictional authority by limiting the types of generation resources that Fixed 

Resource Requirement entities can rely upon,175 we find that PJM’s proposal makes no 

such limitation. Specifically, the Michigan Commission cites PJM’s omission of 

Intermittent Resources in the definition of capacity resources as an example of how 

PJM’s proposal restricts the Michigan Commission’s choice of resources to satisfy its 

capacity requirements. However, as clarified in its answer and conditionally accepted in 

this order, PJM’s proposal allows for such resources to participate individually or in 

combination with other such resources. 

207. Intervenors also argue that PJM’s new performance rules should not be applied to 

Fixed Resource Requirement entities because these rules are inconsistent with the costof-service model under which Fixed Resource Requirement entities operate. However, 

under PJM’s existing rules, Fixed Resource Requirement entities are already subject to 

penalties similar to those to which resources participating in PJM’s capacity auctions are 

subject.176 Moreover, while PJM’s proposed Non-Performance Charges are purposely 

 174 OPSI comments at 10. 

175 Michigan Commission protest at 3-6.

176 PJM RAA at Schedule 8.1, section G (“Any Capacity Resource committed by 

an FRR Entity in an FRR Capacity Plan for a Delivery Year shall be subject during such 
Docket No. ER15-623-000, et al. - 78 -

more stringent than PJM’s existing penalties, we are not persuaded that these charges are 

any less consistent with the cost-of-service model under which a Fixed Resource 

Requirement entity operates. 

208. We also find that PJM’s proposed physical non-performance assessment option is 

generally appropriate and should be adopted as an accommodation for the difficulties 

Fixed Resource Requirement entities may face to cover their risk of non-performance 

through their retail tariffs. While PJM did not originally propose an annual stop-loss 

limit for resources choosing the physical non-performance assessment option, PJM 

clarifies in its answer that the total physical penalty would not exceed 0.5 MW for each 

MW of non-performance in a delivery year.

177 We agree with PJM that subjecting Fixed 

Resource Requirement entities to an annual maximum Non-Performance Charge of 

adding 50 percent of the entities’ committed MW to its Capacity Plan for the next 

delivery year is reasonably comparable to the maximum financial penalty of 150 percent 

of Net CONE. We therefore accept PJM’s proposal subject to the condition that PJM add 

an annual stop-loss limit for Fixed Resource Requirement resources selecting the 

physical option, consistent with the clarification PJM provides in its answer. In its 

answer, PJM also offers to add a monthly stop-loss limit for resources selecting the 

physical option. However, consistent with our finding in section V.C above, we do not 

find that a monthly stop-loss limit is necessary or appropriate within the Capacity 

Performance design. 

209. However, while adding an annual stop-loss limit offers an improvement, we find 

that PJM’s proposed physical option penalty rate is not just and reasonable because it 

could unduly penalize Fixed Resource Requirement entities. Specifically, the physical 

penalty option PJM outlines lacks an hourly charge rate relative to the additional capacity 

per MW of non-performance. As originally proposed, PJM’s physical penalty rate 

appears to apply a penalty of procuring 0.5 additional MW per MW of non-performance 

any time Performance Assessment Hours are triggered, potentially resulting in 

disproportionate penalties.

178 In its answer, PJM proposes an alternative mechanism that 

 

Delivery Year to the charges set forth in sections 7, 9, 10, 11, and 13 of Attachment DD 

to the PJM Tariff...”).

177 PJM February 13, 2015 answer at 114.

178 See proposed RAA at Schedule 8.1, section G.2. A Fixed Resource 

Requirement entity subject to the physical payment option will be “required to update its 

Fixed Resource Requirement Capacity Plan with an additional 0.5 MW of Capacity 

Performance Resources for each MW of Performance Shortfall using the formulae 

contained in section 10A(c).” Under section 10A(c), a non-performing resource with a 

100 MW commitment could have as much as a 100 MW shortfall for a one-hour event, 

and would be responsible for adding 50 MW to its Fixed Resource Requirement capacity 
Docket No. ER15-623-000, et al. - 79 -

would instead automatically apply the maximum monthly penalty rate, adjusted for the 

resource’s performance, regardless of the duration or number of Emergency Action

events that occur in that month.179 This could have the effect of penalizing a nonperforming Fixed Resource Requirement entity at the proposed maximum monthly level, 

even if there is just one Performance Assessment Hour in a given month. Accordingly, 

we accept PJM’s proposal subject to the condition that PJM derive and incorporate a 

comparable Non-Performance Charge rate for the physical payment option in terms of 

additional capacity per MWh of non-performance. 

210. We also condition our acceptance on PJM modifying its proposal, consistent with 

its answer,180 to allow a Fixed Resource Requirement entity to choose between the 

physical non-performance assessment option and the financial non-performance 

assessment option at the start of the relevant delivery year, rather than when the Fixed 

Resource Requirement entity submits its first Fixed Resource Requirement Capacity 

Plan. We find that this delay will allow a Fixed Resource Requirement entity to make its 

decision on the best information available. 

211. We dismiss the Michigan Commission’s suggestion that Fixed Resource 

Requirement entities that choose the physical non-performance assessment option should 

also be eligible for Performance Bonus Payments. As discussed above, PJM included the 

physical non-performance assessment option as an accommodation for Fixed Resource 

Requirement entities which may be unable to pay Non-Performance Charges due to retail 

rate constraints. We find it appropriate that a Fixed Resource Requirement resource that 

 

plan. This would suggest that if there were 10 separate one-hour events in a year, a nonperforming resource with a 100 MW commitment could be responsible for adding 500 

MW to its FRR Capacity plan. With the annual stop-loss limit, such a resource could 

reach its maximum annual physical penalty level with one hour of non-performance.

179 PJM February 13, 2015 answer at 114 (“PJM would modify the Tariff to 

provide that an FRR Entity that chooses the physical payment option and incurs a nonperformance penalty would accrue an obligation to add 0.166 MW to its Capacity Plan 

for the next delivery year for each month that includes Performance Assessment 

Hours...” We interpret this to mean that, when Performance Assessment Hours occur in 

a month, PJM would establish a resource’s shortfall in terms of MW using the 

calculations in section 10A(c), regardless of the number of Emergency Action hours or 

events occurring in that month. So, a non-performing resource with a 100 MW 

commitment could have a performance shortfall of 100 MW and would be obligated to 

add 16.6 MW to its FRR capacity plan, regardless of whether there was one Performance 

Assessment Hour or 15 Performance Assessment Hours in the month.).

180 Id.
Docket No. ER15-623-000, et al. - 80 -

selects the physical option is excluded from sharing in Performance Bonus Payments. 

The Fixed Resource Requirement resource is earning revenue by selling its capacity but 

is voluntarily opting out of the financial penalty-and-reward construct, and therefore not 

contributing to the Non-Performance Charge revenues collected when it under-performs. 

While we agree that the physical option is a reasonable accommodation for Fixed 

Resource Requirement entities, we find that its voluntary nature also makes it reasonable 

that resources choosing the physical option be ineligible for Performance Bonus 

Payments. 

212. Finally, because Fixed Resource Requirement entities are subject to long planning 

horizons and multi-year plans, and because they must coordinate with state commissions 

in developing such plans, we find that a phase-in of the Capacity Performance rules for 

these entities is appropriate. We therefore accept PJM’s proposal on the condition that 

PJM apply the Capacity Performance rules to Fixed Resource Requirement entities only 

after the conclusion of the Fixed Resource Requirement plans to which these entities are 

currently obligated as of the date of this order. 

E. Transition Mechanisms

1. PJM’s Proposal

213. On an interim basis, through May 31, 2020, PJM proposes to reclassify its existing 

capacity market product as a Base Capacity product, subject to certain conditions and 

requirements summarized below. PJM proposes to permit Base Capacity Resources to 

participate in PJM’s capacity auctions, as applicable to the 2018-19 and 2019-20 delivery 

years.181 PJM asserts that this transitional approach is appropriate, given that not all 

capacity resources will be able to perform as a Capacity Performance Resource in the 

near term. 

214. PJM states that its incremental transition period provides opportunity for resources 

to invest in, and sufficient time to build, improvements necessary to meet the operational 

and performance requirements expected of Capacity Performance Resources. PJM 

argues that this period also allows resources to make gradual improvements, and thereby 

ease any burden such improvements may impose. This transition mechanism is 

contrasted with an immediate switch to 100 percent Capacity Performance Resources, 

which PJM argues could impose significant burdens on resources, and create risks of 

increased price volatility or shortage concerns. 

 181 Proposed PJM OATT at Attachment DD, sections 2.2B and proposed RAA at 

sections 1.2A.
Docket No. ER15-623-000, et al. - 81 -

215. PJM states that, under its proposal, Base Capacity Resources will include: 

(i) internal and external generation capacity resources; (ii) Intermittent Resources; 

(iii) Capacity Storage Resources; (iv) Annual Demand Resources; (v) Base Capacity 

Demand Resources; and (vi) Base Capacity Energy Efficiency Resources.182 PJM states 

that summer-only resources seeking to submit offers as a Base Capacity Resource will be 

required to demonstrate that they are, or will be, physically incapable of meeting the 

year-round performance expected of a Capacity Performance Resource. PJM proposes to 

calculate the constraints on clearing Base Capacity Resources by applying a ten percent 

increase in its loss-of-load expectation, from a 1-event-in-10 years standard to a 

1.1-event-in-10 years standard, as an appropriate reliability tolerance.

216. With respect to Base Capacity Resources and Base Capacity Energy Efficiency 

Resources, PJM proposes to allocate this tolerance level equally (i.e., as a loss-of-load 

expectation equal to 1.05-events-in-10-years standard). PJM states that these constraints 

will be determined in a manner similar to that for existing resource constraints. PJM also 

proposes to divide the 10 percent increase in loss-of-load expectation evenly, as between:

(i) Base Capacity Demand Resources and Base Capacity Energy Efficiency Resources; 

and (ii) generation resources that clear as Base Capacity Resources.

217. PJM proposes to determine its Base Capacity resource constraint, for both the PJM 

region and each modeled Locational Deliverability Area, through an iterative process. 

PJM states that this methodology is similar to the approach recently accepted by the 

Commission in the case of sub-annual resources.183

218. In determining the clearing price for a Base Capacity Resource, PJM proposes to 

use the price decrement methodology it currently applies in the case of lower-availability 

products (i.e., in the case of Limited and Extended Summer Demand Response). First, 

PJM proposes to establish a Base Capacity Demand Resource price decrement equal to 

 182 Proposed PJM OATT at Attachment DD, section 5.5A(ii)(b).

183 See PJM transmittal at 69 (Docket No. ER15-623-000) (citing PJM 

Interconnection, L.L.C., 146 FERC ¶ 61,052 at P 74 and P 66 (2014)). PJM states that, 

accordingly, for the Base Capacity Resource constraint, it proposes to model the 

commitment of varying levels of Base Capacity Resources and Energy Efficiency 

Resources as interruptible, from June 1 through September 30, and otherwise unavailable 

for the remainder of the delivery year, and then proposes to reduce the level of Capacity 

Performance Resources committed and calculate the resulting impact on its loss-of-load 

expectation. For the Base Capacity Resource constraint, PJM proposes to model the 

amount of Base Capacity Resource and Energy Efficiency permitted by the Base 

Capacity Resource constraint, and then model the commitment of varying levels of 

generation Base Capacity Resources that will be available. 
Docket No. ER15-623-000, et al. - 82 -

the difference between the clearing price for Base Capacity Demand Resources and Base 

Capacity Energy Efficiency Resources, and the clearing price for all other Base Capacity 

Resources.184 Second, PJM proposes to establish a price decrement for Base Capacity 

Resources equal to the difference between the clearing prices for Base Capacity 

Resources and Capacity Performance Resources, representing the cost to procure 

additional Capacity Performance Resources out-of-merit when the sub-annual resource 

constraint is binding.185 

219. PJM states that a Base Capacity Resource will also be subject to a NonPerformance Charge, if it fails to perform under emergency conditions during the months 

of June through September.186 PJM further states that, while a Base Capacity Resource 

will face a reduced exposure to Non-Performance Charges (relative to a Capacity 

Performance Resource), it can be expected to clear the auction at a lower price and will 

not be permitted to invoke an offer cap, absent the submission of a unit-specific review 

request.187 PJM also proposes certain conditions and requirements to facilitate its 

transition to a fully-implemented Capacity Performance Resource model, beginning June 

2020. PJM states that these provisions are necessary to carry out the transition in an 

orderly fashion and to mitigate potential price volatility, or shortage concerns.188

220. To accomplish these objectives, PJM proposes to hold two Incremental Auctions 

to seek voluntary offers of Capacity Performance Resources: one for the 2016-17 

delivery year, covering up to 60 percent of PJM’s reliability requirement; and the second 

for the 2017-18 delivery year, covering up to 70 percent of PJM’s reliability 

 184 See proposed PJM OATT at Attachment DD, section 2.2C. PJM notes that this 

decrement would represent the cost to procure additional Capacity Performance 

Resources, or other Base Capacity Resources out of merit order, when the Base Capacity 

Resource is binding. 

185 Proposed PJM OATT at Attachment DD, sections 2.2G and 5.14(a). 

186 Proposed PJM OATT at Attachment DD, section 5.5A(b). PJM’s NonPerformance Charges are discussed above, at Section V.C of this order. 

187 Proposed PJM OATT at Attachment DD, section 6.4.

188 PJM asserts, for example, that its proposed transition allowances provide an 

opportunity for resource owners to invest in, and sufficient time to build, improvements 

necessary to meet PJM’s new performance requirements, including improvements 

incorporating dual-fuel capabilities, and/or requiring the execution of firm natural gas 

contracts. 
Docket No. ER15-623-000, et al. - 83 -

requirement.189 PJM states that external generation resources will generally be permitted 

to offer into these auctions, subject to their receipt of a capacity import limit exception.190 

PJM states that, unlike in PJM’s other capacity auctions, no locational requirements will 

be modeled in its transition auctions.

191 PJM notes that, as such, it will procure its 

specified capacity commitments, without regard to where the relevant resources are 

located.

221. PJM proposes to phase-in its proposed price and Non-Performance Charges. 

Specifically, PJM proposes to reduce these prices and charges by 50 percent, for the 

2016-17 delivery year, and by 40 percent, for the 2017-18 delivery year. PJM states that 

resource offers will be capped at the relevant clearing price cap, i.e., at 0.5 Net CONE for 

2016-17 and 0.6 Net CONE for 2017-18.192 PJM adds that maximum Non-Performance 

Charge exposure in the stop-loss limit calculation will be correspondingly reduced such 

that, for 2016-17, the stop-loss limit will be based on 0.75 times Net CONE for the PJM 

region and 0.9 times Net CONE for PJM region, for 2017-18.193 

222. For the 2018-19 and 2019-20 delivery years, PJM proposes to procure, at a 

minimum, sufficient quantities of Capacity Performance Resources consistent with 

reliability, i.e., an amount that corresponds to a 1.1-events-in-10-years standard.

194 PJM 

states that, for these delivery years, it will allow resources that are physically incapable of 

 189 Proposed PJM OATT at Attachment DD, section 5.14D (allowing any 

generation resource to be offered, regardless of whether it is already committed to 

provide capacity for the relevant delivery year). PJM originally stated that it expected to 

hold these Incremental Auctions in late April and early May 2015, based on auction 

parameters that it would post on its website. 

190 See proposed PJM OATT at Attachment DD, section 5.14D(B)(3) (requiring, 

among other things, that the external generation resource be “reasonably expected” to be 

pseudo-tied into PJM by the applicable delivery year).

191 See proposed PJM OATT at Attachment DD, section 5.14D(B)(3).

192 See proposed PJM OATT at Attachment DD, section 5.14D(B)(2). PJM states 

that, while the clearing price for each transition auction will be set by marginal resource 

offers, if the target commitment level is not cleared, the clearing price will be capped. 

193 See proposed PJM OATT at Attachment DD, sections 10A(h) and (i).

194 PJM states that it expects this amount to be approximately 80 percent of total 

procurement for delivery years 2018-19 and 2019-20. PJM transmittal at 27-28 (Docket 

No. ER15-623-000).
Docket No. ER15-623-000, et al. - 84 -

meeting the Capacity Performance standard, or that are otherwise categorically exempt 

under the must-offer provisions, discussed below, to submit sell offers as a Base Capacity 

Resource. PJM also proposes, on an interim basis (i.e., for 2018-19 and 2019-20 delivery 

years), and up to a maximum of 20 percent of PJM’s reliability requirement, that certain 

resources not capable of sustained, predictable operation (namely, Intermittent Resources, 

Capacity Storage Resources, Demand Resources, and Energy Efficiency Resources) be 

allowed to submit, on an aggregated basis, Capacity Performance Resource offers, Base 

Capacity Demand Resource offers, or coupled offers, provided that the relevant resources 

are located within the same Locational Deliverability Area.

195 

223. PJM asserts that its proposed transition period, and the market conditions 

supporting this approach, are distinguishable from the circumstances considered by the 

Commission in the ISO-NE Capacity Performance Order, in which a quicker 

implementation date (i.e., June 1, 2018) was accepted.196 PJM argues that it is 

significantly larger than ISO-NE, relative to both geographic scope and peak demand, 

and has a more diverse resource mix. PJM concludes that its proposed transition period 

represents an appropriate balance, considering: (i) the cost and required timelines 

applicable to resource investment; (ii) the need to protect consumers from unnecessary 

price spikes; and (iii) resource adequacy and system reliability needs.

2. Protests and Comments

224. PPL argues that PJM’s proposed five-year phase-in of its Capacity Performance 

Resource product constitutes an unwarranted delay, given that the three-year forward 

procurements made in PJM’s capacity auctions provide sufficient time for sellers to make 

any investments or operational adjustments that may be required to meet PJM’s Capacity 

Performance requirements. PPL asserts that, as such, there is no reason to permit a Base 

Capacity Resource to participate in PJM’s capacity auctions for any delivery year for 

which a Base Residual Auction has already been held. PPL adds that PJM should be 

required to adopt the no-transition approach approved by the Commission in the ISO-NE 

Capacity Performance Order. 

225. RESA argues that paying higher Capacity Performance clearing prices in PJM’s 

proposed Transition Incremental Auctions to resources that have already cleared in a 

 195 See proposed PJM OATT at Attachment DD, section 5.6.1(h). PJM states that, 

for any coupled offer, the offer price for the Capacity Performance Resource must be at 

least $0.1 per MW-day greater than the offer price for the Base Capacity Resource, 

consistent with PJM’s existing treatment of coupled offers for demand response 

resources. See PJM OATT at Attachment DD, section 5.6.1(3e).

196 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 1. 
Docket No. ER15-623-000, et al. - 85 -

prior auction constitutes unlawful retroactive ratemaking and violates the filed rate 

doctrine, because load-serving entities rely on the capacity clearing price for a given Base 

Residual Auction when negotiating long-term fixed-price contracts to serve retail 

customers.

197

226. Dominion argues that PJM should be required to revise its proposed transition 

schedule to reflect a more gradual increase in Capacity Performance Resources over time. 

In particular, Dominion requests that PJM “provide for an annual 5 percent increase to 

the reliability requirement of for Capacity Performance Resources beginning in the 

[2020-21] [d]elivery [y]ear and to transition to 100 percent reliance of Capacity 

Performance Resources based upon these smaller annual increases.”198 Dominion argues 

that extending the transition period is reasonable given the degree of investment 

expected, the uncertainty about future environmental regulations, and the need to further 

evaluate issues associated with aggregated resources. Dominion also argues that a more 

measured phase-in will reduce price volatility, particularly in the first years of the 

transition, and better insure that reliability is not undermined.199 

227. The Pennsylvania Commission questions the cost effectiveness of an early 

implementation approach, given that the cost increases attributable to PJM’s proposed 

rule changes will not be offset, over the near term by any substantive improvements in 

reliability. Direct Energy adds that there has been no compelling need shown to 

implement PJM’s transition proposal for the 2016-17 and 2017-18 delivery years. 

EquiPower argues that the timing of PJM’s proposal provides insufficient time for 

generation owners to complete the improvements required to prepare and submit accurate 

cost data and offers. The Pennsylvania Commission requests that PJM’s proposed 

changes not be implemented, to the extent they would affect existing retail electricity 

supplier contracts, particularly commitments extending into the 2015-16 and 2017-18 

delivery years. OPSI argues that PJM’s proposed transition period will impede price 

certainty, as established in state retail auctions. 

228. Public Interest Organizations and Concerned Scientists object to PJM’s proposed 

cap on Base Capacity Resources, during the transition period, as unsupported, noting that 

PJM’s assumed limit on outside transfers are far lower than the capacity transfer limits 

 197 RESA protest at 9-11.

198 Dominion protest at 2.

199 In contrast, Exelon contends that PJM’s Capacity Performance Resource 

procurement targets for the transition years are inadequate and must be adjusted upward. 

Exelon argues that, consistent with this adjustment, PJM should be required to increase 

the offer cap for the transition years to Net CONE. See Exelon protest at 34.
Docket No. ER15-623-000, et al. - 86 -

experienced during the events of January 2014. In addition, Public Interest Organizations 

assert that PJM’s assumption that no Base Capacity Resource will be available during the 

winter peak is contradicted by the fact that demand response, as well as wind resources, 

performed well during the Polar Vortex. Public Interest Organizations add that, in 

calculating a cap, a more appropriate assumption regarding availability, would be 

50 percent. Concerned Scientists argue that PJM’s proposal phase-out Base Capacity 

Resources fails to adequately account for renewable resources’ value and thus will place 

undue influence on natural gas investments. 

229. Public Interest Organizations also object to PJM’s proposed phase-out of Base 

Capacity Resources beginning in June 2020, as unwarranted. Public Interest 

Organizations note that, under PJM’s existing rules, sub-annual Demand Resources are 

permitted to commit up to a level maintaining a 1.1-in-10 loss-of-load expectation.200 

The Ohio Commission adds that rather than create a hybrid Base Capacity Resource 

product for the final two years of the transition period, PJM should instead eliminate 

Limited and Extended Summer Demand Response products at the end of the 2017-18 

delivery year and procure only Annual Demand Resources starting with the 2018-29 

delivery year.

230. Brookfield argues that PJM’s proposal fails to address how coupled offers will 

clear in the auctions for the 2018-19 and 2019-20 delivery years. Brookfield asserts that 

it would not be appropriate to clear all of a joint offer as Base Capacity, to achieve a 

least-cost solution, when a resource is willing to provide Capacity Performance. 

231. The Transition Coalition argues that PJM’s reliance on Transition Incremental 

Auctions to procure Capacity Performance Resources will inappropriately compensate 

highly-available resources that have already made capacity commitments in PJM’s 

auctions. The Transition Coalition further argues that, in advancing its proposal, PJM has 

failed to address whether other, less expensive, options are available for improving 

resource performance, including an initiative designed to enhance dual-fuel 

capabilities.201

 200 Public Interest Organizations argue that given this existing allowance and given 

that an exclusive reliance on Capacity Performance Resources will not be required to 

maintain a 1.1-in-10 standard, PJM has not supported its proposed phase-out of Base 

Capacity Resources.

201 Compare Invenergy comment at 10 (arguing that, for Transition Incremental 

Auctions for the 2016-17 and 2017-18 delivery years, fairness dictates that market sellers 

that have already committed to provide capacity during these delivery years be given the 

first opportunity to satisfy PJM’s Capacity Performance Resource needs).
Docket No. ER15-623-000, et al. - 87 -

232. The PJM Utilities Coalition argues that PJM’s transition proposal fails to 

adequately address the longstanding undervaluation of generation capacity resources in 

PJM, and the reliability risk this poses. The PJM Utilities Coalition argues that to 

achieve revenue adequacy, PJM’s capacity auctions must, on average, establish clearing 

prices that approximate Net CONE, a level that has rarely been approached. To achieve 

higher clearing prices, the PJM Utilities Coalition argue, among other things, that PJM’s 

auctions must be designed to clear products with similar performance obligations, 

without an allowance for coupling of higher and lower quality offers, as PJM proposes. 

The PJM Utilities Coalition further argues that a revenue security mechanism is 

required.202 

233. Exelon and the PJM Utilities Coalition argue that, for the 2016-17 and 2017-18 

delivery years, PJM should be required to procure Capacity Performance Resources at a 

level higher and subject to a higher offer cap than PJM proposes, in order to avoid price 

suppression.203

234. Intervenors also protest PJM’s proposed transition period price caps, as applicable 

to Capacity Performance Resources for the 2016-17 and 2017-18 delivery years. The 

PJM Utilities Coalition asserts that these price caps have not been justified relative to the 

underlying cost of investment, or related risk exposures. LS Power agrees, arguing that 

PJM’s proposed price caps inadequately incent resources to make the investments 

necessary to become Capacity Performance Resources and take on the added risk of 

significant Non-Performance Charges. LS Power asserts that PJM should instead be 

required to calculate its Non-Performance Charge for the transition period years based on 

the difference between the clearing price in the transition auction and the price the 

resource will receive for its prior capacity commitment. EquiPower argues that PJM 

should be required to institute a floor price for Base Capacity Resources in the Base 

Residual Auction for the 2018-19 delivery year. 

 202 Two alternative mechanisms are proposed: first, a competitive offer 

requirement for existing resources using a revised default Avoidable Cost Rate formula; 

second, an administratively-determined two-year transitional price floor, equal to 

0.6 time Net CONE for use in the Base Residual Auctions applicable to the 2018-19 and 

2019-20 delivery years.

203 The PJM Utilities Coalition note that, in the White Paper prepared by PJM in 

October 2014, PJM acknowledged that, for the 2017-18 delivery year, Base Capacity 

would have to be capped at 20 percent to maintain a loss-of-load expectation at an 

appropriate level. The PJM Utilities Coalition argues that, given this prior analysis, 

PJM’s filing proposal (recommending an extension of this cap up to a 30 percent level) 

cannot be regarded as just and reasonable.
Docket No. ER15-623-000, et al. - 88 -

235. LS Power argues that PJM’s transition mechanism fails to address how PJM will 

avoid under- or over-procurement of Capacity Performance Resources during the 

transition period. Accordingly, LS Power argues that, in PJM’s Incremental Auctions for 

the 2016-17 and 2017-18 delivery years, sellers should be permitted to purchase 

replacement Capacity Performance Resources. Additionally, LS Power requests 

clarification that PJM will be required to sell back any commitments from a Base 

Capacity Resource during the Incremental Transition Auctions, if such commitments are 

determined to be unnecessary in light of PJM’s procuring sufficient Capacity 

Performance Resources. LS Power argues that, without this requirement, PJM’s 

proposed transition mechanism could subject customers to excessive costs at distorted 

price levels.

236. Finally, intervenors challenge PJM’s proposed transition mechanisms, as 

applicable to demand response and renewable resources. EMC protests PJM’s proposal 

to allow energy efficiency and Demand Resources to satisfy only a portion of the Base 

Capacity required during the transition years. EMC argues that this proposal 

unjustifiably prefers base generation with summer-only obligations at the expense of 

energy efficiency. Wind Energy and Renewables Coalition argues that the performance 

requirements for Base Capacity Resources should only apply to summer months and that 

resources clearing as Base Capacity should be paid for all winter performance. 

3. PJM’s Answer

237. PJM, in its answer, responds to intervenors’ varying concerns regarding PJM’s 

proposed transition towards a fully-implemented Capacity Performance product. PJM 

asserts that its approach appropriately balances: (i) the investments and time resources 

will need to meet the operational and performance requirements established under PJM’s 

proposal; (ii) consumers’ interest in price stability; and (iii) the need to ensure resource 

adequacy and system reliability. 

238. PJM also responds to PPL’s argument that PJM should be required to implement 

its Capacity Performance Resource product, without a transition mechanism, consistent 

with the approach approved by the Commission in the ISO-NE Capacity Performance 

Order. PJM argues that, under FPA section 205, its burden in this case is limited to a 

showing that its transition mechanism, as proposed, is just and reasonable. PJM argues 

that, in making a section 205 proposal, it is not required to demonstrate that alternative 

approaches are unjust and unreasonable, or that other options have less merit than PJM’s 

proposal. 

239. PJM also responds to RESA’s argument that paying higher Capacity Performance 

clearing prices to resources that have already cleared in a prior auction constitutes 

unlawful retroactive ratemaking. PJM argues that its Transition Incremental Auctions 

will procure a new capacity product for which no price has yet been established in any 

prior auction. PJM adds that the Commission has previously rejected arguments that 
Docket No. ER15-623-000, et al. - 89 -

PJM is prohibited from implementing prospective rule changes for a given delivery year 

once it has held an auction applicable to that delivery year.204

240. PJM also responds to the Transition Coalition’s argument that PJM’s proposed 

Transition Incremental Auctions will unnecessarily pay generators more for capacity 

commitments they have already made. PJM argues that while a higher clearing price 

may be expected, Capacity Performance Resources that clear in the Transition 

Incremental Auctions will be exposed to higher risks, as compared to prior auctions, 

namely, exposure to Non-Performance Charges. 

241. PJM also responds to Invenergy’s argument that previously-cleared commitments 

for the 2016-17 and 2017-18 delivery years should be given a clearance preference in the 

Transition Incremental Auctions. PJM argues that no such preference would be 

warranted, given that participation in the Transition Incremental Auction is voluntary, 

and given that any previously-cleared resource seeking not to participate will still have its 

commitments honored.

242. With respect to challenges to the Transition Incremental Auctions for the 2016-17 

and 2017-18 delivery years, PJM argues that its proposal mitigates concerns about price 

volatility and the potential for shortages, particularly in light of other factors driving 

changes in its existing generation fleet.205 PJM also responds to Invenergy’s argument 

that resources with prior capacity auction commitments should receive priority in the 

Transition Incremental Auctions. PJM argues that participation in the Transition 

Incremental Auctions is voluntary. 

243. PJM also responds to LS Power’s argument that capacity market sellers should be 

allowed to purchase replacement Capacity Performance Resources in the Transition 

Incremental Auctions. PJM argues that such an approach would be infeasible, given that 

the new Capacity Performance product is not a direct substitute for existing capacity and 

is not subject to all of the same constraints that apply to capacity resources, currently. 

PJM argues that, while bilateral transactions may be entered into for the purpose of 

procuring replacement of a Capacity Performance Resource commitment, such 

replacement option cannot be integrated into PJM’s scheduled Incremental Auctions. 

 204 PJM February 13, 2015 answer at 42 (Docket No. ER15-623-000) (citing PJM 

Interconnection, L.L.C., 150 FERC ¶ 61,020, at P 38 (2015)).

205 PJM answer at 41and n.66-67 (citing the U.S. Environmental Protection 

Agency’s Mercury and Air Toxics Standards emission rules beginning in 2015, as well as 

its pending Clean Power Plan).
Docket No. ER15-623-000, et al. - 90 -

244. In response to Exelon’s and the PJM Utilities Coalition’s argument that PJM 

should be required to increase the target amounts of Capacity Performance Resources and 

offer caps in the Transition Incremental Auctions, PJM asserts that these requests 

underscore the careful balance its proposal achieves as between the uncertainty about 

resource availability, reliability considerations, and potential cost increases. PJM adds 

that the expedited implementation schedule sought by Exelon and the PJM Utilities 

Coalition would risk significantly higher clearing prices in the Transition Incremental 

Auctions, relative to the prior auctions held for those delivery years, without a 

corresponding assurance that new and existing resources would be able, in that 

timeframe, to make the investments necessary to meet PJM’s proposed Capacity 

Performance requirements. 

245. With regard to intervenors’ argument that capacity prices under PJM’s proposal 

will be excessive, PJM argues that the reliability value of every resource that clears, 

under its transition mechanism, will be reflected by the net revenues that resource earns. 

PJM argues that intermittent and Demand Resources must accept the same performance 

risk as all other resources. PJM adds that this risk can be appropriately managed through 

coupling or maintaining a portfolio of resources. PJM also responds to intervenors’ 

argument that PJM should be required to maintain a Base Capacity procurement 

allowance, given that PJM will remain a summer peaking system and given that there has 

been no asserted need for a single, annual capacity product. PJM argues that Base 

Capacity must be phased-out, under the timetable it proposes, because, when called upon 

during an emergency, resources must be counted on to fulfill their capacity commitments.

246. Finally, PJM responds to Public Interest Organizations’ objection to PJM’s 

proposed method for determining Base Capacity constraints for the 2018-19 and 2019-20 

delivery years. PJM argues that it is appropriate to base its constraint calculation on Base 

Capacity Resource availability during the winter peak, given that generation resources 

with year-round performance capability will be subject to a must-offer requirement as a 

Capacity Performance Resource. PJM argues that, as such, Base Capacity Resources will 

only comprise those resources that PJM and the Market Monitor have determined will not 

be physically capable of satisfying these requirements in the relevant delivery year.

4. Additional Answers

247. Exelon, in its answer, responds to the Transition Coalition’s argument that PJM’s 

transition mechanism, if approved, will inappropriately permit Capacity Performance 

Resources to receive compensation for capacity commitments they have already made for 

the 2016-17 and 2017-18 delivery years. Exelon argues that, while PJM has already 

secured the commitments at issue, commitment alone has not been enough to assure 

performance, especially during winter peaks. Exelon further argues that the selection of 

additional, specific investments via a targeted, supplemental procurement approach, a 

market-based solution, as proposed, is the superior approach that will incent unit owners 

to decide for themselves what investments need to be made. 
Docket No. ER15-623-000, et al. - 91 -

248. The PJM Utilities Coalition, in its answer, responds to the Transition Coalition’s 

argument that PJM’s transition mechanism, if approved, will result in windfall revenues 

without delivering any incremental improvement in reliability. The PJM Utilities 

Coalition argues that, during the transition period, resources that choose to take on the 

higher performance obligations associated with a Capacity Performance Resource will 

face penalty risks attributable to that designation and should be compensated, 

accordingly. 

249. The Transition Coalition, in its answer, responds to PJM’s answer regarding the 

asserted need for transition auctions for the 2016-17 and 2017-18 delivery years. The 

Transition Coalition argues that PJM’s defense of these auctions, as a market-based 

solution for incenting enhanced performance, fails to acknowledge that most, if not all, of 

the resources that will clear in these auctions are already performing at capacity 

performance levels. The Transition Coalition adds that PJM’s proposal to pay 

previously-committed resources more to operate exactly as they otherwise would cannot 

be justified. The Transition Coalition further asserts that virtually all Capacity Resource 

Resources expected to clear in the transition auctions (77-100 percent) are highly reliable 

resources that will not be required to make significant investments in order to satisfy their 

obligations. The Transition Coalition argues that these resources will earn unwarranted 

profits ranging from $2.1 to $2.8 billion in the 2016-17 delivery year and $0.4 to $2.4 

billion in the 2017-18 delivery year, based on the analysis of its consultant. The 

Transition coalition asserts that profits to these generators will range from 67-84 percent 

of total Incremental Auction costs for the 2016-17 delivery year and 41-79 percent for the 

2017-18 delivery year.

250. The Transition Coalition also responds to Exelon’s argument that the funding of 

performance-enhancing investments, over the near-term, will improve performance for 

the relevant transition period delivery years. The Transition Coalition argues that such 

actions have already been taken, in response to the Polar Vortex. The Transition 

Coalition notes that, as a result of these actions, PJM had almost 20 GW of excess 

capacity available when it hit a new all-time winter peak on February 20, 2015. 

251. Direct Energy, in its answer, responds to PJM’s answer that, while many 

generators have already improved their operational capability following the Polar Vortex, 

higher Capacity Performance payments are nonetheless appropriate, given the increased 

risks these resources will face. Direct Energy argues that the fact that operational gains 

are already in place negates the need for the increased payments PJM proposes, while any 

residual risks have not been shown to be cost-justified. Direct Energy adds that, in the 

event that PJM’s transition proposal is not rejected, in the alternative hearing procedures 

are required to consider: (i) whether the costs attributable to PJM’s proposal are 

outweighed by improved system performance; (ii) the extent to which would-be Capacity 

Performance Resources have already invested in performance enhancements; and 
Docket No. ER15-623-000, et al. - 92 -

(iii) whether and to what extent reliability gains will be in place prior to the achievement 

of PJM’s proposed transition targets.

252. The Transition Coalition requests that the Commission reject PJM’s Incremental 

Auction proposal as unsupported and defer implementation of its Base Residual Auction

reforms until next year.206 The Transition Coalition suggests that it is unclear how, if at 

all, PJM could implement its proposal in the Base Residual Auction for the 2018-19 

delivery year. As PJM’s Deficiency Letter Response fundamentally alters core aspects of 

its proposal, which, if accepted by the Commission, would require a further compliance 

filing and action by the Commission, as well as by market participants attempting to 

comply with final bidding requirements.207 The Transition Coalition contends that the 

variability of PJM’s proposal has made it impossible for market participants to have any 

clarity with respect to their future obligations.208

5. Commission Determination

253. For the reasons discussed below, we accept PJM’s proposed transition 

mechanisms. PJM asserts, and we agree, that implementing the transition over five years 

will allow resources to make gradual improvements and reduce the burdens such 

improvements may impose. It will also mitigate the potential for short-term shortage that 

might result from an immediate requirement of 100 percent Capacity Performance 

Resources. Such a short-term shortage could create price volatility that does not provide 

a useful price signal for investment. PJM’s proposal to acquire a mix of Capacity 

Performance and non-Capacity Performance Resources throughout the transition 

mechanism strikes an appropriate balance between the costs associated with procuring 

Capacity Performance Resources throughout the transition period with the needed 

reliability improvements over that same period. Similarly, the use of a lower NonPerformance Charge rate and annual stop-loss limit for the 2016-17 and 2017-18 delivery 

years will help phase in the necessary reliability benefits. We also find that the institution 

of price caps in the Transition Incremental Auctions will help limit load’s exposure to 

cost increases in the applicable delivery years.

254. LS Power argues that, in keeping with its current practices, in the Incremental 

Auctions leading up to the 2016-17 and 2017-18 delivery years, PJM should be required 

to sell back any Base Capacity Resources it may not need. We note that, under PJM’s 

existing rules, PJM is required to sell-back capacity in its Incremental Auctions in the 

 206 Transition Coalition comments to PJM’s Deficiency Letter Response at 4-5.

207 Id. at 4.

208 Id. at 6.
Docket No. ER15-623-000, et al. - 93 -

event its load forecasts are adjusted downward.209 Under PJM’s proposal, this existing 

requirement will remain in place. Accordingly, we interpret this provision to require 

PJM to sell back any excess capacity resources – specifically what will be identified as 

Base Capacity Resources in future auctions – in the appropriate Incremental Auction if

the load forecast is adjusted downward.

255. We dismiss LS Power’s request that, in the scheduled Incremental Auctions for 

the 2016-17 and 2017-18 delivery years, PJM be required to buy and sell Capacity 

Performance Resources. PJM’s scheduled Incremental Auctions for 2016-17 and 2017-

18 delivery years only provide for the buying and selling of PJM’s existing capacity 

product. PJM has established special, additional Incremental Auctions to procure its 

proposed Capacity Performance product. We find that integrating the Capacity 

Performance product into PJM’s scheduled Incremental Auctions for the 2016-17 and 

2017-18 delivery years would introduce needless complexity, given the transitional 

nature of these auctions. We also find that PJM has made adequate accommodations for 

the buying and selling of the Capacity Performance product by allowing sellers with 

Capacity Performance Resource commitments to seek replacement commitments, as 

necessary, through bilateral transactions.

256. We next consider intervenors’ arguments that, as proposed, PJM’s transition 

mechanisms will procure either too much, or too little, capacity able to qualify as a 

Capacity Performance Resource, or should otherwise be deferred.210 For the reasons

 209 See PJM OATT at Attachment DD, section 5.4(c). The Commission recently 

waived the requirement to sell-back excess capacity for the third Incremental Auction for 

the 2015-16 delivery year only, explaining that PJM’s reliance on committed capacity 

resources, the poor performance of generating capacity resources during the previous 

year, and the expected high level of generation retirements justified granting waiver. See 

PJM Interconnection, L.L.C., 150 FERC ¶ 61,122, at P 46 (2015).

210 Compare Transition Coalition protest at 4-6 (arguing that there has been no 

showing, here, that PJM will improve reliability by acquiring Capacity Performance 

Resources through its Transition Incremental Auctions) with PPL protest at 6-8 (arguing 

that PJM should be required to procure Capacity Performance Resources alone in its 

May 2015 Base Residual Auction), Pennsylvania Commission comment at 32 (requesting 

that the transition period and full implementation of PJM’s proposal be delayed for a 

year), Dominion protest at 24 and 28-29 (requesting that PJM acquire Capacity 

Performance Resources more slowly, delaying the transition to 100 percent reliance on 

Capacity Performance Resources) and Exelon’s protest at 50 (arguing that PJM should 

increase the quantity of capacity purchased in the Transition Incremental Auctions, and 

that the offer cap be raised to Net CONE.). 
Docket No. ER15-623-000, et al. - 94 -

discussed above, we find that PJM’s approach strikes an appropriate balance between 

these competing claims. While, in the ISO-NE Capacity Performance Order, the 

Commission accepted ISO-NE’s proposal to acquire only its performance product in its 

next auction, PJM has demonstrated that a phased-in approach is also just and reasonable. 

257. We also disagree with intervenors’ arguments that the costs attributable to PJM’s 

proposed transition mechanisms will either not be offset by any additional reliability 

benefits,211 or at a minimum, will not outweigh any such reliability benefits.212 As we 

have found above, PJM’s establishment of a Capacity Performance Resource product is 

intended to address a concrete problem of resource non-performance through the creation 

of performance incentives and a penalty structure that will improve overall reliability. 

Phasing in these same risks and rewards over the transition period in a balanced manner 

per PJM’s proposal is reasonable. Capacity Performance Resources accept greater risks 

for non-performance than Base Capacity Resources, in exchange for potentially higher 

capacity revenues and performance payments. PJM’s proposal simply allows some 

resources to begin taking on these additional risks and benefits earlier. 

258. LS Power argues that penalties for Capacity Performance Resources purchased in 

the Transition Incremental Auctions should be lowered to encourage more resources to 

participate as Capacity Performance Resources. We note that PJM has already proposed 

penalties for the transition period that are less than the penalties contemplated under the 

100 percent Capacity Performance construct (i.e., 50 percent of Net CONE for the 2016-

2017 delivery year and 60 percent of Net CONE for the 2017-18 delivery year). We also 

note that resources will have an opportunity for additional payments if they over-perform 

during Performance Assessment Hours. We are not persuaded that any additional 

incentives are required to encourage the participation of Capacity Performance 

Resources. 

259. We also deny Invenergy’s request that PJM be required to modify its transition 

proposal, such that existing capacity commitments will clear first in the Transition 

Incremental Auctions. We also are not persuaded by Brookfield’s argument that PJM’s 

transition auction clearing algorithm should be revised to prioritize the Capacity 

Performance part of a coupled offer over a Base Capacity offer. As PJM points out, its 

auction clearing algorithm is appropriately designed to attain the lowest overall cost 

solution to meet PJM’s capacity needs. Neither Brookfield nor Invenergy have 

demonstrated that the algorithm fails in this regard, or provide a compelling reason for 

the algorithm to move away from the least cost solution. In response to some of 

Invenergy’s concerns, we note that resources with existing capacity commitments, whose 

 211 See Pennsylvania Commission protest at 32.

212 See Transition Coalition protest at 5-6; RESA protest at 11-12.
Docket No. ER15-623-000, et al. - 95 -

offers fail to clear in the Transition Incremental Auctions, will not be deprived of the 

value of these pre-existing commitments. 

260. We dismiss, as beyond the scope of this proceeding, the PJM Utilities Coalition’s 

argument that PJM should move to a single capacity product sooner than the 2020-2021 

delivery year because PJM’s capacity auctions have previously undervalued generation. 

We disagree with the PJM Utilities Coalition that their concerns warrant moving to a 

single capacity product more quickly. We note that the Commission has previously 

accepted, as just and reasonable, elements of PJM’s market design construct that clear 

different capacity products at different prices, based on the rationale that “lower” quality 

products should be paid the same, or more likely less, than “higher” quality products.213

261. Finally, we disagree with RESA’s argument that the transition mechanism violates 

the filed rate doctrine, to the extent these prospective rule changes may affect existing 

commercial arrangements, as based on the clearing prices from prior auctions. Contrary 

to RESA’s characterization, PJM’s transition proposal does not impermissibly propose to 

revise the already-cleared BRAs for the 2016-2017 and 2017-2018 delivery years; rather, 

like the incremental auctions PJM already conducts, and will continue to conduct, 

between the initial BRA for a particular delivery year and the commencement of the 

delivery year, the transition auctions allow PJM to adjust the type and amount of 

resources needed to ensure reliability in the appropriate delivery year, and to ensure that 

those resources are fairly compensated. PJM does not seek to retroactively revise the 

rules upon which it conducted the original 2016-2017 and 2017-2018 BRAs, but instead 

proposes incremental procurements, with separate payment structures, to ensure that 

reliability is met in those delivery years. However, under RESA’s view of the filed rate 

doctrine, the three-year forward nature of the capacity market would bar PJM from 

making these types of incremental adjustments in advance of the actual delivery year, an 

outcome that is not consistent with Commission precedent.

214 We further note that the 

instant proceeding concerns prospective changes only and provides ratepayers with 

sufficient notice that PJM proposed to change its tariff on file.

215

 213 See PJM Interconnection, L.L.C. 134 FERC ¶ 61,066, at P 29 (2011). 

214 See, e.g., PJM Interconnection, L.L.C., 149 FERC ¶ 61,059, at P 18 (2014);

ISO New England Inc., 145 FERC ¶ 61,095, at P 28 (2013); see also Columbia Gas 

Transmission Corp. v. FERC, 895 F.2d 791, 795 (1990).

215 See Pub. Utils. Comm’n of Cal. v. FERC, 988 F.2d 154, 160-61, 164 (D.C. 

Cir. 1993); Natural Gas Clearinghouse v. FERC, 965 F.2d 1066, 1075 (D.C. Cir. 1992) 

(“The filed rate doctrine simply does not extend to cases in which buyers are on adequate 

notice that resolution of some specific issue may cause a later adjustment to the rate 

being collected at the time of service.”); Columbia Gas Transmission Corp. v. FERC, 895 
Docket No. ER15-623-000, et al. - 96 -

F. Market Power Mitigation

262. Due to high market share concentrations in PJM’s capacity market, sell offers 

submitted by existing generation capacity resources are typically cost-capped by PJM, at 

a cost level known as the Avoidable Cost Rate, or avoidable costs of the resource.216 

However, PJM’s Avoidable Cost Rate rules do not take account of the costs of firm 

transportation of natural gas. PJM asserts that these rules fail to allow recovery of capital 

costs reasonably needed to allow an existing generator to remain in service or improve its 

peak-hour availability. PJM argues that, as such, these rules promote biased fuel choices 

favoring natural gas-fired resources that involve dual-fuel arrangements, or which rely on 

interruptible transportation service. 

1. PJM’s Proposal

263. PJM proposes to revise its existing market power mitigation rules to allow for sell 

offers that will cover: (i) the seller’s expected new costs of improving the performance 

of their resources; and (ii) the perceived risks of non-performance. PJM proposes a 

default offer cap, available to all resources. PJM also proposes to allow each resource to 

seek a unit-specific offer cap if it can provide data demonstrating that its costs exceed the 

default cap. Specifically, PJM proposes that the Market Seller Offer Cap for Capacity 

Performance Resources be set at the applicable Net CONE for the delivery year and 

Locational Deliverability Area for which the resource is offered.217 PJM also proposes to 

clarify in its tariff that the submission of a sell offer with an offer price at, or below, the 

revised Market Seller Offer Cap will not be deemed an exercise of market power in 

 

F.2d at 797 (“Notice does not relieve the Commission from the prohibition against 

retroactive ratemaking. Instead, it changes what would be purely retroactive ratemaking 

into a functionally prospective process by placing the relevant audience on notice at the 

outset that the rates being promulgated are provisional only and subject to later 

revision.”).

216 See OATT at Attachment DD, section 6.8 (defining the Avoidable Rate as the 

annual expenses that would not be incurred if a unit chose not to be a capacity resource 

for year.) Default Avoidable Cost Rates vary by technology type, and are specified in the 

Tariff at Attachment DD, Section 6.7. A resource may also seek a unit-specific 

Avoidable Cost Rate by providing its unit-specific cost data to the IMM. Each offer cap 

is net of Project PJM Market Revenues, which is defined in section 6.8(d) to include “all 

actual unit-specific revenues from PJM energy markets, ancillary services, and unitspecific bilateral contracts from such Generation Capacity Resource, net of marginal 

costs for providing such energy. . . .”

217 See proposed OATT at Attachment DD, section 6.4(a).
Docket No. ER15-623-000, et al. - 97 -

PJM’s capacity market.218 PJM also proposes that the Market Seller Offer Cap, as 

applied to the third Incremental Auction, will be the greater of Net CONE, or 1.1 times 

the Base Residual Auction price.219

264. In addition, PJM proposes to clarify that a Market Seller Offer Cap may, at the 

election of the seller, exceed the Net CONE default offer cap, subject to PJM’s Avoidable 

Cost Rate rules, as revised, i.e., subject to an Avoidable Cost Rate that will permit the 

costs of natural gas transportation, other gas service, and a risk premium. 

265. With respect to a seller’s costs to obtain fuel on a firm basis, PJM proposes to 

establish Avoidable Fuel Availability Expenses, as an input to its Avoidable Cost Rate 

formula. PJM proposes to define this allowance as “avoidable operating expenses related 

directly to fuel availability and delivery for the generating unit that can be demonstrated 

by the Capacity Market Seller based on data for the twelve months preceding the month 

in which the data must be provided, or on reasonable projections for the delivery year

supported by executed contracts, published tariffs, or other data sufficient to demonstrate 

with reasonable certainty the level of costs that have been or shall be incurred for such 

purpose.”220

266. With respect to PJM’s proposed allowance of a risk premium input in its 

Avoidable Cost Rate formula, PJM asserts that its proposed input, the Capacity 

Performance Quantifiable Risk, tracks the risk premium accepted by the Commission in 

the ISO-NE Capacity Performance Order.221 PJM proposes to define this input as the 

documented and quantifiable costs of mitigating the risks associated with submission of a 

Capacity Resource Offer, such as insurance expenses solely attributable to the risk of 

being a Capacity Performance Resource.222 

 218 See proposed OATT at Attachment DD, section 6.4(a).

219 See proposed OATT at Attachment DD, section 6.4(d).

220 See proposed OATT at Attachment DD, section 6.8 (listing, as examples of 

such expenses, costs that may include, but not be limited to, costs “incurred for: (a) firm 

natural gas pipeline transportation; (b) natural gas storage costs; (c) costs of gas 

balancing agreements; and (d) costs of gas park and loan services.”).

221 See ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at PP 96, 98 

(rejecting intervenors’ arguments that ISO-NE’s proposed risk premium allowance 

created an overly vague standard of review or hindered the detection and mitigation of

market power).

222 See proposed OATT at Attachment DD, section 6.8.
Docket No. ER15-623-000, et al. - 98 -

267. PJM also proposes to apply its existing must-offer requirement to Capacity 

Performance Resources to prevent physical withholding of resources with the capability 

to meet the region’s needs for resources that are capable of performing during 

emergencies.223 PJM notes that, under its existing rules, any resource that is capable of 

qualifying as a capacity resource is required to submit an offer into PJM’s annual 

capacity auction, subject to certain specified exceptions.224 PJM asserts that a similar 

requirement is appropriate for a Capacity Performance Resource, given the incentives 

these resources may have over the near term to withhold a certain amount of their 

capacity and offer it only as Base Capacity Resources. Accordingly, PJM proposes that, 

beginning with the 2018-19 delivery year, “the installed capacity of every Generation 

Capacity Resource located in the PJM Region that is capable (or that reasonably can 

become capable) or qualifying as a Capacity Performance Resource shall be offered as a 

Capacity Performance Resource,” subject to applicable EFORd and Unforced Capacity 

determinations and an exceptions process.225

268. With respect to its proposed exceptions process, PJM proposes that a must-offer 

exemption request be denied if the seller’s claim is based on its failure to make the 

investments required, or to allocate the operating budget needed. PJM states that, under 

this standard, the term “physically incapable,” will not be construed to operate as an 

economic feasibility test, but rather will be limited to a resource that requires capital 

improvements, or new fuel delivery infrastructure, that cannot be arranged, permitted, 

and completed in advance of the relevant delivery year. PJM states, however, that 

economic considerations may be reflected through the submission of coupled offers. 

269. PJM also proposes to permit, but not require, sell offers into its capacity auctions 

for resources that are not yet in commercial operation, but that are expected by the seller 

to be in operation prior to the relevant delivery year.226 In addition, PJM proposes to 

 223 See proposed OATT at Attachment DD, section 6.6A.

224 See OATT at Attachment DD, section 6.6 (excusing units, through an 

exceptions process, that, for the relevant delivery year, will retire or be committed to a 

firm sale outside of the PJM region).

225 See proposed OATT at Attachment DD, section 6.6A(a).

226 See proposed Attachment DD, section 6.6(g).
Docket No. ER15-623-000, et al. - 99 -

characterize a resource as “planned” until such time as it achieves full commercial 

operations and interconnection service has commenced.227

270. Finally, with respect to a Planned Generation Capacity Resource that is greater 

than 20 MW in size, PJM proposes to modify its existing rules as to when such a resource 

will be permitted to submit an offer into PJM’s capacity auction. Specifically, to increase 

the likelihood that such a resource will reach commercial operation (and thus be able to 

perform) during the relevant delivery year, PJM proposes, as of the 2019-2020 delivery 

year, to require the completion of an Interconnection Facilities Study, as a pre-condition 

to participation in a Base Residual Auction.228 

2. Protests and Comments

271. Comments generally supportive of PJM’s proposal were filed by the Coalition of 

Resource Projects, Calpine, NGSA, EPSA, EquiPower, and Exelon.229 Calpine 

emphasizes that it is essential for the Commission to accept both PJM’s proposal that 

resources be allowed to offer up to Net CONE without having their offers subject to 

mitigation. Exelon asserts that PJM’s existing Avoidable Cost Rate method fails to 

account for numerous energy market risks and applying the method to the Capacity 

Performance construct will exacerbate this problem. Exelon argues that PJM’s proposed 

Net CONE approach balances the risk of over-mitigation against the risks of undermitigation.

272. Intervenors challenge PJM’s assumption that its Capacity Performance proposals 

require PJM to modify its existing market mitigation rules. The Pennsylvania 

Commission argues that adopting rules to incent increased performance capabilities will 

do nothing to alter the underlying market power parameters in PJM’s markets, which 

have been (and will remain) non-competitive. 

273. Intervenors also object to PJM’s proposal to replace its existing market mitigation 

rules, which rely on mitigated price offers at a unit-specific Avoidable Cost Rate (an 

offer-capping approach overseen by the Market Monitor), with an administrativelydetermined Net CONE approach based on a representative resource (i.e., a combustion 

 227 See proposed RAA at sections 1.20B (defining an Existing Generation Capacity 

Resource), 1.70 (defining a Planned Generation Capacity Resource), and 1.69 (defining a 

Planned External Generation Capacity Resource).

228 See proposed RAA at sections 1.69B and 1.70.

229 The Market Monitor initially filed comments supporting PJM’s proposal, but as 

discussed below, later submitted an answer retracting its support.
Docket No. ER15-623-000, et al. - 100 -

turbine unit). Joint Consumers assert that PJM’s existing approach appropriately 

recognizes that PJM’s capacity markets have been, and will remain, characterized by 

structural market power on the part of pivotal suppliers. OPSI and Rockland add that 

PJM’s proposal actually increases concerns regarding the exercise of market power, 

particularly by incorporating a market power mitigation safe harbor up to Net CONE.230

274. Intervenors protest PJM’s proposal to set the offer cap at a single, uniform level, 

rather than determine unit-specific limits. The Pennsylvania Commission argues that 

eliminating the existing review of Base Residual Auction cost-based bids below Net 

CONE is inconsistent with PJM’s acknowledgment that generation owners with multiple 

units may engage in economic withholding. 231 Illinois Commission argues that PJM has 

overstated the burden of verifying the costs of investments and upgrades necessary to 

meet the Capacity Performance requirements. The Market Monitor notes that it is willing 

and able to apply unit-specific offer caps, particularly as explicit risk adders are 

appropriate in the Capacity Performance construct. 

275. Others protest that Net CONE is an inappropriate level for the offer cap. 

Rockland argues that PJM’s proposal threatens to become a “self-fulfilling prophecy” 

that would allow clearing prices to reach Net CONE even where there is a significant 

surplus of supply, especially because suppliers offering below Net CONE do not need to 

demonstrate costs. Direct Energy similarly argues that allowing unmitigated offers up to 

Net CONE offers market sellers with concentrated market power the ability to use it. The 

Pennsylvania Commission adds that PJM has failed to demonstrate whether Net CONE is 

a reasonable proxy for PJM capacity prices, given that historically, PJM’s capacity 

auctions have been cleared at price levels falling well below Net CONE. Public Citizen 

argues that PJM must show how its proposed offer cap methodology will, in fact, protect 

ratepayers from anticompetitive behavior in the capacity market auctions, for example by 

reviewing of the results of every auction to determine whether the results reflect 

objectively just and reasonable prices.

232

276. The Illinois Commission contends that setting the offer cap at Net CONE creates 

“significant upward pressure” on capacity market clearing prices and has the potential to 

significantly increase future capacity costs incurred by ratepayers. Joint Consumers 

challenge PJM’s claim that a price offer equal to Net CONE may be justified, given the 

increased risks (and exposure) attributable to PJM’s proposed Non-Performance Charge. 

 230 See also Illinois Commission comments at 9-10.

231 See Pennsylvania Commission comments at 20 (citing PJM’s Capacity 

Performance Filing at 43-44).

232 Public Citizen protest at 8-9, 14-15.
Docket No. ER15-623-000, et al. - 101 -

They assert that PJM’s claim is unsupported, particularly if the charge is never imposed, 

as Joint Consumers have asserted.233 Homer City asserts that, if, in two years of the 

effective date, future capacity markets consistently clear at less than Net CONE, the 

Commission should require PJM to review its Capacity Performance proposal to address 

the unreasonable penalty structure.

277. The Ohio Commission states that, while it generally supports PJM’s proposal to 

allow market sellers to offer at or below Net CONE, it does not agree with the 

presumption that no market power can be exercised so long as a sell offer is at or below 

Net CONE. Therefore, the Ohio Commission argues that PJM must continue to require 

market sellers to submit unit-specific cost data to PJM and the Market Monitor to support 

their capacity market offers. 

278. The Market Monitor argues that PJM’s proposal does not sufficiently protect 

against offers that are too low. The Market Monitor adds that offers that are too low 

fundamentally threaten the ability of a performance-based capacity market design to 

operate as intended and, therefore, PJM must implement a defined mechanism to detect 

and deter the potential to exercise market power associated with offers significantly 

below Net CONE and below the net Avoided Cost Rate. 

279. Joint Consumers argue that PJM’s proposed use of a combustion turbine unit, as a 

reference unit for an administratively-computed value of Net CONE, is unsupported by 

recent trends of cleared capacity in PJM’s capacity auctions, which point to a 

development priority given to combined cycle units. Joint Consumers also argue that, 

under PJM’s proposal, there is a significant possibility that auction clearing prices will be 

equal to, or exceed, Net CONE in non-constrained Locational Deliverability Areas, and 

thus be significantly higher than the offer levels previously determined by the Market 

Monitor to be competitive. 

280. The PJM Utilities Coalition argues that PJM’s proposed Net CONE offer cap fails 

to address the larger design flaws (and price suppressing trends) associated with pricetaking behavior. The PJM Utilities Coalition adds that the actual offer cap level 

embedded in the proposed safe harbor is unreasonably low, given PJM’s failure to 

include a Capacity Performance risk premium in its calculation of Net CONE. 

281. Other intervenors protest the fact that PJM’s proposal offers no protection in the 

case of alleged market power or market manipulation. Accordingly, they request that 

PJM be required to adopt additional language clarifying that unit owners that avail 

 233 See supra section V.C, addressing PJM’s proposed Non-Performance Charge.
Docket No. ER15-623-000, et al. - 102 -

themselves of the safe harbor will not be subject to such allegations and bidding at or 

below Net CONE is not, in and of itself, an exercise of market power.234

282. The Market Monitor objects to PJM’s proposed change to the offer cap available 

for third Incremental Auctions, arguing that there is no longer any reason to set the 

default offer cap in these auctions at 1.1 times the Base Residual Auction clearing price. 

The Market Monitor adds that PJM’s proposal in Docket No. ER14-1461-000 to reduce 

the number of Incremental Auctions should be included in the Capacity Performance 

filing. The Market Monitor reasons that holding three Incremental Auctions encourages 

speculative behavior by tending to lower the Incremental Auction prices and providing 

multiple opportunities for buying back commitments and this problem should be 

addressed as part of the Capacity Performance changes.

283. Intervenors also address PJM’s proposed risk premium allowance for Avoidable 

Cost Rate offers that exceed Net CONE and for unmitigated offers up to Net CONE. 

Joint Consumers argue that PJM’s proposal, while relying on the ISO-NE model accepted 

by the Commission in the ISO-NE Capacity Performance Order, is otherwise 

unsupported by any evidence specifically tied to PJM’s markets. In particular, Joint 

Consumers argue that PJM cannot justify its proposal based on its proposed NonPerformance Charge, given that this charge is unlikely to impose penalties of any kind. 

284. The PJM Utilities Coalition, Exelon, and PSEG, by contrast, argue that PJM’s 

proposed risk premium is unreasonably restrictive. The PJM Utilities Coalition protests 

PJM’s focus on the costs of mitigating the risks of providing capacity as a Capacity 

Performance Resource, as opposed to the quantifiable risks associated with providing

such a service. The PJM Utilities Coalition adds that this aspect of PJM’s proposal is 

inconsistent with the ISO-NE approach accepted by the Commission in the ISO-NE 

Capacity Performance Order.

235 Exelon argues that PJM’s proposal fails to address the 

existing flaw in the Avoidable Cost Rate formula, that resources do not have the 

flexibility to include unit performance and energy market risks. Exelon asserts that PJM 

should allow offers above Net CONE to reflect a risk premium that is reasonably 

supported rather than documented and quantifiable. 

285. In addition, Exelon argues, PJM should revise its proposal to allow reasonable 

projections for the delivery year for all Avoidable Cost Rate categories, rather than just 

new expenditures to obtain firm natural gas supply. PSEG interprets PJM’s reference to 

 234 See Homer City comments at 7; EPSA comments at 6; Coalition of Resource 

Projects protest at 17; NGSA comments at 15; and Calpine comments at 5.

235 See PJM Utilities Coalition protest at 54 (citing ISO-NE Capacity Performance 

Order, 147 FERC ¶ 61,172 at P 90)).
Docket No. ER15-623-000, et al. - 103 -

insurance documentation to be an example of a means of showing the costs of the risks 

associated with Capacity Performance offers and assumes that PJM anticipates that 

suppliers can submit other forms of documentation to demonstrate their own individual 

assessments of risk. PSEG requests further clarification from PJM that suppliers will be 

provided the opportunity and flexibility to develop their own risk assessments consistent 

with their corporate risk tolerances.

286. Exelon and PSEG also argue that PJM should create additional age categories and 

assumed remaining lifetimes for the purpose of amortizing capital investments, to 

accommodate units that may not be economic for the currently authorized amortization 

periods. Exelon adds that PJM should allow all technologies to adopt these remaininglife estimates. PSEG recommends generating units between 26 and 30 years old could be 

assumed to have five years of remaining life; units between 31 and 35 years old could be 

assumed to have three years of remaining life; and units between 36 and 40 years old 

could be assumed to have two years of remaining life. PSEG contends that the risks 

associated with recovering capital costs for a Capacity Performance Resource that may be 

reaching the end of its useful life are thus equated to the risks of recovering capital costs 

for a newer Capacity Performance Unit with many more years of life.236 

287. PSEG further requests that PJM assure that generator owners can include costs 

associated with improving operational flexibility in their bids for Capacity Performance 

Resources. PSEG notes that typically Project Investment is the amount of project 

investment completed prior to June 1 of the delivery year, except for Mandatory Capital 

Expenditures (“CapEx”) for which the project investment must be completed during the 

delivery year, that is reasonably required to enable a Generation Capacity Resource that 

is the subject of a sell offer to continue operating or improve availability during PeakHour Periods during the delivery year. PSEG seeks clarification as to whether the 

existing definition is sufficiently broad so as to include upgrades associated with unit 

flexibility. PSEG requests PJM modify the definition of Avoidable Operations and 

Maintenance Labor costs associated with Capacity Performance to include a forwardlooking estimate.237

 236 See PSEG comments at 22 (arguing that PSEG’s proposed revisions are 

consistent with the original purpose underlying the 40 Plus Alternative Option of 

enabling the oldest units to recover costs for project investments more quickly than newer 

units in recognition of their elevated recovery risk). 

237 PJM defines the term, Avoidable Operations and Maintenance Labor, to consist 

of the avoidable labor expenses related directly to operations and maintenance of the 

generating unit for the twelve months preceding the month in which the data must be 

provided. The categories of expenses included in Avoidable Operations and Maintenance 

Labor are those incurred for: (i) on-site based labor engaged in operations and 
Docket No. ER15-623-000, et al. - 104 -

288. Intervenors also challenge PJM’s must-offer provisions, as proposed. The Market 

Monitor protests PJM’s proposed “weakening of the must-offer rule for units that have 

offered and cleared in a prior auction” but are not yet in commercial operation, arguing 

that the flexibility will incent speculative offers, price suppression below the competitive 

level, and the exercise of market power. The Market Monitor adds that PJM has not 

explained why the performance risk associated with the required certification is only a 

problem for Generation Capacity Resources that have already cleared in a capacity 

auction.238 The Pennsylvania Commission argues that PJM’s proposal is generally 

acceptable, but that PJM’s filing offers insufficient evidence to support it. 

289. Essential Power and the PJM Utilities Coalition argue that sellers cannot be 

required to make multi-year investments of the sort PJM’s rule changes would encourage, 

absent a reasonable opportunity to recover these investments. Essential Power argues 

that requiring generators to make investments and incur costs that could price the 

generators out of the capacity market is unjust and unreasonable. The PJM Utilities 

Coalition argues that the narrow must-offer excuse proposed by PJM (based on the 

physical incapability of the resources) should be revised to provide that a resource will be 

exempted from the must-offer requirement if the unit, without making significant capital 

expenditures, is likely to incur substantial penalties in connection with its performance. 

The PJM Utilities Coalition asserts that accepting PJM’s proposed provision, as is, could 

result in a constructive taking of the resource owner’s property.239 

290. In the alternative, the PJM Utilities Coalition requests that PJM be required to 

adopt tariff language authorizing resources to include the entire cost of any capital 

improvement in the offer cap as if the unit had a “Remaining Life of Plant” balance of 

only a year. Dominion asserts that PJM’s proposal should be revised to allow existing 

resources to decide whether to make the investments necessary to meet the Capacity 

Performance requirements. Dominion argues that there is no guarantee that, after making 

significant long-term investments, such resources will clear in the next, and subsequent, 

 

maintenance activities; (ii) off-site based labor engaged in on-site operations and 

maintenance activities directly related to the generating unit; and (iii) off-site based labor 

engaged in off-site operations and maintenance activities directly related to generating 

unit equipment removed from the generating unit site. See PJM OATT Attachment DD, 

section 6.8.

238 Market Monitor comments at 8-9 & n.14 (referring to PJM OATT 

Attachment DD, section 6.6(g) and RAA Article 1 – Definitions, section 1.20B). 

239 PJM Utilities Coalition protest at 60 (citing U.S. Const. amend. V and 

Duquesne Light Co. v. Barasch, 488 U.S. 299, 307 (1989)).
Docket No. ER15-623-000, et al. - 105 -

capacity auctions. Therefore, Dominion asserts, resources should be allowed to remain in 

service but not participate in PJM’s capacity market.

291. Dominion requests that PJM modify its proposal such that Base Capacity 

Resources that request a unit-specific Avoidable Cost Rate should also be able to include 

a risk adder that quantifies the risk associated with the new Base Capacity Performance 

Penalties. Dominion notes that, while PJM has proposed to allow Capacity Performance 

Resources to include a premium for quantifiable risks associated with such resources, 

PJM’s Avoidable Cost Rate formula does not make a specific allowance for Base 

Capacity Resources. Dominion recognizes that Base Capacity Non-Performance Charges 

are likely to be smaller than those applied to Capacity Performance Resources. However, 

Dominion contends that, under PJM’s proposal, Base Capacity Resources face larger 

performance penalties than they do under the current market rules and they should be 

permitted to account for the risk of those penalties in their Avoidable Cost Rate. 

292. Dominion similarly suggests that PJM create a default offer cap for Base Capacity 

Resources. Dominion recognizes that the default offer cap should be lower given the 

added non-performance risk associated with Base Capacity Resources. Dominion 

requests the Commission to direct PJM to extend an offer cap provision to Base Capacity 

Resources allowing for offers up to the cap to bypass review by the Market Monitor or 

PJM. Dominion proposes that 50 percent of Net CONE would be an appropriate cap 

level to support the flexibility of pricing associated risk in the market.

293. Dominion argues that the offer requirements for Base Capacity Resources during 

the transition period are unclear. Dominion asserts that Base Capacity Resources should 

not be required to offer their capacity in the Base Residual Auctions during the transition 

period. Dominion argues that PJM’s proposal is unreasonable, because it eliminates a 

resource’s choice to offer only a portion of its capacity into the Base Residual Auction, or 

partially de-list the resource, due to restrictions affecting the resource or the risk 

associated with committing to operate at its full installed capacity.

294. Brookfield states that PJM’s proposed language is ambiguous about whether 

hydroelectric generation and energy storage facilities are considered Capacity Storage 

Resources or Generation Capacity Resources. Nevertheless, Brookfield asserts that 

Capacity Storage Resources and Generation Capacity Resources are “separate and 

distinct types of capacity resources,” and, therefore, PJM should clarify that hydroelectric 

generation and energy storage facilities as Capacity Storage Resources, are exempt from 

the Base Capacity Resource must-offer requirement. Brookfield argues that the same 

rationales for exempting energy storage resources from a must-offer requirement apply to 
Docket No. ER15-623-000, et al. - 106 -

both Capacity Performance and Base Capacity Resources, in particular the fact that it is 

virtually impossible for any Capacity Storage Resource to possess market power.240 

295. Brookfield also requests clarification that Capacity Storage Resources may offer 

any quantity of capacity up to the amount determined under the traditional method for 

calculating unforced capacity for hydroelectric generation facilities, or require PJM to 

work with interested market participants and the Market Monitor to determine a 

predictable method for quantifying the capacity such resources may offer.

296. Finally, with respect to PJM’s proposed inclusion of natural firm gas supply 

arrangements in the Avoidable Cost Rate formula, the Pennsylvania Commission 

questions whether the full cost of firm natural gas transportation would be a costeffective solution for many, if not most, generators that rely on this fuel source, and notes 

the failure of PJM’s proposed provision to address the treatment of capacity release 

revenues. Accordingly, the Pennsylvania Commission requests that, if this new input is 

accepted, PJM be required to: (i) add a provision directing the Market Monitor (and the 

Commission’s enforcement staff) to review all such offers; and (ii) add additional 

language addressing how capacity release revenues will be treated. 

3. PJM’s Answer

297. In response to intervenors’ protests to PJM’s proposed offer cap, PJM asserts that 

setting the offer cap level at Net CONE is critical for establishing strong performance 

incentives while also allowing resources to craft and implement their strategies to deliver 

a well-performing resource. PJM argues that a high offer cap is needed to account for the 

substantial costs and risks that Capacity Performance Resources will face under the new 

construct. PJM explains that the costs and risks may be difficult to quantify, especially 

on a three-year forward basis. Net CONE, PJM contends, represents the expected 

equilibrium price in a competitive capacity market and affords market sellers flexibility 

to “make their best estimate” of expected returns against costs and performance risk. 

PJM argues that setting the proposed offer cap at Net CONE strikes a reasonable balance 

between supplier and load interests.

 240 Alternatively, Brookfield argues, if Capacity Storage Resources are subject to a 

must-offer requirement with respect to Base Capacity Resources, the Commission should 

require PJM to allow Capacity Storage Resources to incorporate the additional risk of 

incurring Non-Performance Charges into its capacity offers. See Brookfield comments 

at 13.
Docket No. ER15-623-000, et al. - 107 -

298. PJM asserts that its existing rules concerning capacity market offer caps do not 

account for the new costs and risks that a Capacity Performance Resource may face.241 

PJM adds that, under the new Capacity Performance construct, market sellers determine 

the measures they must take to enable their resources to perform as a Capacity 

Performance Resources and bear the risk that their resources do not perform when called 

upon in an emergency. PJM argues that setting the offer cap at Net CONE “supports this 

fundamental philosophy of seller responsibility for performance” by allowing flexibility 

to offer at prices reflecting their best estimate of the costs and risk they face. 

299. PJM further argues that, even if a market seller could reasonably know three years 

in advance the costs they must incur, market sellers should be allowed some flexibility in 

how they propose to recover those costs and in the amount of risk they can and must bear. 

Unlike the current Avoidable Cost Rate rules, allowing resources to bid up to Net CONE 

both accommodates diverse risk profiles and makes that risk more transparent, PJM 

argues. 

300. PJM reiterates that Net CONE is an appropriate offer cap, because, though not a 

unit-specific measure, it is a cost-based determination that reflects the estimated 

replacement cost of capacity in a competitive market at equilibrium. PJM also notes that 

its OATT already subjects some resources to a Net CONE offer cap under specific 

circumstances, particularly where the resources face substantial costs to perform as 

capacity resources for a given delivery year.

301. Regarding protests that an offer cap based on Net CONE increases market power 

concerns, PJM responds that the competitive nature of the single-clearing-price capacity 

market design suggests that few, if any, resources will be incented to exercise significant 

market power. PJM argues that the incentive to clear the capacity auctions is a powerful 

deterrent to the exercise of market power, and the greater the difference between 

Net CONE and a resource’s avoidable costs, the greater the risk of loss from offering at 

Net CONE. 

302. PJM states that it shares the Market Monitor’s concern about the potential for 

market sellers to submit artificially low offers and would support a compliance filing 

implementing the Market Monitor’s recommendation to adopt a mechanism to detect and 

deter the potential for such behavior.

303. In response to the PJM Utilities Coalition’s protest that market sellers should not 

be required to make multi-year investments without a reasonable opportunity to recover 

 241 PJM answer at 76-77 (noting that, under PJM’s existing rules, capacity 

resources generally only may offer their Avoidable Cost Rate less expected net energy 

and ancillary service market revenues).
Docket No. ER15-623-000, et al. - 108 -

the associated costs, PJM indicates that it appreciates that the time may be ripe to revisit 

this issue. Therefore, PJM suggests that the Commission direct PJM to further consider 

“issues of new entry pricing and multi-year pricing” with stakeholders and report on the 

results of these efforts no later than December 2015.

304. In response to the Market Monitor’s proposal that PJM eliminate the special offer 

cap applied to the third Incremental Auction, PJM argues that the offer cap should be 

retained. PJM explains that the special offer cap – 1.1 times the Base Residual Auction 

clearing price – can exceed Net CONE. PJM argues that market sellers with excess 

capacity at the time of the third Incremental Auction should be able to “recognize the 

value of that capacity as a possible source of replacement for their other resources that 

experience issues during the [d]elivery [y]ear” that could subject them to the higher 

performance penalty. 

305. PJM states that it supports PSEG’s and Exelon’s requests to modify or clarify the 

risk premium element that PJM proposes to include in the Avoidable Cost Rate formula, 

given the importance that risk premiums reasonably reflect a market seller’s costs to 

commit as a Capacity Performance Resource. In particular, PJM supports PSEG’s 

clarification that a seller can document its risk premium in various ways.242 PJM also 

supports Exelon’s proposals that: (1) a seller’s requested risk premium level can be 

“reasonably supported” rather than “documented and quantifiable”; (2) a demonstration 

that the seller has quantified its risks for this purpose in the same manner it quantifies 

risks for other corporate or business purposes would be sufficient for PJM and the Market 

Monitor to accept the risk premium; and (3) energy market and operational risks may be 

included in the risk premiums for Capacity Performance Resource offers.243

306. With respect to Homer City’s request for guidance on how a resource’s capability 

to offer as a Capacity Performance Resource would be determined in the must-offer 

review process, PJM clarifies that the resource would need to demonstrate that there is a 

physical reason that it would be unable to provide assurance of the ability to deliver 

energy during emergency conditions. PJM adds that resources that would be excused 

from the must-offer requirement would be those for which there are physical reasons why 

offering as Capacity Performance is not possible, and for which any reasonably 

quantifiable investment would not resolve those physical issues. However, if investment 

would be required to provide the necessary assurance, the market seller must quantify 

that investment and submit a Capacity Performance offer that reflects the costs of that 

investment. 

 242 PJM answer at 89 & n.159 (citing PSEG protest at 16-17). 

243 PJM answer at 89-90 & n.162 (citing Exelon protest at 69-72). 
Docket No. ER15-623-000, et al. - 109 -

4. Additional Answers

307. The Maryland Commission, in its answer, responds to the arguments raised by the 

PJM Utilities Commission and PSEG in support of an Avoidable Cost Rate input 

reflecting a risk premium allowance. The Maryland Commission argues that a 

penalty/reward mechanism that refunds unearned capacity revenues is not designed to 

provide risk premiums. 

308. Exelon, in its answer, responds to Joint Consumers’ argument that a Net CONE 

offer cap, as proposed by PJM, will allow suppliers to exercise market power. Exelon 

argues that an offer cap at Net CONE is logical based on a market design that imposes 

Non-Performance Charges expected to equal Net CONE on average over time. Exelon 

further argues that Net CONE represents the expected long-term equilibrium price of 

PJM’s capacity market. 

309. Exelon also challenges Dominion’s claim that PJM’s proposal, to vest eligibility 

review authority in PJM and the Market Monitor, is vague and arbitrary. Exelon argues 

that the relevant inquiry – whether a capacity resource has the capability for the entire 

relevant delivery year to provide energy at any time when called upon – is an objective 

standard. 

5. Market Monitor Answer and Replies 

310. Although the Market Monitor initially supported PJM’s proposal to set the offer 

cap at Net CONE, the Market Monitor withdrew its support in its answer, after 

conducting a detailed review of the mathematics of the Capacity Performance design. 

The Market Monitor, in its answer, argues that PJM’s proposed offer cap should not be 

set at Net CONE, but rather at Net CONE times the expected average Balancing Ratio

(defined as the ratio of load plus reserves to total Unforced Capacity). The Market 

Monitor asserts that the default offer is appropriately recognized as less than or equal to 

Net CONE, given that the expected average Balancing Ratio would always be less than 

or equal to 1.0. The Market Monitor adds that this recognition is consistent with the 

seller’s obligation to provide energy during each Performance Assessment Hour.

311. The Market Monitor argues that, under PJM’s proposal, if expected bonus 

performance by an energy-only resource is greater than the resource’s net Avoidable Cost 

Rate, it can be concluded that such a resource would not take on a capacity obligation 

unless it would be better off by doing so. The Market Monitor adds that the willingness 

of a seller to take on a capacity commitment will be based on the capacity price it will 

receive for its commitment, which must be equal to, or in excess of, the profits it would 

make as an energy-only resource. The Market Monitor asserts that this value is equal to 

Net CONE times the expected average Balancing Ratio. The Market Monitor proposes a 

unit specific review for all other resources, composed of the resource’s net Avoidable 

Cost Rate plus its expected net performance payments and any appropriate risk premium.
Docket No. ER15-623-000, et al. - 110 -

312. In response to the Market Monitor’s alternative offer review mechanism, multiple 

intervenors object to the proposed process. NRG/Dynegy argues that adopting the 

Market Monitor’s alternate mechanism would upset a carefully balanced proposal and 

likely reduce reliability; setting the offer cap too low presents greater risks than setting 

the offer cap too high; the Market Monitor’s calculations are flawed because they rest on 

the assumption that the Non-Performance Charge rate will be equal to the Performance 

Bonus Payment rate; and it is impossible to calculate an accurate Balancing Ratio before 

the relevant delivery year. PJM, Exelon, and Joint Consumers assert that the Market 

Monitor’s proposal adds unnecessary complexity without any considerable offsetting 

benefit and should be rejected. Finally, several intervenors contend that the Market 

Monitor’s proposal should be rejected due to the late nature of its submission.

6. Deficiency Letter, PJM’s Response, and Protests and Comments

313. The Deficiency Letter asked PJM to answer a series of questions related to its 

proposed Net CONE default offer cap, how it relates to the methodology presented by the 

Market Monitor in its answer and employed by ISO-NE in its Forward Capacity Market, 

and how certain Capacity Performance design parameters might be set and interact with 

the proposed offer cap.244

314. In its answer PJM proposes an alternative default offer cap which it states was 

developed consistent with the ISO-NE methodology (Revised Offer Cap). PJM explains 

that it has developed the Revised Offer Cap in consultation with the Market Monitor and 

that it is based on defining a resource’s competitive offer, which is a function of resourcespecific and system variables. The resource-specific variables include marginal costs 

(ACR) and expected average resource performance across all Performance Assessment 

Hours (A), and the system variables include the Non-Performance Charge rate (PPR), the 

expected average Balancing Ratio across all Performance Assessment Hours (B), and the 

expected number of Performance Assessment Hours (H).

315. PJM contends that an appropriate competitive offer for a Capacity Performance 

Resource should include all of the marginal costs faced by that resource. PJM supports 

its Revised Offer Cap by analyzing the costs and revenues faced by a resource choosing 

between taking on a Capacity Performance obligation with its associated capacity 

payment, risk of Non-Performance Charges and opportunities for Performance Bonus 

Payments compared to an energy-only without capacity payments or risk of NonPerformance Charges, but increased access to Performance Bonus Payments. PJM 

explains that the scenarios also take into account whether the seller expects its particular 

resource to over-perform or under-perform relative to the expected average performance 

levels. Tracking the same logic and analysis used by ISO-NE, this analysis concludes 

 244 Deficiency Letter questions 1-5.
Docket No. ER15-623-000, et al. - 111 -

that the rational, profit-maximizing offer for a seller with avoidable costs below the 

expected capacity clearing price is Net CONE times the Balancing Ratio.

316. PJM contends that Net CONE times the Balancing Ratio is the level at which a 

resource with low avoidable costs would choose to take on a Capacity Performance 

obligation instead of perform as an energy-only resource. PJM explains that for 

resources with high avoidable costs that do not expect to cover their costs unless they 

earn capacity auction revenue, the formula provides for the inclusion of unit-specific 

Avoidable Cost Rate and unit-specific expected performance plus a risk premium for 

those with costs above the Net CONE times Balancing Ratio default offer cap. Under the 

Revised Offer Cap methodology, PJM will allow such resources to submit unit-specific 

offer caps which detail all Avoidable Cost Rate components, including a quantifiable risk 

as proposed by PJM in its Capacity Performance filing.

317. PJM states that the data from the previous three delivery years, 2011/2012, 

2012/2013 and 2013/2014, shows that there were a total of 70 hours that would have been 

Performance Assessment Hours under the currently proposed rules for Capacity 

Performance. Of those 70 hours, 42 were RTO-wide emergencies while 28 were 

locational Performance Assessment Hours only.245 PJM proposes to use a historical 

weighted average of the Balancing Ratios (B) experienced in the previous three delivery 

years as the methodology to produce the Balancing Ratio used in determining the default 

offer cap. PJM asserts that the weighted average Balancing Ratio for the PJM RTO in 

the most recent three delivery years is approximately 85 percent. A similar methodology 

would be used for LDA-specific Balancing Ratio using the higher of the parent LDA or 

the LDA itself.246 

318. PJM notes that there is a difference between the Balancing Ratios during 

Performance Assessment Hours winter and summer months.247 In the winter of 2014, 

PJM suggests that it experienced high forced outage rates and therefore had a significant 

number of hours that would have been considered Performance Assessment Hours. PJM 

contends that Capacity Performance provides strong incentives for resource availability 

and therefore, over time, will eliminate occurrences like those seen in the winter of 2014. 

As a result the expected value of the Balancing Ratio is anticipated to increase over time 

to a value that is more indicative of the summer Performance Assessment Hours which 

averaged around 93.5 percent.

 245 PJM Deficiency Letter Response at 12.

246 Id. at 7.

247 Id. at 12.
Docket No. ER15-623-000, et al. - 112 -

319. Further, in response to questions concerning the number of Performance 

Assessment Hours, PJM contends that while Performance Assessment Hours could vary 

across different LDAs in the PJM Region, PJM contends that the variance is not 

predictable because it is dependent on the number of Emergency Actions declared by 

PJM operators in each LDA.248 PJM suggests that the circumstances for an emergency 

declaration are dependent on factors such as load expectations, generator availability, and 

constraints on the transmission system. 

320. AEMA asserts that PJM has not provided the Commission with sufficient 

information to make a finding that either the original or modified Capacity Performance 

proposals are just and reasonable, and requests that in lieu of accepting PJM’s Capacity 

Performance proposal the Commission convene a technical conference under FPA 

Section 206 to assess whether the currently effective RPM rules are unjust and 

unreasonable and to investigate just and reasonable alternatives.249

321. AEMA also states that PJM did not respond to the Commission’s first question in 

the Deficiency Letter and merely provided a lengthy analysis explaining how Net CONE, 

or something close to it, is the rational offer for most suppliers under its proposed 

Capacity Performance rules. Other intervenors assert that Net CONE is not an 

appropriate clearing price or competitive offer because it is an administratively 

determined estimate and not necessarily reflective of the actual cost of new entry.250

322. Multiple intervenors either support or do not oppose PJM’s Revised Offer Cap.251

Specifically, the Market Monitor suggests that PJM’s Revised Offer Cap is competitive 

by definition such that offers at or below this level do not require further review of unit 

specific costs.252 The Market Monitor asserts that PJM’s response facilitates adoption of 

 248 Id. at 13. 

249 AEMA comments to PJM’s Deficiency Letter Response at 6. 

250 Id. at 7; Joint Consumers comments to PJM’s Deficiency Letter Response 

at 6-8; Pennsylvania Commission comments to PJM’s Deficiency Letter Response at 6.

251 Calpine comments to PJM’s Deficiency Letter Response at 3, 14; Exelon 

comments to PJM’s Deficiency Letter Response at 2-3; P3 comments to PJM’s 

Deficiency Letter Response at 2-5; EPSA comments to PJM’s Deficiency Letter 

Response at 8-9; PJM Utilities Coalition comments to PJM’s Deficiency Letter Response 

at 5; PSEG comments to PJM’s Deficiency Letter Response at 2-3; Coalition of Resource 

Projects comments to PJM’s Deficiency Letter Response at 8-9. 

252 Market Monitor comments to PJM’s Deficiency Letter Response at 2.
Docket No. ER15-623-000, et al. - 113 -

a method for calculating offer caps that has strong theoretical support and is consistent 

with the ISO-NE model. The Market Monitor further states that PJM’s response 

addresses key concerns about the design details of the Capacity Performance proposal 

and that the Market Monitor urges the Commission to approve the proposal, with the 

proposed modifications included in the Market Monitor’s earlier pleadings, as soon as 

possible. While P3, PSEG and ESPA request the Commission accept PJM’s original 

default offer cap proposal of Net CONE, they do not oppose PJM’s Revised Offer Cap.

253

P3 and Coalition of Resource Projects suggest that PJM’s Revised Offer Cap has an 

administrative simplicity; further suggesting that the administrative burdens associated 

with calculating risk on a unit-by-unit basis are extraordinarily complex and highly 

subjective.254 Coalition of Resource Projects contends that without a default offer cap a 

unit-specific mitigation approach is unjust and unreasonable and will unjustly increase 

costs to consumers.255 P3 and EPSA contend that without higher offer caps and the 

opportunity for generation owners to reflect their true costs, resources that could 

otherwise provide the Capacity Performance product would likely exit PJM, possibly 

decreasing reliability.256 Therefore, EPSA requests that the Commission should also 

accept modifications proposed by certain generation owners to clarify the risk premium 

element proposed by PJM for the Avoidable Cost Rate formula.257 

323. Conversely, Panda and Essential Power oppose PJM’s Revised Offer Cap in favor 

of the initial default offer cap of Net Cone.258 Essential Power asserts that PJM has failed 

to support its Revised Offer Cap. Essential Power suggests that the information in the 

record supports use of PJM’s initial offer cap proposal of Net CONE as the default offer 

cap because it represents long-term competitive price levels, is administratively 

manageable and will encourage competitive behavior.259 Panda contends that PJM’s 

 253 P3 comments to PJM’s Deficiency Letter Response at 3; EPSA comments to 

PJM’s Deficiency Letter Response at 8-9; PSEG comments to PJM’s Deficiency Letter 

Response at 2-3.

254 P3 comments to PJM’s Deficiency Letter Response at 3-4.

255 Coalition of Resource Projects comments to PJM’s Deficiency Letter Response 

at 9.

256 P3 comments to PJM’s Deficiency Letter Response at 4-5.

257 EPSA comments to PJM’s Deficiency Letter Response at 8-9.

258 Panda comments to PJM’s Deficiency Letter Response at 5-6; Essential Power 

comments to PJM’s Deficiency Letter Response at 4.

259 Essential Power comments to PJM’s Deficiency Letter Response at 3. 
Docket No. ER15-623-000, et al. - 114 -

Revised Offer Cap does not include a risk adjustment to the expected revenues reflective 

of the Non-Performance Charge Rate proposed by PJM.260 Essential Power argues that 

PJM and the Market Monitor incorrectly assume that parties will value potential 

Performance Bonus Payments, when, in reality, such speculative revenues are highly 

discounted in the financing process.261 As a result, Essential Power suggests that PJM’s 

Revised Offer Cap will create additional investment hurdles for new projects which then 

must be offset by the required revenues from capacity payments, and may result in over 

mitigation of supply offers.262 

324. Other Interveners oppose the use of a default offer cap based on the proposal’s 

inability to prevent the exercise of market power.263 These intervenors request PJM 

continue its current capacity market mitigation practices, including the unit specific 

review for resources that fail the three pivotal supplier test. Maryland Commission 

suggests that PJM’s proposal could cost end users an additional $7.5 billion or more, due 

to the exercise of market power.264

325. Joint Consumers suggest that if the capacity market were competitive, none of the 

market power mitigation rules presently in place, including the requisite submission and 

review of unit-specific Net Avoidable Cost Rates to the Market Monitor in advance of 

RPM auctions, would be relevant or necessary. Joint Consumers and Joint Protestors 

note that PJM’s assumption runs counter the Market Monitor’s observations that 

structural market power has been "endemic" to the market, and market participants have 

relied on existing market power mitigation rules to assure the competitiveness of market 

outcomes.265 Joint Consumers contend that allowing resources to submit offers up to 

Net CONE * B without review in such a non-competitive environment will result in the 

 260 Panda Utilities Coalition comments to PJM’s Deficiency Letter Response at 5 

(citing Poray Testimony at 4).

261 Essential Power comments to PJM’s Deficiency Letter Response at 6.

262 Id. at 7.

263 AEMA comments to PJM’s Deficiency Letter Response at 6; Maryland 

Commission comments to PJM’s Deficiency Letter Response at 4-6; Joint Consumers 

comments to PJM’s Deficiency Letter Response at 6; Joint Protestor comments to PJM’s 

Deficiency Letter Response at 8-9.

264 Maryland Commission Deficiency Letter Comments at 7. 

265 Joint Consumers comments to PJM’s Deficiency Letter Response at 6; Joint 

Protestors comments to PJM’s Deficiency Letter Response at 8.
Docket No. ER15-623-000, et al. - 115 -

auction clearing at this inappropriately high level, imposing higher costs to consumers. 

Joint Consumers suggest that the present unit-specific review of price offers reflecting 

unit-specific Net Avoidable Cost Rate has resulted in resource clearing prices that the 

Market Monitor has deemed competitive. Accordingly, Joint Consumers request that the 

Commission require PJM and the Market Monitor to continue evaluating offer caps on a 

unit-specific basis using each unit's Net Avoidable Cost Rate value.266 

326. Joint Protestors suggest that PJM has failed to explain how either offer cap 

proposal will effectively prevent economic withholding in LDAs with high supplier 

concentration. Joint Protestors argue that a Capacity Market Seller with a portfolio of 

resources and high concentration in a geographic area could have a greater incentive 

under PJM’s proposal than under the existing RPM construct to have a resource not clear 

at all or at least not clear as a Capacity Performance Resource, enabling large fleet 

owners to directly benefit from the higher clearing price and by gaining insurance against 

performance risk, in spite of a lower clearing volume.267 Joint Protestors assert that these 

concerns are exacerbated during the transition period because resources are allowed to 

submit coupled offers and may overstate the costs necessary to clear as a Capacity 

Performance Resource. Accordingly, Joint Protestors request that, to the extent the 

Commission approves PJM’s proposal, it should require PJM to reserve coupled offers 

for resources that must make a substantial investment to meet the Capacity Performance 

standards, and that large owners of resources that are indisputably and unambiguously 

capable should not be permitted to submit coupled offers.268 Joint Protestors also suggest 

that PJM or the Market Monitor have too much discretion to determine that prospective 

fuel expense or capital investment is needed.269

327. AEMA and Pennsylvania Commission contend that PJM’s logic is flawed such 

that in order to incent resources to take on the obligation to become a Capacity Resource, 

the expected revenue from selling capacity would have to be enough to cover the 

difference between a resource’s avoidable cost and its Performance Bonus Payments. 

Pennsylvania Commission asserts that this results in clearing prices that reflect 

administratively-determined penalty levels rather than the actual avoidable costs of the 

marginal resource.270 AEMA suggests that this results in poorly-performing units having 

 266 Joint Consumers comments to PJM’s Deficiency Letter Response at 8-12.

267 Joint Protestors comments to PJM’s Deficiency Letter Response at 9.

268 Id. at 11. 

269 Id. at 8-9.

270 Pennsylvania Commission comments to PJM’s Deficiency Letter Response 

at 5-6.
Docket No. ER15-623-000, et al. - 116 -

higher offer caps than well-performing units, creating perverse incentives for owners of 

large generation fleets. AEMA explains that large generation fleet owners may be 

dissuaded from investing in reliability improvements if such improvements would lower 

the clearing price applicable to their generation fleets.

271

328. Maryland Commission refutes PJM and the Market Monitor’s claims that 

resources should be able to reflect opportunity costs because PJM’s tariff includes a must 

offer requirement that mandates that capacity be offered into the Base Residual Auction

at its full, reliable level such that generators are prohibited from withholding capacity to 

achieve greater profits. In addition, Maryland Commission asserts that most generators 

inside of PJM do not have the necessary transmission path available to make sales to 

neighboring RTOs, and historical pricing levels are typically higher in PJM markets.272 

The Maryland Commission also requests that the commission reject PJM’s proposal that 

the Market Monitor not be permitted to evaluate whether an offered Capacity 

Performance Resource meets the requirements for that status and the appropriate physical 

basis upon which capacity offers are to be made unless requested to do so by PJM.273

329. Essential Power, Panda, and AEMA claim that PJM fails to recognize the

difference between PJM’s market structure and ISO-NE. AEMA refutes PJM’s 

contention that its methodology is appropriate because it is identical to the methodology 

in ISO-NE. AEMA asserts that despite the apparent use of the same equation, differences 

in the definition of the penalty rate between PJM and ISO-NE lead to different outcomes. 

Panda and Pennsylvania Commission suggests that PJM’s Revised Offer Cap assumes 

that the Performance Bonus Payment rate is equal to the Non-Performance Charge rate 

in its equation representing the total cash flow for a resource that has a capacity 

commitment. Panda indicates that these rates will be equal only if there is no resource 

that has been exempted from under-performance. Pennsylvania Commission suggests 

that PJM assumes that penalties will always equal Net CONE divided by the assumed 

number of Performance Assessment Hours. However, Pennsylvania Commission

explains that to extent a resource’s penalties exceed the annual and monthly stop loss 

 271 AEMA notes that From “PJM’s 2018-2019 Planning Period Parameters -

Proposed Capacity Performance Filing Provisions,” the Variable Resource Requirement

curve between Point A and Point B decreases prices by $0.0481/MW-day for each 

additional MW cleared. Assuming a clearing price of $250/MW-day, an owner of 6,000 

MW fleet who clears one additional MW gains $250/day on that MW, but loses 

$0.0481/MW x 6001MW = $288.64/day in revenue from the lower clearing price. 

AEMA comments to PJM’s Deficiency Letter Response at 19-20. 

272 Maryland Commission comments to PJM’s Deficiency Letter Response at 7-8. 

273 Id. 
Docket No. ER15-623-000, et al. - 117 -

provisions it will not be assessed performance penalties, therefore the average penalty 

assessed is likely to be substantially less than Net CONE.274

330. Maryland Commission and Pennsylvania Commission request that Commission 

require PJM to modify or remove its provisions regarding a Capacity Performance 

Resource’s ability to include opportunity costs in its estimation of net avoidable costs in 

the Avoidable Cost Rate formula. Maryland Commission and Pennsylvania Commission 

suggests that a generator’s risk is no greater or less than its normal market risk without 

these penalties or rewards, i.e., it might not clear in the market and thus might not receive 

market revenues sufficient to cover its costs. The Maryland Commission and the 

Pennsylvania Commission suggest that this risk is already included in the capital cost 

allowance covering cost recovery risks in a resource’s avoidable costs. 275 Maryland 

Commission and Pennsylvania Commission suggest that ratepayers should not be 

required to fund hypothetical “risk premiums” to reflect the asserted potential of severe 

penalties for non-performance which likely will not occur.

331. Conversely, Exelon suggests that because PJM’s Revised Offer Cap proposal is 

likely to result in a lower default offer cap than its initial proposal, it even more important 

for the Commission to ensure that unit-specific review of offers in excess of that cap 

properly accounts for all costs and risks associated with providing Capacity 

Performance.276 

332. Regarding PJM’s proposed default parameters of the Revised Offer Cap, Exelon 

endorses PJM’s methodology for determining the Balancing Ratio – a historical weighted 

average of the Balancing Ratios experienced in the previous three delivery years – as well 

as PJM’s plan to engage in an annual review based on the most recent data.277

333. Others oppose PJM’s proposed methods. Essential Power argues that using a 

three-year historical average is unjust and unreasonable because it will use significantly 

outdated information to set future payments. Essential Power adds that using data from a 

past period will understate the expected future performance because it will not account 

 274 Pennsylvania Commission comments to PJM’s Deficiency Letter Response 

at 5. 

275 Maryland Commission comments to PJM’s Deficiency Letter Response at 3-4; 

Pennsylvania Commission comments to PJM’s Deficiency Letter Response at 3.

276 Joint Protestors comments to PJM’s Deficiency Letter Response at 10.

277 Exelon comments to PJM’s Deficiency Letter Response at 2.
Docket No. ER15-623-000, et al. - 118 -

for changes in the market which may result in improved performance.278 NRG/Dynegy 

and Indicated Suppliers request that the Commission make clear that any acceptance of 

the PJM RTO-wide Balancing Ratio is without prejudice to further examination of 

exactly how the Balancing Ratio should be calculated for future auctions.279 Indicated 

Suppliers argue that PJM and its stakeholders should consider developing a forwardlooking methodology for calculating the Balancing Ratio. In addition, NRG/Dynegy 

opposes PJM’s suggestion that it calculate Locational Deliverability Area-specific 

Balancing Ratio values. NRG/Dynegy asserts that such values are likely to be 

considerably more volatile and that volatility could lead to greater variances between the 

values calculated on a backward-looking basis and actual Balancing Ratio during a given 

delivery year.280

7. Commission Determination 

334. For the reasons discussed below, we accept PJM’s market mitigation proposal, as 

amended in the Deficiency Letter Response, subject to the conditions described below. 

335. In this proceeding, PJM originally proposed a default offer cap for Capacity 

Performance Resources equal to Net CONE. In its Deficiency Letter Response, PJM 

amended its proposal, stating that it has collaborated with the Market Monitor to develop 

the Revised Offer Cap based on the competitive offer for any resource in any Locational 

Deliverability Area in PJM within the Capacity Performance market design. PJM states 

that an appropriate competitive offer includes all of the marginal and opportunity costs 

faced by a resource and that those costs are fully reflected in PJM’s Revised Offer 

Cap.

281 Based on this rationale, PJM proposes a default Capacity Performance Resource 

 278 Essential Power comments to PJM’s Deficiency Letter Response at 65.

279 NRG/Dynegy comments to PJM’s Deficiency Letter Response at 3-4; Indicated 

Suppliers comments to PJM’s Deficiency Letter Response at 5.

280 Indicated Suppliers comments to PJM’s Deficiency Letter Response at 5.

281 PJM Deficiency Letter Response at 1. PJM submits the following equation to 

represent the competitive offer of a capacity resource: 

p = PPR ∗ H ∗ B� + max{0, (ACR − PPR ∗ H ∗ A�)}

where p = a competitive offer from any resource; PPR = Performance Payment 

Rate = Net CONE/H; H = expected total number of Performance Assessment Hours in a 

delivery year = 30; B� = expected Balancing Ratio across all Performance Assessment 

Hours in a delivery year; ACR = net Avoidable Cost Rate, per proposed section 6.8 of 

Attachment DD of the OATT; and A� = expected availability of the resource across all 
Docket No. ER15-623-000, et al. - 119 -

offer cap set at the product of Net CONE times the Balancing Ratio, B, and proposes to 

allow resources with high avoidable costs to submit unit-specific offer caps that detail all 

Avoidable Cost Rate components, including a quantifiable risk premium. PJM states that 

this approach is the same as that which the Commission approved for ISO-NE and will 

yield the same results as a detailed cost-based, unit-specific offer cap approach. 

336. We find the Capacity Performance Resource offer cap set at Net CONE times the 

Balancing Ratio, as well as a standard of review of unit-specific offer caps based on the 

competitive offer equation presented by PJM, to be just and reasonable. The default offer 

cap that PJM proposes as part of its Revised Offer Cap reflects the amount that a 

competitive resource with low avoidable costs (Low ACR Resource) would accept in the 

capacity market. An energy-only resource will receive the Performance Bonus Payment 

rate for each MWh that it produces during Performance Assessment Hours, and it will 

incur no Non-Performance Charges regardless of its performance. A Low ACR Resource 

is one whose avoidable costs are less than its total expected Performance Bonus 

Payments as an energy-only resource. That resource, therefore, will be willing to take on 

a capacity obligation as long as the amount it can earn for capacity (including both 

capacity auction revenues as well as net Performance Bonus Payments) exceeds the 

amount it could earn in Performance Bonus Payments by participating in the energy 

market only.

337. A resource will receive less in Performance Bonus Payments as a capacity 

resource than as an energy-only resource. That is because, unlike an energy-only 

resource, a capacity resource would receive the Performance Bonus Payment rate during 

Performance Assessment Hours only for any production that exceeds its Balancing Ratio 

share of its total capacity obligation (and it would incur Non-Performance Charges during 

those hours to the extent that its production falls short of this share). For example, if the 

Balancing Ratio is 80 percent and a resource has a 100 MW capacity obligation, it will 

receive Performance Bonus Payments during a Performance Assessment Hour only to the 

extent that its production exceeds 80 MWh (i.e., .80 times 100 MW). So, for example, if 

the resource produces 85 MWh, it will receive a Performance Bonus Payment equal to 

the Performance Bonus Payment rate times 5 MWh. By contrast, if the resource were an 

energy-only resource, it would receive the Performance Bonus Payment rate for the full 

85 MWh of production, which is 80 MWh more than if it was a capacity resource. By 

taking on a capacity obligation, the resource must forego the Performance Bonus 

Payments on 80 MWh of production, i.e., its obligation as measured by the Balancing 

Ratio times its total capacity obligation, in each Performance Assessment Hour. The 

 

Performance Assessment Hours in a delivery year. The net Avoidable Cost Rate is 

calculated by deducting all energy and ancillary service revenues net of marginal costs 

from Avoidable Costs. See PJM OATT Attachment DD, section 6.8.
Docket No. ER15-623-000, et al. - 120 -

Performance Bonus Payments associated with these 80 MWh are an opportunity cost 

incurred by taking on a capacity obligation. 

338. In order to accept a capacity obligation, a competitive resource would require that 

the capacity payment exceed this opportunity cost. Under PJM’s construct, this capacity 

payment is represented by the Performance Bonus Payment rate times the Balancing 

Ratio times the expected number of Performance Assessment Hours.282 PJM’s proposed 

Non-Performance Charge rate is calculated as Net CONE divided by 30 hours. Under the 

assumption that the number of Performance Assessment Hours is the same as the number 

used to calculate the Non-Performance Charge rate, this opportunity cost amount is 

equivalent to Net CONE times the Balancing Ratio (B).283

339. For a resource whose avoidable costs exceed the amount that it can earn in 

Performance Bonus Payments (High ACR Resource) as an energy-only resource, the 

default offer cap will be too low and that resource will have to seek a unit-specific offer 

cap. A High ACR Resource would thus be expected to submit an offer that reflects its 

additional costs plus the risk that it may incur significant Non-Performance Charges as a 

capacity resource.284 

 282 This applies only under a simplifying assumption that the Non-Performance 

Charge rate and Performance Bonus Payment rate are equal, but, as discussed below, we 

find that assumption to be reasonable. 

283 Expressed algebraically, the opportunity cost is 

PPR ∗ B� ∗ H

where PPR = Performance Payment Rate = Net CONE/H; B� = expected Balancing 

Ratio across all Performance Assessment Hours in a delivery year; and H = expected total 

number of Performance Assessment Hours in a delivery year = 30. The opportunity cost 

can thus be expressed as 

Net CONE

30 � ∗ B� ∗ 30 = Net CONE ∗ B�.

284 This can be expressed algebraically by rearranging PJM’s equation for the 

competitive offer of a High ACR Resource as follows:

p = ACR + PPR ∗ H ∗ (B� − A�)
Docket No. ER15-623-000, et al. - 121 -

340. We therefore agree with PJM that it is reasonable to set a default Capacity 

Performance Resource offer cap equal to the competitive offer estimate for a Low ACR 

Resource, i.e., Net CONE times the Balancing Ratio, because that estimate will always be 

lower than the competitive offer estimate for a High ACR Resource. Any Capacity 

Performance offer below the default offer cap can properly be deemed competitive, and 

any offer above that level will be scrutinized by the Market Monitor and PJM to ensure 

that it is based on legitimate costs and reasonable estimates of unit-specific performance 

and system parameters. 

341. Based on our finding that PJM’s Revised Offer Cap methodology is just and 

reasonable, we accept PJM’s offer cap proposal, as amended in the Deficiency Letter 

Response. 

342. We acknowledge that the Revised Offer Cap methodology reflects the simplifying 

assumption that Performance Bonus Payments and Non-Performance Charges will be 

calculated based on the same payment rate. NRG/Dynegy argue that this assumption is 

false, given the proposed mechanics of the Capacity Performance construct, and assert 

that the two rates are actually unlikely to ever be exactly the same. We recognize this 

criticism and agree that the rates could be unequal.285 

343. However, we find the simplifying assumption to be reasonable nonetheless. Both 

the Non-Performance Charge rate and the Performance Bonus Payment rate are 

represented as dollars per MWh. The Non-Performance Charge rate, as discussed earlier 

in this order, is established in advance as Net CONE divided by 30. The Performance 

Bonus Payment rate is calculated by spreading total charge revenues collected over the 

number of over-performing MWh. As the Market Monitor notes,286 the NonPerformance Charge rate could equal or exceed, but never be less than, the Performance 

Bonus Payment rate due to the existence of two exemptions from Non-Performance 

 

where the difference between the Balancing Ratio and the expected availability of the 

resource represents the resource’s expected exposure to Non-Performance Charges or 

Performance Bonus Payments.

285 This is because the formulas behind the two rates are fundamentally different. 

While Non-Performance Charges are based on the charge rate of Net CONE divided by 

30, Performance Bonus Payments represent an over-performing resource’s pro rata share 

of all Non-Performance Charges collected. 

286 Market Monitor February 25, 2015 answer, Appendix A at 4; and Market 

Monitor March 27, 2015 answer at 7.
Docket No. ER15-623-000, et al. - 122 -

Charges and the stop-loss limit.

287 However, we expect that the number of exempted 

MWh will be comparatively small. Exemptions will be granted for two categories of 

resources. The first is resources that do not deliver energy because they are on a PJMapproved Generator Planned Outage or Generator Maintenance Outage. We expect that 

PJM will not approve a significant number of generator outages during the peak periods 

of the year when Performance Assessment Hours are most likely to occur. The second is 

resources that do not deliver energy because PJM did not schedule them. We expect that 

during the emergency conditions that trigger Performance Assessment Hours, there will

not be a significant number of MWh that PJM does not need to schedule. Since we 

expect that the number of exempted MWh will ordinarily be small during most 

Performance Assessment Hours, we expect that the Performance Bonus Payment rate will 

generally not be significantly less than the Non-Performance Charge rate. We also 

expect few resources to reach the annual stop-loss limit and note that we condition 

acceptance of PJM’s proposal in this order on removal of the monthly stop-loss limit, 

further reducing the likelihood that the Performance Bonus Payment rate will be 

significantly lower than the Non-Performance Charge rate. We therefore find that the 

benefit of accepting this assumption, which allows for a simpler mechanism for capacity 

offer review and mitigation that adequately protects against the exercise of market power, 

outweighs any minor distortions.

344. Joint Consumers argue that PJM’s change is not just and reasonable and the 

existing net Avoidable Cost Rate methodology establishes a just and reasonable 

evaluation of capacity sell offers within the Capacity Performance design. As we note 

above, we find that given the redefined capacity product PJM proposes, it is reasonable to 

allow capacity sellers to factor into their offers the costs and risks associated with 

assuming the redefined capacity obligation. The existing net Avoidable Cost Rate 

methodology would not permit inclusion of such costs and risks and thus could prevent 

capacity sellers from submitting legitimate, competitive offers. With respect to use of a 

default offer cap, we agree with PJM that if PJM and the Market Monitor were to instead 

evaluate all Capacity Performance sell offers on a unit-specific basis using the 

competitive offer formula proposed by PJM in its Deficiency Letter Response, the 

 287 If no MWh are exempted from Non-Performance Charges, the Performance 

Bonus Payment rate will equal the Non-Performance Charge rate. That is because the 

number of under-performing MWh will be the same as the number of over-performing 

MWh, so total charge revenues will be adequate to pay over-performers at the same rate 

of Net CONE divided by 30. However, if some resources are either exempt from NonPerformance Charges or have reached the stop-loss limit, the number of over-performing 

MWh will exceed the number of MWh deemed to be under-performing, so total charge 

revenues will be insufficient to pay over-performers at the rate of Net CONE divided by 

30, and they will be paid at a lower rate. 
Docket No. ER15-623-000, et al. - 123 -

outcome would be essentially the same. As PJM explains, for any Low ACR Resource, 

the competitive offer formula will simplify to Net CONE times the Balancing Ratio as a 

permissible offer cap. High ACR Resources, which are those most likely to set the 

clearing price, will, under PJM’s Revised Offer Cap, be subject to unit-specific offer 

review and must justify the assumptions and estimates in their requested offer price. The 

unit-specific review for all capacity offers will provide additional protections for 

consumers. Therefore, we disagree with Joint Consumers that PJM’s proposal is 

unreasonable.

345. We are not persuaded by Dominion’s argument that the proposal is unjust and 

unreasonable unless PJM modifies the default offer cap for Base Capacity. A default 

offer cap in large part serves to reduce the administrative burden on PJM, the Market 

Monitor, and market participants at offer prices that are clearly competitive. The absence 

of a new, Base Capacity-specific default offer cap does not prevent resources offering as 

Base Capacity from justifying sell offer prices above their relevant technology-specific 

default offer caps through the unit-specific Avoidable Cost Rate process. In addition, 

based on our finding infra, Base Capacity Resources may include in their offers 

quantifiable and reasonably-supported risks of taking on a Base Capacity commitment.

346. With respect to AEMA’s contention that the Revised Offer Cap may dissuade 

owners of large portfolios from making investments to improve the performance of their 

resources because doing so may lower clearing prices, we find this argument to be 

speculative and flawed. First, AEMA’s argument applies only to High ACR Resources, 

for which PJM proposes a formula for determining the offer cap. The unit-specific offer 

cap formula includes the resource’s Avoidable Cost Rate plus its expected NonPerformance Charges (i.e., PPR times H times B – A).288 But for Low ACR Resources, 

for which the offer cap would be the default offer cap of Net CONE times B, the 

resource’s offer cap does not depend on its Avoidable Cost Rate or on its expected NonPerformance Charges. For a Low ACR Resource, expenditures to further improve its 

availability and reduce its Non-Performance Charges could increase its profits without

reducing its offer price. Thus, resources with low Avoidable Cost Rates would have 

strong incentives to further improve their availability. 

347. Second, for High ACR Resources, where investing results in a lower net cost and a 

lower offer cap, AEMA’s argument assumes that the lower offer cap would reduce the 

capacity market price by the same amount. In AEMA’s example, a $3.00/MW-day 

reduction in the resource’s offer cap would reduce the capacity market price by 

 288 PPR = Performance Payment Rate = Net CONE/H; H = expected total number 

of Performance Assessment Hours in a delivery year = 30; and A� = expected availability 

of the resource across all Performance Assessment Hours in a delivery year.
Docket No. ER15-623-000, et al. - 124 -

$3.00/MW-day. This assumption presumes that the resource would remain marginal 

whether or not it undertook the investments. However, the slopes of large sections of the 

capacity market supply curves have in the past been fairly flat. If the resource in question 

is located on a flat portion of the supply curve, the resulting cost reductions may remove 

it from its marginal position on the supply curve. That is, its costs and its offer price 

could fall by more than the fall in the capacity clearing price. In this case, the benefits to 

the resource resulting from its cost reductions may outweigh any reduction in the 

revenues received by its fleet resulting from lower capacity market prices. Moreover, 

AEMA’s argument applies only to the owner of the marginal resource, and, by definition, 

there is only one marginal resource in any Locational Deliverability Area that priceseparates. AEMA’s argument, to the extent that it has any merit, applies only to the 

owner of the resource that would be marginal whether or not it invests to improve 

availability, but not to any other owners. The owners of fleets of resources that do not 

include the marginal resource would have strong incentives to invest to improve their 

availability. 

348. Lastly, the purpose of offer mitigation is to require that resources with market 

power submit offers consistent with how they would offer under fully competitive 

circumstances. As noted above, we find that PJM’s competitive offer formula reasonably 

represents a rational seller’s competitive offer within the Capacity Performance market 

design. Similarly, we also find that mitigating the offer of a seller found to have market 

power to that estimated competitive level is just and reasonable. 

349. AEMA, the Pennsylvania Commission, and Joint Consumers argue that 

Net CONE is not an appropriate clearing price or competitive offer because it is an 

administratively-determined estimate and not necessarily reflective of the actual cost of 

new entry. To the extent these commenters object to the Net CONE values used in RPM 

planning, we find these arguments beyond the scope of this proceeding. With regard to 

Net CONE representing a competitive offer, Net CONE, or a variant thereof, as discussed 

elsewhere in this order, is a proxy for a competitive outcome when such an outcome 

cannot otherwise be reasonably assured.

350. Essential Power, Indicated Suppliers, and NRG/Dynegy object to PJM’s proposal 

to use a three-year historical average in setting the Balancing Ratio for use in the Revised 

Offer Cap. NRG/Dynegy also opposes use of Locational Deliverability Area-specific 

Balancing Ratios on the grounds that they will be more volatile than an RTO-wide 

historical average Balancing Ratio. While there may be legitimate alternative methods 

for setting the Balancing Ratio, we find that using a three-year historical average will 

provide a reasonable estimate of future Balancing Ratios. We acknowledge 

NRG/Dynegy’s argument that Locational Deliverability Area-specific Balancing Ratios 

will experience greater volatility year to year, but we find that this possibility is 

outweighed by the benefit of using a Balancing Ratio that is more likely to accurately 

reflect the conditions during Performance Assessment Hours in each Locational 
Docket No. ER15-623-000, et al. - 125 -

Deliverability Area. Accordingly, we accept PJM’s proposed method for setting the 

Balancing Ratio.

351. In its comments, the Market Monitor proposes new buyer-side mitigation

measures to prevent anticompetitive price suppression. Under its proposal, resources 

seeking to offer below the default Capacity Performance offer cap would have to seek a 

unit-specific review of their offers. PJM did not propose additional buyer-side mitigation

in its proposal and therefore this request is beyond the scope of the proceeding.

352. Turning to PJM’s proposed modification to its Avoidable Cost Rate formula, we 

accept PJM’s proposed revisions to the formula to include Avoidable Fuel Availability 

Expenses and Capacity Performance Quantifiable Risk, subject to the condition described 

below. We generally find that the revised Avoidable Cost Rate methodology will 

properly allow capacity resources to reflect their estimates of capital costs needed to 

allow an existing generator to remain in service or improve peak-hour availability or 

operating flexibility. With respect to PJM’s proposed definition of Avoidable Fuel 

Availability Expenses, intervenors claim that PJM’s definition should be expanded to 

include other fuel sources. We find such clarification is unnecessary given that PJM 

explains that while the definition includes examples pertaining to natural gas fuel security 

costs, such examples are not meant to define the universe of allowable costs but rather to 

explicitly note that these costs are allowed given that the Market Monitor previously 

determined such costs could not be included. We find that the definition is sufficiently 

expansive to apply to other fuel costs and as such is not limited to natural gas supply 

costs. We find it reasonable that resources are able to reflect fuel security costs as the 

availability of fuel is an integral component of resource performance.

353. PJM notes that the proposed allowance for a Capacity Performance Quantifiable 

Risk is intended to explicitly allow suppliers to include in their offers risks that can be 

quantified and that are not already reflected in the formula. We agree that the Avoidable 

Cost Rate calculation should reflect the cost of becoming a capacity resource under the 

new capacity market construct and that, for some resources, the overall physical and 

capital expenditures required to ensure performance during emergency operations are

extensive, presenting additional costs which are not currently reflected in the Avoidable 

Cost Rate calculation. However, we find that PJM’s proposed definition of Performance 

Quantifiable Risk may be insufficiently narrow to permit resources to include 

quantifiable and reasonably-supported risks in their Avoidable Cost Rate. Further, we 

agree with Dominion that the ability to submit risk premiums should be afforded to Base 

Capacity Resources as well. Within the new market design, Base Capacity 

Resources face enhanced performance requirements, and it is reasonable to afford such 

resources an opportunity to reflect the risks associated with the new compliance 

obligations in their sell offers. We therefore accept PJM’s proposed inclusion of a 

quantifiable risk component of the Avoidable Cost Rate formula, subject to the condition 

that PJM clarify that both Capacity Performance Resources and Base Capacity Resources 
Docket No. ER15-623-000, et al. - 126 -

will be permitted to include quantifiable and reasonably-supported risks in their 

Avoidable Cost Rate. 

354. We next address PJM’s proposal to apply the must-offer requirement to 

prospective and established Capacity Performance Resources. We accept PJM’s 

proposal, subject to the modifications discussed below. The use of a must-offer 

requirement is both consistent with established capacity market practice and necessary to 

safeguard against manipulation in the PJM capacity market. We are not persuaded by the 

PJM Utilities Coalition’s argument that such a requirement forces resources to make 

capital investments without a reasonable opportunity for a return. To the contrary, we 

find that PJM’s proposal as modified would allow resources the flexibility to weigh the 

risk of incurring penalties against the cost of additional investment and to reflect the 

resource owner’s desired balance in its capacity offer. Resources that are physically 

capable of becoming capacity performance but whose costs of doing so would be 

prohibitive are expected to reflect such costs in their offers. Typically, such resources 

should either not clear as a Capacity Performance Resource or, if their capacity is 

required, should be compensated for the cost of the necessary investments. Accordingly, 

we find that applying the must-offer requirement coupled with the revised Avoidable 

Cost Rate formula discussed above will allow Capacity Performance Resources a 

reasonable opportunity to recover appropriate associated costs and will not constitute a 

taking. 

355. PJM proposes two mechanisms through which a resource would not be subject to 

the Capacity Performance must-offer requirement. First, Intermittent Resources, 

Capacity Storage Resources, Demand Resources, and Energy Efficiency Resources will 

be categorically exempt from the Capacity Performance must-offer requirement on the 

grounds that they do not raise the same physical withholding concerns as do existing 

generation resources because their ownership is not concentrated. Second, using the 

proposed must-offer exception process, an individual resource may seek an exception if it 

demonstrates that it is reasonably expected to be physically incapable of satisfying the 

requirements of a Capacity Performance Resource for the delivery year. In the context of 

the PJM market, we find that these proposed mechanisms are reasonable and sufficiently 

narrow to prevent withholding. Regarding Brookfield’s argument that Capacity Storage 

Resources should also be exempt from PJM’s Base Capacity must-offer requirement, we 

interpret PJM’s proposal to apply the existing capacity market must-offer requirements 

and exemptions to Base Capacity Resources for delivery years 2018-2019 and 2019-

2020. In other words, resources currently subject to the capacity market must-offer 

requirement that will not be subject to the new Capacity Performance must-offer 

requirement will be required to offer as Base Capacity. We find this application to be 

reasonable given the limited Non-Performance Charge exposure for Base Capacity 

Resources. 
Docket No. ER15-623-000, et al. - 127 -

356. However, we are not persuaded that PJM’s proposal to exempt Planned 

Generation Capacity Resources from the capacity market must-offer requirement until 

they become operational is appropriate. PJM proposes to exempt such resources by 

altering the definitions of Existing Generation Capacity Resource, Planned Generation 

Capacity Resource, and Planned External Capacity Resource such that a resource will not 

be considered an existing resource, and therefore subject to the capacity market mustoffer requirement, until such time as it achieves full commercial operation and 

interconnection service has commenced.289 We are not persuaded by PJM’s concerns 

that continuing to apply the must-offer requirement to planned resources that have 

cleared at least one RPM auction would act as a barrier to entry. In addition, we are 

concerned that by clearing an RPM auction with a planned resource but not following 

through on its construction in a timely manner, a seller could effectively withhold 

capacity and deter a new entrant from taking its place. Regarding PJM’s expressed 

concerns about subjecting resources in question to the must-offer requirement, we note 

that PJM’s current provisions allow for a resource that likely will not become operational 

as planned to seek an exception to the must-offer requirement.290 We thus accept PJM’s 

proposal subject to the condition that PJM remove the revisions proposed in RAA Article 

1, Definition 1.20B Existing Generation Capacity Resource; RAA Definitions 1.69 and 

1.70; and PJM OATT at Attachment DD, section 6.5.

357. Dominion argues that for delivery years 2018-2019 and 2019-2020, any portion of 

a resource’s capacity that it offers as Base Capacity should be exempt from the Capacity 

Performance must-offer requirement. Dominion provides an example of a hypothetical 

combined-cycle unit which can only acquire firm natural gas transportation for a portion 

of its total capacity, and thus can only provide a portion of its capacity as Capacity 

Performance. Dominion argues that the generator might want to split its offer between 

Capacity Performance and Base Capacity in this circumstance, but states that PJM’s 

proposal does not allow for such an offer. However, to the extent a resource cannot make 

the physical adjustments necessary to become a Capacity Performance Resource, it may 

seek an exception from PJM’s Capacity Performance must-offer requirement. We find 

that it is appropriate that PJM have the opportunity to approve such requests, since 

allowing a resource to split its offer creates an opportunity for economic withholding. To 

the extent that a resource may find it too expensive to invest in necessary changes, the 

 289 See proposed RAA at sections 1.20B (defining an Existing Generation Capacity 

Resource), 1.70 (defining a Planned Generation Capacity Resource), and 1.69 (defining a 

Planned External Generation Capacity Resource). The current definition of Existing 

Generation Capacity Resource includes resources not yet in service, but which have 

cleared an RPM Auction.

290 See PJM OATT at Attachment DD, section 6.6(g)D.
Docket No. ER15-623-000, et al. - 128 -

resource can submit a coupled offer with the costs of any necessary investments reflected 

in the resource’s Capacity Performance offer. 

358. Finally, regarding the Market Monitor’s observation that PJM’s reliance on 

unforced capacity could allow resources to withhold capacity,291 we do not find that such 

a concern renders PJM’s instant proposal not just and reasonable. The Market Monitor 

suggests that PJM should adopt ISO-NE’s market design wherein ISO-NE uses 

resources’ installed capacity values to define the demand for capacity and to define the 

required performance of its capacity market resources. The Market Monitor contends 

that the use of unforced capacity could allow a supplier with a large portfolio to reduce its 

available capacity from some of its resources to result in a higher clearing price for the 

entire portfolio. Alternatively, the Market Monitor suggests that a supplier with a large 

portfolio could also reduce unforced capacity available from some of its resources to 

retain a hedge against unexpected outages on other units. We appreciate the concern of 

the Market Monitor but think that the likelihood of such a strategy is mitigated by a 

resource deliberately forgoing considerable energy revenue in the hopes that the 

withholding strategy and any additional performance payments during Emergency 

Actions would outweigh the forgone energy revenue. The Market Monitor has the ability 

to closely observe market participant behavior and take the appropriate actions if such 

strategies are employed, including, but not limited to, working with PJM to devise an 

alternative mitigation mechanism. 

G. Credit Requirements

359. PJM’s existing credit requirements address the risks generally attributable to the 

forward commitment of capacity in PJM’s capacity auctions, including specific credit 

requirements for planned resources. PJM currently requires a capacity market seller 

submitting a sell offer to satisfy a credit requirement equal to the MW offered times an 

Auction Credit Rate. The Auction Credit Rate is based on: (i) the expected final perMW price to be paid to capacity resources in the relevant delivery year; and (ii) the 

seller’s possible deficiency charge exposure, as based on its “net charge exposure,” i.e., 

on that portion of its payment obligation that would not be covered by its capacity 

revenues.

360. According to PJM’s existing tariff, the Auction Credit Rate for these sellers will 

be the greater of: (i) 0.3 times the Net CONE for the relevant delivery year; or 

(ii) $20/MW-day times the number of days in that delivery year.292 With respect to the 

period following the posting of the Base Residual Auction results, the PJM tariff defines 

 291 Market Monitor comments at 14.

292 See PJM’s OATT at Attachment Q, section IV.D.a(i). 
Docket No. ER15-623-000, et al. - 129 -

the Auction Credit Rate as the number of the days in the delivery year times the greater 

of: (i) $20/MW-day; or (ii) 0.2 times the capacity resource clearing price, in MW-day.293

361. Additionally, PJM’s rules recognize that the risk of non-performance is higher for 

a resource that does not exist at the time that the corresponding commitment for that 

resource is made.294 PJM requires market sellers offering capacity resources “for which 

there is a materially increased risk of non-performance” to comply with certain credit 

support requirements both prior to the posting of Base Residual Auction results, defined 

as Pre-Auction Security Requirement, and after the posting of Base Residual Auction 

results, defined as Post-Auction Security Requirement. The Current Post-Auction 

Security Requirement is based on the capacity resource clearing price, not Net CONE. 

Accordingly, PJM’s rules require a seller submitting an offer for a planned resource to 

satisfy a credit requirement equal to the MW offered times the Auction Credit Rate.295

362. PJM states that, absent revision, the Auction Credit Rate (and the “net charge 

exposure” input on which it is based) will increase only for Capacity Performance 

Resources, which will face Non-Performance Charges as high as the annual stop-loss

limit of 1.5 times Net CONE times all of the resource’s committed capacity, with the 

capacity clearing price, in most cases, falling below 1.5 times Net CONE.

1. PJM’s Proposal

363. PJM proposes to revise the Auction Credit Rate for sellers seeking to submit offers 

for a Capacity Performance Resource. PJM states that, under its proposal, the Auction 

Credit Rate for these sellers will be the greater of: (i) 0.5 times the Net CONE for the 

relevant delivery year; or (ii) $20/MW-day times the number of days in that delivery 

year.296

364. PJM notes that, because the clearing price cannot be known before a Base 

Residual Auction is held, the net charge exposure input to its Auction Credit Rate is also 

 293 Id. at Attachment Q, section IV.D.b(i). 

294 See PJM OATT at Attachment Q, section IV (providing that a resource that 

clears but then fails to perform, when called upon, may be subject to one or more 

deficiency, or non-performance, charges). Resources subject to this additional credit 

requirement include Planned Generation Capacity Resources, Planned Demand 

Resources or Energy Efficiency Resources, and Qualifying Transmission Upgrades.

295 PJM OATT at Attachment Q, section IV.B. 

296 Proposed OATT at Attachment Q, section IV.D.a(ii). 
Docket No. ER15-623-000, et al. - 130 -

an unknown and must be estimated. Accordingly, PJM proposes to establish a proxy 

clearing price, for this purpose, at Net CONE. PJM asserts that, with a Net CONE 

clearing price, and potential Non-Performance Charge exposure of up to 1.5 times 

Net CONE, an Auction Credit Rate of 0.5 times New CONE is reasonable for Capacity 

Performance Resources offering into PJM’s Base Residual Auction. PJM adds that the 

$20/MW-day minimum Auction Credit Rate is the same minimum rate used for all other 

provisions of the capacity market credit requirement.

365. With respect to the period following the posting of the Base Residual Auction

results, PJM proposes that the Auction Credit Rate for Capacity Performance Resources 

be the number of the days in the delivery year times the greater of: (i) $20/MW-day; or 

(ii) 0.2 times the capacity resource clearing price, in MW-day; or (iii) the lesser of 

0.5 times Net CONE, or 1.5 times Net CONE (stated on an installed capacity basis) 

minus the applicable capacity resource clearing price for the resource, in MW-day.

297 

With respect to a Capacity Performance Resource that has not previously been committed 

for a delivery year and that a seller seeks to offer in an Incremental Auction, PJM 

proposes that the Auction Credit Rate will be greater of: (i) 0.5 times Net CONE; or 

(ii) $20/MW-day, times the number of days in such delivery year.298

366. Finally, with respect to Capacity Performance Resources committed in the 

Incremental Auction, PJM proposes to calculate the applicable credit requirements by 

using the same standard that applies to resources committed in the Base Residual 

Auction, subject to the use of the Incremental Auction clearing price in place of the Base 

Residual Auction clearing price. According to PJM’s proposed tariff, the Auction Credit 

Rate for these sellers will be the number of days in that delivery year times the greater of:

(i) 0.2 times the Incremental Auction clearing price for the relevant delivery year or 

$20/MW-day; or (ii) the lesser of .5 times the Net CONE for the relevant delivery year, 

or 1.5 times Net CONE for the relevant delivery year minus the Incremental Auction 

clearing price.299

367. PJM proposes to require planned resources to provide greater financial security 

until their respective in-service dates. Prior to posting the results of a particular Base 

Residual Auction, planned resources are currently required to provide, as financial 

security, credit support equal to the greater of: (i) 0.3 times the Net CONE; or 

(ii) $20/MW-day.300 Under PJM’s proposal, following posting of the Base Residual 

 297 Proposed OATT at Attachment Q, section IV.D.b(ii). 

298 Proposed OATT at Attachment Q, section IV.D.c(ii). 

299 Proposed OATT at Attachment Q, section IV.D.d(ii). 

300 Proposed OATT at Attachment Q, section IV.D.
Docket No. ER15-623-000, et al. - 131 -

Auction results, planned resources that cleared the Capacity Performance auction would 

be required to provide credit support equal to the greater of: (i) 0.2 times the Base 

Residual Auction clearing price for the Locational Deliverability Area within which the 

resource is located; (ii) $20/MW-day; and (iii) the lesser of (a) 0.5 times Net CONE and 

(b) 1.5 times Net CONE minus the Base Residual Auction clearing price for the 

Locational Deliverability Area within which the resource is located.301

368. In support of its proposal, PJM suggests that planned resources require more 

collateral to provide reasonable assurance that a capacity market seller can satisfy the 

potentially substantially higher payments associated with the Capacity Performance 

Resource product.302

2. Protests and Comments

369. Coalition of Resource Projects protests PJM’s proposal to modify its existing 

credit requirements, asserting that stakeholders were not given the opportunity to review 

or comment on the revised credit provisions during the stakeholder process. Coalition of 

Resource Projects argues that PJM’s proposal to use Net CONE as the basis for the preauction and post-auction security requirements, rather than basing the requirements on 

exposure, will ultimately require resources to obtain collateral in excess of their 

maximum penalty exposure. Coalition of Resource Projects contends that PJM should 

instead revise the credit requirements to reflect resources’ capacity revenues and the 

amount of the potential penalty above the capacity revenue, i.e., the risks associated with 

the proposed non-performance requirements. 

370. Invenergy similarly asserts that that the credit requirements should reasonably 

reflect the difference between the annual stop-loss limit and a resource’s capacity 

revenue. Invenery argues, however, that, given its recommendation to adjust the stoploss provision to reflect annual capacity revenues, the credit requirements should 

accordingly be revised to cover the different between annual capacity revenues and risk 

exposure.

371. EMC protests that PJM’s proposal is unduly discriminatory, because it increases 

the credit requirements for some suppliers but not others without sufficient justification. 

EMC explains that, energy efficiency resources are disproportionately affected by the 

new requirements, because PJM considers them to be planned for three quarters of their 

lifetime. EMC argues that, contrary PJM’s assertions, planned resources do not create 

such a significant risk of incurring performance penalties, especially when the primary 

 301 Proposed OATT at Attachment Q, section IV.D.

302 PJM transmittal at 72 (Docket No. ER15-623-000). 
Docket No. ER15-623-000, et al. - 132 -

justification for the ensure suite of market reforms is non-performance by existing 

generation. EMC adds that increasing credit requirements on energy efficiency resources 

will unreasonably increase costs to load with no corresponding benefit, because the 

proposal will reduce the quantity and increase the cost of energy efficiency offers into the 

capacity market.

372. Panda, in its answer, objects to PJM’s proposed revision to its existing credit 

requirements on the grounds that Panda, in planning for the development of an existing 

project, relied on PJM’s existing provisions. Panda further asserts that PJM’s revisions 

should not apply to projects that have an executed Interconnection Study Agreement and 

are fully project-financed prior to the 2015 Base Residual Auction, given that the risk of 

non-performance for the relevant delivery year (i.e., the 2018-19 delivery year) is 

negligible. 

373. Panda also requests that PJM be directed to tie its credit requirements for financed 

resources and planned resources to specific milestones, including a certification that the 

project is, in fact, fully financed, or that full funding is available, prior to the 

commencement of the Base Residual Auction, and other standard milestones that would 

allow the security requirement to be reduced as the project nears a timely in-service date.

3. PJM’s Answer

374. In its answer, PJM agrees with Coalition of Resource Projects, noting that the 

credit requirements will increase for planned resources under the proposal. PJM suggests 

that its proposal correctly defines a resource’s exposure to Non-Performance Charges. 

However, PJM proposes to modify the proposed credit requirements to utilize Net CONE 

for the relevant Locational Deliverability Area in the credit calculations, where 

applicable, rather than Net CONE for the PJM region. PJM indicates that it will make 

this change in a compliance filing, subject to the Commission so directing. 

375. PJM refutes EMC’s implication that the new credit provisions treat energy 

efficiency resources differently from other resource types. PJM notes that while the 

credit requirement for planned Capacity Performance Resources is higher than the current 

credit requirement for planned resources offering into the capacity auctions, the increased 

credit requirement applies equally to all resource types. PJM contends that an enhanced 

credit requirement is reasonable for planned resources because a resource that does not 

exist when it clears a Base Residual Auction presents a materially greater risk of nonperformance than an existing resource. 

376. PJM adds that enhanced credit requirements for planned resources are also 

justified, in part, on a greater potential exposure to Non-Performance Charges. PJM 

argues that, if a planned resource is not completed, there is a 100 percent risk that the 

resource will fail to perform when called on during the delivery year, requiring PJM to 
Docket No. ER15-623-000, et al. - 133 -

find other resources. PJM also suggests that its pre-auction credit requirements are 

consistent with Commission precedent.303

377. PJM states that, in principle, it sees merit in Panda’s suggested modifications to 

the proposed credit requirements for planned resources and financed resources, i.e.,

projects that have an executed Interconnection Study Agreement and are fully projectfinanced prior to the 2015 Base Residual Auction. PJM states that it is willing to modify 

the proposed credit requirements for such resources, in accordance with Panda’s 

suggestions, to allow the security requirement to be reduced as the project nears a timely 

in-service date. PJM adds that, should the Commission direct it to revise the credit 

requirements for planned resources and financed resources, it should also require such 

resources to provide an independent engineer’s certification that each relevant milestone 

has been achieved. 

4. Commission Determination

378. As discussed below, we find that PJM’s proposed revisions, as modified herein, to 

increase the credit requirements commensurate with Capacity Performance Resources’ 

increased risk of financial exposure are just and reasonable. Accordingly, we accept the 

proposal subject to PJM modifying the proposed tariff revisions consistent with the 

discussion below. 

379. As PJM explains, the proposed security deposit is designed to ensure that PJM is 

made whole if a resource fails to honor its contract to provide capacity in a given delivery 

year. Pursuant to PJM’s proposal, PJM calculates the required deposit amount based on 

its assessment of the funds it will need to procure new capacity, possibly on very short 

notice, if a resource fails to honor its capacity commitment. Accordingly, should the 

resource fulfill its commitments, PJM will return the required collateral to the resource. 

PJM’s proposal reasonably balances the interests of market participants by not raising 

costs to an unreasonable amount while still protecting the markets and their participants 

from unacceptable defaults. We thus find this aspect of PJM’s proposal just and 

reasonable. 

380. We disagree with EMC’s assertion that PJM’s proposal unduly discriminates 

against energy efficiency resources and thus deny the request for modification. As PJM 

notes in its answer, the increased credit requirement applies equally to all resource types 

and EMC has not persuaded us that the risks energy efficiency resources face, as planned 

resources, are significantly less than the risks faced by other resources types.

 303 PJM answer at 99 (Docket No. ER15-623-000) (citing PJM Interconnection, 

L.L.C., 128 FERC ¶ 61,157, at P 118-19).
Docket No. ER15-623-000, et al. - 134 -

381. We also disagree with intervenors’ assertions that it is unreasonable for PJM to 

determine a resource’s riskiness based on Net CONE, rather than the difference between 

the resource’s potential penalty exposure and its capacity market revenues. We find that 

Net CONE is a reasonable proxy for quantifying the obligations that a market seller 

undertakes, and thus the overall risk posed to the capacity market. Under these proposed 

rules, a seller that offers a planned resource as a Capacity Performance Resource will 

now face financial consequences (in the form of Non-Performance Charges) for failure to 

deliver its resource that are potentially much higher than the consequences such a 

resource would face under the existing rules. 

382. While we find that PJM has demonstrated that the risk of non-performance is 

higher for resources that do not exist at the time a seller submits an offer committing to 

deliver that resource in three years, PJM’s proposal fails to recognize changes in the risk 

a market seller faces as it transitions through various stages of development towards 

commercial operation. We note that PJM has committed to modifying its proposal to 

reflect the differences in credit requirements for financed resources and planned 

resources. Accordingly, we accept PJM’s proposal subject to the condition that PJM 

modify the proposed credit requirements for planned resources and financed resources, in 

accordance with Panda’s suggestions, to allow the security requirement to be reduced as 

the project nears a timely in-service date.

383. We similarly recognize that PJM has committed to modify the proposed credit 

requirements to utilize Net CONE for the relevant Locational Deliverability Area in the 

credit calculations, where applicable, rather than Net CONE for the PJM Region. As 

indicated above, without such revisions, PJM’s proposal is unjust and unreasonable, 

because the amount of security required under the credit provisions should increase and 

decrease commensurate with the associated risk. Accordingly, we accept PJM’s proposal 

subject to the condition that PJM revise the proposed credit requirements as necessary to 

recognize Locational Deliverability Area-specific Net CONE values in determining a 

market seller’s Auction Credit Rate. 

H. Short-Term Resource Procurement

384. Under PJM’s existing rules, the amount of capacity PJM is required to procure in 

its Base Residual Auction is reduced by 2.5 percent, for the purpose of procuring this setaside capacity, or holdback, over the over the course of PJM’s three Incremental 

Auctions, i.e., on a date that is closer in time to the relevant deliver year. The 2.5 percent 

holdback requirement was implemented by PJM, in 2009, to ensure participation in 

PJM’s capacity market by short-lead time resources.304 

 304 See PJM Interconnection, L.L.C., 126 FERC ¶ 61,275 at PP 68, 83-85 (2009). 
Docket No. ER15-623-000, et al. - 135 -

1. PJM’s Proposal

385. PJM proposes to eliminate the 2.5 percent holdback, as unnecessary, to become 

effective as of the 2018-19 delivery year.305 PJM asserts that the longer-lead time 

associated with its Base Residual Auction has not impeded participation by short-lead 

time resources, including Demand Resources, energy efficiency resources, uprated 

generation resources, and external resources. PJM also argues that the 2.5 percent 

holdback warrants elimination, given that it withholds demand and thus operates to 

suppress market clearing prices in PJM’s Base Residual Auction. 

2. Protests and Comments

386. Intervenors object to PJM’s proposal, citing the role that PJM’s holdback has 

played in partially mitigating the effects of using an overstated load forecast in the Base 

Residual Auction. Joint Consumers argue that, since the inception of PJM’s capacity 

auctions, PJM’s load forecast, as of the date of the Base Residual Auction, has been 

overstated, on average, by 6.25 percent. 

387. Intervenors also assert that maintaining (or even increasing) the holdback is 

necessary to protect customers from the increased costs associated with systemic overprocurement. Rockland and Allegheny add that PJM has not shown how eliminating the 

holdback is a necessary component of PJM’s Capacity Performance proposal or is 

otherwise required at this time. The Ohio Commission similarly argues that PJM should 

retain the 2.5 percent holdback, because it has not demonstrated that its forecasting 

changes for the upcoming Base Residual Auction will provide better results. 

388. The Illinois Commission argues that the three-year forward nature of PJM’s 

capacity construct requires some mechanism to ameliorate the impact of an over-forecast 

of PJM’s reliability requirements. The Pennsylvania Commission adds that PJM’s 

holdback continues to be necessary to enable Demand Resources to participate 

effectively in PJM’s capacity market. OPSI and the Illinois Commission similarly argue 

that the holdback provides an opportunity for short-term resources to participate in PJM’s 

capacity markets, including demand reduction plans.

389. Intervenors also challenge PJM’s claim that the 2.5 percent holdback suppresses 

market clearing prices. Public Interest Organizations argue that additional overprocurement in the Base Residual Auction (as attributable to the elimination of the 

holdback) would itself increase costs. The Pennsylvania Commission adds that, while the 

elimination of the holdback may cause a temporary increase in market clearing prices, 

 305 See proposed OATT at Attachment DD, sections 2.69A, 5.4(c)(2)(i), 5.10(a), 

and 5.12(a) and (b). 
Docket No. ER15-623-000, et al. - 136 -

under certain circumstances, the net price impact of requiring demand response to bid 

into the Base Residual Auction may well be zero. Finally, the Illinois Commission 

contends that PJM’s holdback proposal is unrelated to Capacity Performance. 

3. PJM’s Answer

390. PJM, in its answer, responds to intervenors’ argument that the holdback should be 

retained to accommodate short lead-time resources. PJM argues that, based on the results 

of recent Base Residual Auctions, participation by Demand Resources has grown to an 

extent that, last year, required PJM to impose limits on the quantities of sub-annual 

Demand Resources and Energy Efficiency Resources that may clear in PJM’s capacity 

auctions.306 PJM adds that the fact that the holdback has artificially suppressed clearing 

prices in Base Residual Auctions remains unchallenged. PJM also responds to 

intervenors’ assertion that the holdback is necessary to mitigate load forecasting 

inaccuracies. PJM argues that it has improved its load forecasts. PJM argues that, 

regardless, any past over-statements do not, of themselves, justify maintaining the 

holdback.

4. Additional Answers

391. The PJM Utilities Coalition and Exelon, in their answers, respond to Joint 

Consumers’ argument that PJM’s holdback should be retained, given that PJM’s load 

forecasts have been historically overstated. The PJM Utilities Coalition asserts that 

PJM’s holdback was designed, not as a load-forecasting mechanism, but to foster the 

participation of short-lead time resources, a purpose for which it is no longer needed. 

Exelon argues that to the extent these forecasts have been overstated the appropriate 

solution is not to retain the holdback but to adjust the load forecast methodology, as PJM, 

in fact, has done in its 2015 forecast.307

392. Joint Protestors, in their answer, acknowledge the robust participation by Demand 

Resources in PJM’s Base Residual Auctions, but assert that these resources represent 

only one of four such short lead-time resources that is the focus of PJM’s existing 

holdback policy. Joint Protestors add that PJM has not shown that elimination of the 

holdback will materially affect Base Residual Auction clearing prices. 

 306 PJM answer at 102-103 (citing PJM Interconnection, L.L.C., 146 FERC 

¶ 61,052 (2014)). 

307 See Exelon answer at 33 (citing PJM Interconnection, L.L.C., “PJM Load 

Forecast Report: January 2015” (Dec. 30, 2014) at 1). 
Docket No. ER15-623-000, et al. - 137 -

393. The Maryland Commission requests the Commission reject PJM’s proposed 

elimination of the 2.5 percent holdback because it is proposed solely to increase market 

prices, and will not improve reliability. The Maryland Commission suggests that PJM’s 

load forecasting on average over the past five years has averaged approximately 6 percent

above actual delivery year load levels. Maryland Commission contends that an excessive 

load forecast results directly and improperly in higher prices to end users as demand in 

the demand/supply auction balance is improperly inflated by the overstatement, which 

causes a $2.4 billion RPM revenue increase. Maryland Commission urges retention of 

the holdback as necessary to achieve just and reasonable pricing for end users until PJM 

demonstrates that it has corrected this practice.308 

5. Commission Determination

394. For the reasons discussed below, we accept PJM’s proposed elimination of its 

existing capacity holdback provision, to be made effective for the Base Residual Auction 

for delivery year 2018-19. PJM’s capacity market is a three-year forward market and, 

under this existing design, we do not find unjust and unreasonable the application of the 

same rules to all resources. While PJM sought to accommodate short-term resource 

procurement, as of the establishment of its market, PJM is not obligated to propose to 

retain this provision. Moreover, PJM contends that elimination of this provision will help 

promote reliability by ensuring that PJM has obtained committed capacity and is not 

reliant on short-term procurement. Given the purpose and nature of PJM’s Capacity 

Performance proposal, we concur.

395. PJM’s existing requirement reduces, by 2.5 percent, the amount of capacity PJM is 

required to procure in its Base Residual Auction and requires that this capacity be 

procured at a later date in PJM’s Incremental Auctions. PJM implemented this 

requirement in 2009 to ensure that short-lead time resources would be permitted to 

participate in PJM’s capacity market.309 PJM asserts in its filing, however, and we agree, 

that the three-year lead time element associated with PJM’s annual May capacity auctions 

has not impeded the ability of most resources (including demand response, energy 

efficiency, generation uprates, or external resources) to participate in these auctions. 

PJM further relies on the findings made by the Market Monitor that PJM’s existing 

holdback, by withholding demand from the Base Residual Auction, operates to suppress 

market clearing prices. 

396. Joint Consumers assert that PJM’s holdback should be retained because it 

mitigates the effects of overstated load forecasts. However, we are not persuaded that a 

 308 Maryland Commission comments to PJM Deficiency Letter Response at 9-10.

309 PJM Interconnection, L.L.C., 126 FERC ¶ 61,275 (2009) at P 83-85. 
Docket No. ER15-623-000, et al. - 138 -

holdback requirement is necessary to address load forecast errors, or that the historical 

overstatements experienced to date are unavoidable or likely to recur at a level that 

requires mitigation. In fact, PJM’s stakeholders have discussed these issues, including 

proposed modeling changes, with load forecast adjustments recently adopted by PJM.310

397. The Pennsylvania Commission argues that PJM’s holdback requirement is 

necessary to incent additional Demand Resources to participate in PJM’s capacity 

market. However, we are not persuaded that PJM’s elimination of its holdback 

requirement will unduly impede the ability of Demand Resources to participate in PJM’s 

capacity market. We also are not convinced that the benefit of any incremental Demand 

Resource participation resulting from retaining the holdback requirement will necessarily 

outweigh the economic efficiency benefit of no longer withholding demand from the 

Base Residual Auction, an action that can suppress market clearing prices.

398. We also disagree with the Maryland Commission’s request to reject the 

elimination of the 2.5 percent holdback on the grounds that it is proposed solely to 

increase market prices and will not improve reliability. As stated above, the elimination 

of this provision will help ensure that PJM has obtained committed capacity. 

399. Finally, we are not persuaded by Allegheny’s argument that PJM’s proposed 

elimination of its holdback requirement should be rejected on the grounds that it is 

unrelated to the problem that PJM purports to address in its Capacity Performance 

proposal. PJM has the authority to file revisions to its tariff under section 205 of the FPA

and must demonstrate that the change is just and reasonable. PJM has met that burden 

here.

V. Energy Market Revisions

400. For the reasons discussed below, we grant, in part, and deny, in part, PJM’s 

complaint in its Energy Market Filing and direct PJM to submit a compliance filing 

within 30 days of the date of this order. We agree with PJM that given the changes we 

are accepting to its capacity market provisions, its existing energy market rules with 

respect to operating parameters, force majeure, and generator outages are unjust and 

unreasonable and must be revised. We accept PJM’s proposed revisions to rules related 

to force majeure and generator outages, accept, in part, and reject, in part, PJM’s 

proposed revisions to rules related to operating parameters, and direct further 

modifications to the operating parameters rules, consistent with the discussion below, to 

be submitted in the aforementioned compliance filing. Lastly, we find that PJM has not 

 310 See PJM Interconnection, L.L.C., Load Analysis Subcommittee report, 

available at: www.pjm.com/committees-and-goups/subcommittees/las.aspx. 
Docket No. ER15-623-000, et al. - 139 -

demonstrated that its rules related to Maximum Emergency Offers are unjust and 

unreasonable and therefore deny this aspect of PJM’s complaint.

A. Operating Parameters

401. PJM states that the operating parameters of individual generation resources can 

limit PJM’s flexibility in scheduling and dispatching resources on a day-ahead and realtime basis.311 PJM argues that the current energy market rules allow market sellers in 

certain circumstances to condition their day-ahead energy market offers on acceptance of 

parameter limitations that extend beyond the operating design characteristics of their 

specific resources and include economic or budgetary concerns. PJM asserts that, when 

operating its system during the adverse weather conditions of January 2014, PJM was 

required to dispatch generation that was relatively inflexible, and was further required to 

keep these resources online during uneconomic periods in order for them to be available 

during peak demand hours. PJM states that the ability for resources to be flexible 

throughout an operating day is integral to efficiently dispatching the system and 

minimizing uplift, especially during winter peaks. 

1. PJM’s Proposal

402. PJM proposes to clarify that a capacity market seller will be required to limit its 

energy offer output parameters to its pre-determined limits on cost-based offers, 

including limiting its offer parameters for market-based offers as provided under PJM’s 

existing rules.312 Specifically, PJM proposes to require market-based offers for capacity 

resources to be parameter limited, i.e., based on the specific physical characteristics of 

that resource, rather than based on economic and budgetary considerations, under 

circumstances that would typically precede an emergency event. PJM further proposes to 

clarify that, if a resource cannot actually be operated within these more flexible 

parameters, then it must inform PJM of the parameters to which it is capable of being 

 311 PJM notes, for example, that a generator relying on natural gas as its fuel 

source may have the need for early commitment to ensure deliverability, days ahead of 

PJM’s day-ahead market. In addition, PJM states that resources may submit scheduling 

criteria that includes 24-hour, or multi-day gas commitment requirements, or the 

purchase of gas for an entire weekend to operate for only a few hours. PJM further notes 

that these generation resources may become subject to natural gas pipeline operational 

flow orders (e.g., an order requiring the generator to take natural gas in even, incremental 

amounts over a 24-hour natural gas day), forcing generators to run during periods when 

they traditionally would be uneconomic. 

312 See proposed Operating Agreement at Schedule 1, section 6.6 and the proposed 

parallel provision of the PJM OATT. 
Docket No. ER15-623-000, et al. - 140 -

operated. However, any operation outside of the more flexible parameter limited values 

will be considered inconsistent with PJM’s direction. If PJM dispatches the resource 

only within its unit-specific physical parameter limits, costs that are not recovered as a 

result of operation outside of the more flexible parameter limited values would not be 

eligible for make-whole payments. Make-whole payments will be made to a resource 

only to the extent that the resource’s operation is based on the more flexible parameter 

limited values.313

403. PJM also proposes to establish a standardized start-up and notification time of 

24 hours, or less, for Capacity Performance Resources bidding into PJM’s energy 

markets, absent the issuance of a hot or cold weather alert. PJM states that when a 

weather alert has been issued, the combined notice and start-up time would not be 

permitted to exceed 14 hours.

2. Protests and Comments

404. Comments generally supportive of PJM’s proposal were filed by the Market 

Monitor, NGSA, and Exelon. The Market Monitor argues that, to properly protect the 

market from the exercise of market power and manipulation, it is essential to ensure that 

resources cannot avoid their performance obligations by the use of parameters and 

essential that the ability to perform is not tied to greater energy costs.

405. Some intervenors protest that PJM’s proposal to apply parameter limited schedules 

to market-based offers is an unjust and unreasonable step towards eliminating marketbased energy offers altogether. Dominion argues that PJM has not demonstrated that the 

relevant existing provisions of the Operating Agreement are unjust and unreasonable. 

Dominion argues that adopting the stringent operating parameters in PJM’s proposal 

could force less flexible units out of the market and threaten future reliability by 

undermining efforts to promote and maintain fuel diversity. The PJM Utilities Coalition 

and Joint Protestors assert that PJM’s proposal creates unreasonable and immitigable risk 

for market sellers, by restricting their ability to reflect operational considerations in their 

energy market offers. Specifically, Joint Protestors argue that PJM’s proposal provides 

PJM and the Market Monitor overly broad discretion in determining a unit’s “operating 

 313 The resource would be eligible for make-whole payments to the extent that 

PJM dispatches the resource outside of the parameter limits. For example, suppose that a 

resource’s minimum run time based on its physical characteristics is four hours, but the 

resource faces a 24-hour ratable take requirement from its natural gas pipeline supplier 

that requires it to run at a constant rate for 24 hours. Under PJM’s proposal, if PJM 

dispatches the resource to operate for 24 hours, the resource will be eligible for makewhole payments for the entire 24 hours. However, if PJM dispatches the resource for 4 

hours, it will not be eligible for make-whole payments from hour 4 to 24. 
Docket No. ER15-623-000, et al. - 141 -

design characteristics” without any indication how those determinations will be made.314 

They state that the effect will be that generators will be held to perform notwithstanding 

operational constraints that may not be reflected in the parameter limitations determined 

by PJM.

406. Joint Protestors argue that PJM’s proposal evidences a “clear misunderstanding of 

pipeline operational issues,” because it shifts to resources the risk of operational 

constraints outside of their control. LS Power argues that it is unjust and unreasonable to 

determine minimum standards based on a resource’s physically achievable operating 

design characteristics, because a unit may “not be able to achieve its maximal 

performance in adverse weather conditions” or may be subject to greater stress if 

consistently asked to perform at the “outer limits” of its physically achievable operating 

design characteristics. PSEG similarly asserts that theoretical operating parameters based 

on the unit’s original design or capabilities may not provide a fair indication of its current 

physical characteristics, particularly in the case of older units.

407. Some intervenors object to PJM’s proposal to establish a standardized start-up and 

notification time for capacity resources bidding into PJM’s energy market. The PJM 

Utilities Coalition argues that PJM’s proposal is a one-size-fits-all approach that is based 

on unilateral market design choices, rather than physical and operational considerations.

The PJM Utilities Coalition characterize this approach as unduly discriminatory by 

failing to account for: (i) the diversity of assets needed for long-term reliability; or 

(ii) the costs associated with operating certain classes of generation assets.315 

408. The PJM Utilities Coalition adds that, by asking generators to absorb the cost of 

meeting arbitrary deadlines that they are incapable of meeting, PJM’s rules may be 

confiscatory, in violation of the Takings Clause of the U.S. Constitution.316 Joint 

Protestors argue that PJM’s proposed start-up and notification times are “at odds with 

fundamental natural gas nomination and scheduling” practices and present particularly 

high risk, and potentially confiscatory costs, for combustion turbines that might operate 

only a few days each year. Rockland adds that PJM’s standardized start-up and 

notification time limits discriminate against natural gas-fired units compared to onsite 

fuel alternatives.

 314 Joint Protestors protest at 11-12.

315 PJM Utilities Coalition states that the start-up and notification time limitations 

are discriminatory against coal-fired and nuclear generation resources. PJM Utilities 

Coalition protest at 3, 11.

316 See PJM Utilities Coalition protest at 12 (citing U.S. Const, amend. V and 

Duquesne Light Co. v. Barasch, 488 U.S. 299, 307 (1989)). 
Docket No. ER15-623-000, et al. - 142 -

409. With respect to PJM’s proposal for developing unit-specific operating parameters, 

some protest that PJM’s proposal affords PJM too much discretion. The Pennsylvania 

Commission asserts that the authority to establish parameter limited schedule values 

should remain with the Market Monitor. LS Power and Coalition of Resource Projects 

argue that resource owners must have a role in determining the resource’s parameter 

limits, otherwise PJM’s approach will usurp owners’ control of their resources. Essential 

Power agrees, adding that market participants appear to be excluded from the process of 

developing unit-specific parameters. 

410. The Market Monitor contends that the respective roles that market sellers, PJM, 

and the Market Monitor will play in developing and approving unit-specific parameters 

must be more clearly defined. The Market Monitor asserts that it must be clarified that:

(i) market participants determine their own offers, and take full responsibility for their 

market behavior; (ii) PJM determines whether an offer complies with PJM’s market 

rules; and (iii) the Market Monitor interacts directly with market participants in a defined 

process to review whether offers raise market power concerns. The Market Monitor 

argues that PJM’s current proposal does not do enough to ensure objective, critical, and

thorough review of market participants’ calculation of unit-specific parameters, noting, 

however, that if the Market Monitor determines that a proposed value raises market 

power or manipulation concerns, it will raise the issue with the Commission through a 

section 206 complaint or other available option.317

411. Homer City argues that PJM must specify the parameter limitations in the OATT, 

rather than engaging in an annual prudency review with each unit to determine whether it 

is under-performing relative to an unspecified standard. Essential Power, too, protests 

PJM’s departure from using published parameters limitations, arguing that transparency 

and consistency across unit types is important. 

412. LS Power protests PJM’s proposal to require different operating parameters for 

different resources. LS Power argues that, because all Capacity Performance Resources 

will be paid a single clearing price for providing a single product, subjecting resources to 

different requirements and performance obligations violates the prohibition against undue 

discrimination. LS Power asserts that PJM must adopt the same minimum criteria for all 

resources and assets classes, even if it means adopting a more stringent system-wide 

standard.

 317 Market Monitor comments at 3, 36 (noting that, because the operating 

parameters rules were included in a separate section 206 filing, the Commission is not 

required to afford PJM’s proposal the same level of deference and should, therefore, 

approve the best proposed elements, or revised elements, regardless of their source). 
Docket No. ER15-623-000, et al. - 143 -

413. Intervenors also seek specific clarification as to what constitutes a “physical 

characteristic” and how the physical characteristic of units will be determined. Rockland 

and Joint Protestors assert that variations in fuel delivery are physical characteristics that 

PJM should recognize, arguing that natural gas-fired generators may not be able to 

purchase relief from the physical constraints pipeline operators impose. PSEG notes that 

there may be instances in which a unit, in its current conditions and configuration, may 

have a given set of physical operating parameters that could be improved based on capital 

expenditures. PSEG further notes, however, that PJM’s proposed tariff language is 

unclear whether, in such a case, the physical capabilities of the unit would be viewed in 

its present state or as enhanced through capital upgrades and whether there would ever be 

any financial limit to the amount of an expenditure needed to improve the unit’s physical 

characteristics.

414. Intervenors also protest that PJM’s proposal is unclear as to how and when PJM 

will consider Capacity Performance Resources’ under-performance to be unexcused in 

circumstances when the resource is not scheduled or is dispatched down due to the 

parameter limitations the market seller specified in its energy market offer. The Market 

Monitor argues that PJM’s proposal must be clarified to ensure that Capacity 

Performance Resources operating and offered in accordance with parameters approved by 

PJM and the Market Monitor are not subject to Non-Performance Charges. Coalition of 

Resource Projects argues that PJM must clarify either the market seller representation 

requirement in Section 5.5A to provide energy at any time or the definition of expected 

performance in Section 10A, to account for each unit’s PJM-determined physical 

limitations and characteristics. LS Power argues that PJM should be required to clarify 

when a resource owner will become aware that its non-performance is unexcused and, 

therefore, subject to a Non-Performance Charge.318

415. Joint Protestors add that PJM’s provisions regarding exceptions are overly 

burdensome and impose duplicative requirements on natural gas-fired resources facing 

the risk of pipeline constraints because, in order to be eligible for make-whole payments, 

those resources would have to seek an exception for multiple parameters, such as 

minimum run time and notification time.319 PSEG asserts that PJM’s dispatch software 

does not adequately model the actual capabilities of combined cycle units and that, under 

these circumstances, it is not reasonable to impose operating requirements that cannot be 

accurately reflected in units’ offers, or dispatched in the PJM software.

 318 LS Power protest at 8 (adding that if PJM informs a market seller that it is not 

being dispatched because of the operating parameter limitations specified in its offer, the 

seller could take steps, such as self-scheduling, to ensure the unit could be available 

within the required timeframe).

319 Joint Protestors protest at 12.
Docket No. ER15-623-000, et al. - 144 -

416. The Market Monitor argues on the other hand that, while resources may request 

exceptions to the parameter limitation requirements, the exceptions should not be an 

excuse for non-performance or enable resources to receive make-whole payments. The 

Market Monitor also recommends excluding economic maximum from the list of 

parameters, because resources are already required to offer their installed capacity unless 

on an outage. The Market Monitor also requests clarification that resources with start-up 

and notification times that exceed the values agreed upon by PJM, the Market Monitor 

and generation owners under section 6.6 of Schedule 1, or that operate outside their unitspecific parameter limits will not be eligible for make-whole payments for their 

operation.320

417. While the Market Monitor supports PJM’s revisions to the current operating 

parameters, it recommends including ramp rate and boiler temperature retention times as 

parameters with defined limits, because such parameters could also be used to limit 

generation performance. In addition, the Market Monitor argues that resources should be 

subject to original equipment manufacturer operating parameters, rather than parameters 

developed based on historical operational information. Essential Power protests that PJM 

does not propose to include environmental considerations in the unit-specific operating 

parameter determinations. Coalition of Resource Projects adds that PJM should not 

require the same level of flexibility on critical and non-critical days.

418. The Market Monitor asserts that, to ensure a properly functioning capacity market, 

PJM should be required to revise its energy market rules to treat Demand Resources in 

the same way as other capacity resources if they are to remain on the supply side of the 

capacity market. For example, the Market Monitor argues that Demand Resources 

should be subject to a must-offer requirement in the day-ahead energy market and should 

have their output metered, on five-minute intervals, rather than estimated. The Market 

Monitor argues that Demand Resources should be dispatched nodally, to ensure that all 

capacity is performing as required. The Market Monitor suggests that the Commission 

should require PJM to revise its methodology for collecting data and calculating 

compliance for Demand Resources to require real-time submissions. 

419. The Market Monitor also argues that there is no reason for PJM to enforce an 

energy market offer cap that is higher for Demand Resources than generation, adding 

that, if a higher offer cap is warranted, it should be raised for all resource types. Further, 

the Market Monitor asserts that PJM should eliminate the provisions allowing Demand 

Resources to request relief from Capacity Resource Deficiency Charges under certain 

circumstances, arguing that the provision creates a loophole that is inconsistent with the 

intent and goal of the Capacity Performance proposal. 

 320 Market Monitor comments at 26 (citing PJM Operating Agreement, 

Schedule 1, sections 3.2.3(e) and 6.6).
Docket No. ER15-623-000, et al. - 145 -

420. ESA asserts that PJM’s proposal to allow energy storage resources to selfschedule to meet their obligation to provide energy, rather than offering into the dayahead energy market, is necessary for energy storage resources to participate in energy 

markets. ESA points out that this allowance “in no way excuses” Capacity Storage 

Resources from their Capacity Performance obligations and does not reduce the penalty 

such a resource would face for failing to perform. Rather, ESA asserts, the allowance 

responds to and provides for the fact that PJM’s day-ahead energy market clearing 

mechanism and other energy market rules otherwise do not accommodate energy storage 

resources. 

3. PJM’s Answer

421. PJM, in its answer, responds to assertions that it has not shown that the existing 

relevant provisions of the Operating Agreement are unjust and unreasonable. PJM argues 

that the existing rules unjustly and unreasonably allow resources to submit inflexible 

operating parameters based on inflexible fuel supply arrangements or due to a failure to 

make needed investment in their resources. PJM adds that if its Capacity Performance 

proposal is implemented, the existing rules addressing parameter limited schedules would 

undermine the benefits that PJM’s proposed rule changes are designed to provide.

422. PJM also responds to the Market Monitor’s observation that PJM’s proposal fails 

to identify what physically-achievable operating characteristics would be considered in a 

unit-specific review, and whether changes in resources that can no longer operate based 

on their original design, or capabilities, would be taken into account. PJM argues that, in 

undertaking these reviews, it will be guided by the standards set forth in section 2.3.4 of 

Manual 11, which “include but are not limited to metallurgical restrictions due to age and 

long term degradation, physical design modifications, operating permit limitations, 

operating limits imposed by federal, state or local regulatory requirements or insurance 

carrier requirements, consent decrees, manufacturer technical bulletins, or environmental 

permit limitations under non-emergency conditions.” PJM adds that it will need to 

revise Manual 11 to incorporate specific guidance regarding the factors that will be 

considered in determining unit-specific parameter limited schedule values.

423. PJM also responds to LS Power’s argument that unit-specific parameter limited 

schedules must be based on what the resource owner determines is reasonably 

achievable. PJM argues that, under its proposal, market seller input and historical 

evaluation will be considered when PJM establishes parameter limits. PJM adds that, 

consistent with Order No. 719, PJM must have the authority to first determine the values 

on which a resource would be settled, subject to Commission review.321

 321 See PJM February 13, 2015 answer at 7 (citing Order No. 719, FERC Stats. & 

Regs. ¶ 31,281).
Docket No. ER15-623-000, et al. - 146 -

424. PJM also responds to Essential Power’s argument that replacing PJM’s existing 

parameter limited schedule matrix will create uncertainty over the unit-specific 

requirements in operation for offers in PJM’s next capacity auction. PJM states that it 

will provide initial parameter limited schedule values prior to the commencement of its 

May 2015 auction. PJM adds that, after it has determined the unit-specific parameter 

limited schedule for a given resource, that same schedule will continue to apply to that 

resource, until such time that PJM determines that operational conditions warrant a 

revised schedule. PJM states that, under those circumstances, the seller would be 

permitted to obtain an exception as to its unit-specific values.

425. PJM also responds to LS Power’s argument that applying different operating 

parameters and performance obligations to resources, under the standards proposed by 

PJM, is unduly discriminatory. PJM argues that the parameter limits it proposes are 

based on physically achievable operating design characteristics.

426. PJM also responds to Joint Protestors’ argument that PJM’s revised operating 

parameters could force older generation resources out of the market. PJM argues that any 

such resource that cannot start within the shortened time frames that PJM proposes 

should operate as a Base Load Generation Resource, i.e., a resource capable of operating 

at least 90 percent of the hours that it is available to operate. PJM asserts that such 

resources run when they are available to run, without regard to start-up parameters, or 

notification. PJM adds that such resources are not, and should not, be subject to a 

scheduling protocol.

427. PJM also responds to the Market Monitor’s recommendation that PJM use only 

original equipment manufacturer operating parameter specifications for resources, not 

historical operating date, in determining a resources parameter limits. PJM argues that 

while historical operating data may not be dispositive in determining a resource’s 

parameter limitation values, it is relevant.

428. PJM also responds to the Market Monitor’s recommendation that PJM include 

ramp rate and boiler temperature retention times as parameters with defined limits. PJM 

disagrees that these elements should be recognized as parameter limits, given the 

difficulty in measuring and tracking this aspect of a resource’s overall performance. 

However, PJM agrees with the Market Monitor that, under PJM’s proposal, a Capacity 

Performance Resource may not offer any portion of its capability as Maximum 

Emergency, such that PJM’s additional proposed inclusion of economic maximum as a 

parameter limit is redundant.

429. PJM also responds to the Market Monitor’s recommendation that PJM clarify that 

resources with start-up and notification times that exceed the resource’s unit-specific 

values determined by PJM should not be made whole for their operation, and that 

resources with parameters outside of the unit-specific limits will be subject to NonPerformance Charges if they do not perform during a Performance Assessment Hour. 
Docket No. ER15-623-000, et al. - 147 -

PJM argues that the Market Monitor’s recommendation is too absolute. PJM states that 

Market Sellers that operate their resources at PJM’s direction will be made whole even if 

these resources exceeded their unit-specific start-up and notification time values, but will 

be subject to Non-Performance Charges if they cannot meet their unit-specific time 

frames.

4. Additional Answers

430. Exelon, in its answer, responds to Dominion’s argument that tightening PJM’s 

existing rules, as to operating parameters, is unreasonable, given that many older steam 

resources were designed to be baseload units and, thus, may not have the flexibility to 

perform a quick start-up, particularly in cold weather. Exelon argues that nothing will 

prevent such units from satisfying PJM’s proposed requirements by self-scheduling when 

weather forecasts signal the likelihood of a hot or cold weather alert. Exelon adds that 

units anticipating the need to self-schedule in order to satisfy PJM’s operating parameters 

can include all associated costs in their capacity offers.

431. Exelon also responds to Joint Protestors’ argument that PJM’s proposed operating 

parameters fail to consider natural gas market realities, including the need to or 

consequences of nominating natural gas in advance of a potential PJM dispatch. Exelon 

argues that that nothing will prevent a unit relying on natural gas as fuel source from 

making its natural gas nomination in advance of a potential dispatch when, for example, 

weather forecasts signal the arrival of extreme cold. Exelon asserts that, while there may 

be a cost associated with such actions, any such costs are simply to be expected for a unit 

seeking to serve as a Capacity Performance Resource and may be recovered through the 

market. 

5. Commission Determination

432. PJM filed its proposal regarding parameter limits under section 206 of the FPA. 

Under that section, PJM must first demonstrate that the existing tariff provisions as they 

apply to parameter limits are unjust and unreasonable and/or unduly discriminatory. PJM 

must then demonstrate that its proposed changes are just and reasonable and not unduly 

discriminatory or preferential. For the reasons discussed below, we accept, in part, and 

reject, in part, PJM’s proposed revisions and direct further modifications. 

433. We find that PJM has shown that the existing tariff provisions as they apply to 

operating parameters are unjust and unreasonable because they can allow capacity 

resources to submit energy market offers with inflexible operating parameters that do not 

reflect their current, actual operating capabilities. During times of or approaching

emergency conditions, it is appropriate that a resource that has sold its capacity to the 

PJM region offer that capacity in a manner that is no less flexible than its true capability. 

However, the existing tariff could allow, for instance, a resource to include in its energy 

offer a minimum run time that exceeds its actual minimum run time. Since the resource 
Docket No. ER15-623-000, et al. - 148 -

will likely be needed during an emergency condition, such an energy offer could force 

PJM to also dispatch the resource out-of-merit during an unnecessary number of lowerdemand hours when the resource’s energy offer price was higher than the locational 

marginal price, thereby unreasonably increasing the resource’s make-whole payments 

and imposing higher costs on customers. We find that such an action by a capacity 

resource is inconsistent with its obligation to make its capacity available to the PJM 

region, including during the most critical hours of the year. 

434. However, while we agree that PJM’s existing rules pertaining to operating 

parameters for capacity resources are unjust and unreasonable, we find PJM’s proposed 

modifications to address this problem to be overly restrictive and therefore unjust and 

unreasonable. We therefore direct three modifications to PJM’s proposed revisions, as 

described below. 

435. PJM proposes to require that, during certain conditions, the parameter limits 

included in the offers by Capacity Performance Resources and Base Capacity Resources 

must reflect unit-specific physical constraints, but not actual constraints created by other 

factors such as physical limitations on natural gas pipeline flows or fuel contract 

requirements. PJM also proposes that costs incurred as a result of operating outside of 

unit-specific parameter limits would not be recovered through make-whole payments. 

Additionally, PJM proposes that during the 2016-2017 and subsequent delivery years, for 

all Capacity Performance Resources, other than Capacity Storage Resources, the 

combined start-up and notification time during pre-emergency and emergency events 

shall not exceed 24 hours when a Hot Weather Alert or a Cold Weather Alert has not 

been issued, and should not exceed 14 hours when a Hot Weather Alert or a Cold 

Weather Alert has been issued. For Capacity Storage Resources, PJM proposes that the 

combined Start-up and Notification times shall not exceed 1 hour and that the minimum 

down time shall not exceed 1 hour, whether or not a Hot Weather Alert or a Cold 

Weather Alert has been issued. For Base Capacity Resources during the 2018-2019 and 

2019-20 delivery years, the combined start-up and notification times shall not exceed 

48 hours, and when a Hot Weather Alert has been issued, the notification time shall not 

exceed one hour. We find that it is reasonable, during pre-emergency and emergency 

periods, to require that parameter limits for capacity resources reflect actual constraints 

and to deny make-whole payments to recover costs due to operations outside of these 

actual constraints. However, because PJM’s proposed revisions are based only on 

physical constraints and generic time restrictions that may prevent a resource from 

reflecting in its energy market offer certain parameter limitations caused by legitimate, 

non-physical constraints, those proposed revisions are not a just and reasonable solution 

for addressing the potential market power problem identified above.

436. First, we do not find PJM’s proposals for capping the minimum start-up and 

notification times for all resources and for capping the minimum down time of Capacity 

Storage Resources to be just and reasonable. We note that these proposed requirements 
Docket No. ER15-623-000, et al. - 149 -

do not take into account unit-specific physical constraints faced by resources. Resources 

with longer minimum start-up and notification times should be permitted to accurately 

reflect their actual minimum times in their energy market offers, and Capacity Storage 

Resources should be permitted to accurately reflect their actual minimum down times if 

they exceed 1 hour, so that PJM’s dispatch reflects the actual capabilities of dispatched 

resources. Additionally, when such resources submit offers that reflect their actual 

constraints into PJM’s energy markets, they should be allowed the opportunity to recover

the costs of complying with PJM’s dispatch instructions through compensation in the 

energy markets. 

437. Second, we reject PJM’s proposal in Operating Agreement Section 6.6, and the 

parallel provision of the OATT, that the parameter limits included in the offers of 

Capacity Performance Resources reflect only unit-specific physical constraints. We note 

that actual parameter limits could be the result not only of resource physical constraints, 

but of other constraints as well, such as contractual limits. For example, a natural gas 

pipeline may impose, due to physical constraints during peak periods, a requirement that 

all shippers take uniform delivery throughout the day.322 Such contractual provisions 

(which the Commission may have accepted as just and reasonable) can create an actual 

parameter limit with respect to a minimum run time, even though the limit is not based on 

the physical characteristics of the generator. Accordingly, in its compliance filing, we 

direct PJM to modify proposed Operating Agreement Section 6.6(b) to state that “...the 

Office of the Interconnection shall determine the unit-specific achievable operating 

parameters for each individual resource on the basis of its operating design characteristics 

and other constraints...” and that “These unit-specific values shall apply for the 

generation resource unless it is operating pursuant to an exception from those values 

under subsection (h) hereof due to operational limitations that prevent a resource from 

meeting the minimum parameters.” In addition, we direct PJM to modify proposed 

Operating Agreement Section 6.6(f)(iv) and Section 6.6(g)(iii) to state that “parameters 

shall be based on the actual operational limitations” of the relevant resource type. 

 322 Under such circumstances, a generator dispatched for only one or two hours 

during the day would nonetheless be required to contract for sufficient natural gas to 

cover that obligation for each of hour of the day, i.e., if the generator requires 100 dth of 

natural gas per hour to fulfill its two hour obligation, it would be required to contract 

for 2400 dth of natural gas in order to run for those two hours. Failure to use that gas 

might subject the generator to pipeline penalties and it might be unable to resell the 

unused natural gas at a price approximating its purchase price. Submitting a bid with a 

24- hour run time parameter, therefore, would reflect the constraint imposed by the 

pipeline. Should PJM not require that unit for the full 24 hours, then, the unit should 

receive make-whole costs for its losses to help ensure that it follows PJM’s dispatch.
Docket No. ER15-623-000, et al. - 150 -

438. Lastly, PJM argues that including parameter limits in a supply offer that do not 

reflect the resource’s physical characteristics could be an exercise of market power. But 

we find that an offer that includes parameter limits based on actual constraints 

experienced by the resource, regardless of whether they are resource physical constraints, 

is reasonable and is not an exercise of market power. PJM’s proposed addition to its 

Operating Agreement in Section 3.2.3(e),323 and the parallel provision of the OATT, 

would deny make-whole payments to a resource that operates outside of its physicallydetermined parameter limitations due to external requirements such as fuel delivery 

arrangements, for example. We find that such a limitation is not just and reasonable and 

is unreasonably discriminatory. Resources should be eligible for make-whole payments 

based on actual constraints, including constraints that are not based on a resource’s 

physical characteristics. Such make-whole payments provide recovery for costs that are 

actually incurred and do not provide compensation in excess of costs. 

439. PJM argues that providing make-whole payments to a resource for costs 

associated with non-physical constraints, such as natural gas pipeline limitations, 

provides an unfair advantage to inflexible resources, and impedes the ability of more 

flexible resources to compete against the inflexible resource. In PJM’s view such 

inflexible resources should attempt to recover the costs associated with its inflexibility in 

its capacity market offer, so that more flexible resources have an opportunity to compete 

against and displace the inflexible resource. But PJM currently allows the costs 

associated with inflexibility created by resource physical constraints to receive makewhole payments. PJM does not propose to require resources subject to its physical 

constraints to recover the associated costs in the capacity market. We see no reason to 

treat costs associated with resource physical constraints differently than costs associated 

with other types of actual constraints and find this distinction unduly discriminatory. 

Moreover, these risks generally are short-term and based on daily conditions that would 

be difficult, if not impossible, to forecast in advance. 

440. Accordingly, we direct PJM to modify its proposed revisions to Section 3.2.3(e) of 

the Operating Agreement, and the parallel provision of the OATT, to permit resources to 

recover, through make-whole payments, the costs incurred if a resource operates within 

its actual constraints and not only within its unit-specific parameter limits based on its 

physical characteristics. In other words, a resource would only be deemed ineligible for 

make-whole payments if it operates outside any actual constraints faced by the resource, 

not only limitations based on the resource’s physical constraints, as PJM proposes. Some 

parameter limitations, such as unit-specific physical limits, are based on constraints that 

do not change quickly over time, and thus, can be communicated to, and reviewed by, 

PJM well in advance of the day-ahead market. Other parameters may be based on 

 323 Operating Agreement Schedule 1 Sec 3.2 - Market Buyers, 26.0.1.
Docket No. ER15-623-000, et al. - 151 -

constraints, such as fuel procurement requirements, that may change quickly and may not 

be reviewable in advance of the day-ahead or real-time market. To accommodate this 

latter category of constraints, we further direct PJM to submit tariff language to establish 

a process through which a resource that operates outside of its unit-specific parameter 

limits can seek to justify such operation to PJM as the result of actual constraints, rather 

than the exercise of market power. If the resource provides adequate justification, it 

should be eligible for any appropriate make-whole payments for that operating 

interval.324 

441. The revisions that we direct here ensure that resources are appropriately 

compensated for their operation in the energy market; they do not excuse a resource from 

failing to fulfill its capacity obligation. Providing such an exemption from NonPerformance Charges would blunt the incentives for providing energy and reserves 

during the hours when they are most needed. Additionally, a resource that is unable to 

produce energy or provide operating reserves during Performance Assessment Hours 

because of parameter limitations provides less capacity value to customers than a 

resource that is able to perform during these hours. Accordingly, it is reasonable for a 

resource that fails to perform because of parameter limitations to receive less net capacity 

revenue than a performing resource. Thus, we do not agree with commenters that a 

resource’s non-performance during Performance Assessment Hours due to accepted 

parameter limitations should be excused.

442. Turning to other issues raised by intervenors, we disagree with Homer City, 

Essential Power, and LS Power that PJM should publish standard values for parameter 

limits. Parameter limit values based on actual constraints are likely to vary among 

resources, and, as discussed above, each resource should be allowed to reflect its actual 

values in its energy offer.

443. PJM has proposed to evaluate all physical parameter limits submitted to it based 

on manufacturers’ specifications as well as other factors. We find this a just and 

reasonable method of evaluating such limits, and we require PJM to include, in its 

compliance filing, a specification of the timelines and other details as to how this 

provision will be implemented.

 324 As noted earlier, a resource’s capacity market offer cap is based, in part, on its 

avoidable costs less net revenues from providing energy and ancillary services. If, in 

developing its unit-specific offer, a resource projects that it may incur costs due to its 

parameter limitations, PJM and the Market Monitor, in determining the resource’s 

capacity market offer cap, must take into account that revenues from make-whole 

payments may offset these costs. To the extent that the costs are offset, PJM and the 

Market Monitor should not consider them to be legitimate costs or risks for inclusion in a 

capacity market offer.
Docket No. ER15-623-000, et al. - 152 -

444. Intervenors assert that PJM has too much discretion in evaluating physical 

parameter limits and suggest either eliminating all such review or specifying the 

appropriate limits in PJM’s tariff. We find, however, that given the diverse nature of any 

such limits, PJM should, instead, be required to evaluate these considerations on a casespecific basis. Market participants who may be dissatisfied with PJM’s determination 

may file a complaint with the Commission. Other intervenors suggest that the Market 

Monitor, and not PJM, should review these limits. While the Market Monitor should be 

permitted to provide its input, ultimately a determination not to allow a parameter limit 

must be made by PJM. PJM’s tariff, in this regard, clearly defines the Market Monitor’s 

role, providing that PJM “shall consult with the [Market Monitor], and consider any input 

received from the [Market Monitor], in its determination of a resource’s unit-specific 

parameter limited schedule values.”325

445. We disagree with PSEG’s request that clarification is required on whether a 

resource’s unit-specific parameter limits reflect the present state of a resource’s capability 

or a potential enhanced state attained through capital upgrades. As stated by PJM, a

resource’s unit-specific parameters limits will be determined using manufacturing 

operating characteristics as well as historical operational information. Section 6.6(b) of 

the Tariff states that PJM shall determine each resource’s unit-specific physically 

achievable operating parameters based on its operating design characteristics, recognizing 

that some expenditures may be required over time to maintain these characteristics. 

Section 6.6(b) also states that a resource may apply for an exception from these values. 

Section 6.6(h) states that an exception request will be evaluated based, in part, on the 

Market Monitor’s determination of whether the request raises market power concerns. 

We find that PJM’s proposed process in this matter is clear and reasonably evaluates the 

need for incurring costs to maintain operational design parameter values over time in 

light of any potential market power concerns.

446. Finally, in response to the Market Monitor’s comments regarding the obligations 

of Demand Resources, we are satisfied that PJM’s proposal would treat Demand 

Resources and other capacity resources in a not unduly discriminatory way. The 

differences in treatment cited by the Market Monitor, such as whether output is metered 

on a five-minute basis or whether output is dispatched nodally, are not undue 

discrimination. Rather, they are minor but reasonable accommodations that allow 

Demand Resources to participate in the market and provide value to customers.

 325 Proposed PJM Operating Agreement, Schedule 1, section 6.6(b); see also 

proposed PJM OATT, Attachment K-Appendix, section 6.6(b).
Docket No. ER15-623-000, et al. - 153 -

B. Force Majeure

447. PJM states that, under its OATT, Operating Agreement, and RAA, market 

participants are generally excused from performing their obligations in the event of force 

majeure. PJM notes that while, in the history of these agreements, no entity has invoked 

this provision as an excuse to its non-performance in PJM’s markets, clarifications are 

warranted, consistent with PJM’s capacity performance objectives, as summarized above, 

and the efficient operation of a centralized, multilateral market.

1. PJM’s Proposal

448. PJM proposes to create a new defined term, Catastrophic Force Majeure, in the 

Operating Agreement to include only actions or events in which there has been a 

systematic failure in all or substantially all of the PJM area of either: (i) the transmission 

system; or (ii) the fuel delivery network.326 PJM then proposes to narrow its existing 

force majeure provisions (as applicable to all market transactions, including the 

provisions of Attachment DD of the OATT and Schedule 1 of the Operating Agreement) 

to apply only in the event of a Catastrophic Force Majeure.

327 Specifically, under revised 

section 18.9, performance of any obligation arising under the Operating Agreement, 

owed by a member to either PJM or to another member (either directly or indirectly) shall 

not be excused or suspended by reason of an event of force majeure, unless such event 

constitutes an event of Catastrophic Force Majeure.

449. Revised section 18.9 also notes that an event of Catastrophic Force Majeure shall 

excuse a member from performing such obligations during the period such member’s 

performance is prevented by any event of Catastrophic Force Majeure, provided such 

event was not caused by such member’s fault or negligence. PJM states that, under this 

standard, the event of Catastrophic Force Majeure may suspend but shall not excuse any 

payment obligation owed by a member.328 By contrast, PJM states that the broader, 

existing force majeure protections should continue to apply in the case of non-market, 

bilateral arrangements. PJM notes, for example, that parties to an interconnection service 

 326 See PJM Operating Agreement, section 1.6.01.

327 PJM thus proposes replacing the existing language of section 18.9 of the 

Operating Agreement and the parallel provision, section 1.13AA.01 (Common Service 

Provisions) of its OATT. 

328 PJM states that, in addition, its revised provision provides that any excuse or 

exception to a performance obligation expressly provided for by specific terms of the 

Operating Agreement, OATT, or RAA shall apply according to their terms and will 

remain in effect. 
Docket No. ER15-623-000, et al. - 154 -

agreement should have broader force majeure protections than a Capacity Performance 

Resource, due to the nature of the parties’ relationship to PJM when they provide 

interconnection services under their agreement. 

450. PJM further proposes that it be designated as the entity responsible for 

determining whether an event of Catastrophic Force Majeure has occurred, based on its 

consideration of the circumstance, and subject to Commission oversight. PJM also 

proposes to clarify in its OATT, at section 10.1, that the force majeure provision set forth 

in that section shall apply only to the provision of transmission service. PJM proposes 

similar clarifications to its OATT, for the purpose of limiting the applicable reach of the 

force majeure provision utilized, or, where appropriate, referring to PJM’s proposed term, 

Catastrophic Force Majeure.

329 Finally, PJM proposes to revise its existing OATT 

provisions addressing Financial Transmission Rights and Auction Revenue Rights, by 

clarifying that, in this context, references to force majeure are improper and therefore will 

not apply.330 PJM proposes instead to make reference to “an unanticipated event outside 

the control of PJM” in discussing PJM’s allocation of these products.

2. Protests and Comments

451. Dominion protests, as a threshold matter, that PJM has failed to establish that any 

revisions to the force majeure provisions are necessary or that the existing provisions are 

unjust and unreasonable. 

452. Intervenors protest also PJM’s proposed definition of a Catastrophic Force 

Majeure condition and the strict requirement on which it is based, i.e., an event affecting 

substantially all of the PJM region. Dominion argues that PJM’s focus on an event that 

impacts all or substantially all of the PJM region is unreasonably limited and fails to 

account for potentially catastrophic events that are beyond market participants’ control. 

Dominion argues that any revisions to the force majeure provisions should incent market 

participants to take appropriate steps to alleviate or prevent events that could impact PJM 

system reliability and must apply equally to all market participants and all facets of the 

PJM system.

453. P3, Joint Intervenors, and Essential Power assert that the new definition is 

unnecessarily narrow and would improperly assign risk without appropriate 

compensation for that risk. The PJM Utilities Coalition similarly objects to PJM’s 

 329 Proposed OATT at Attachment K-Appendix; Attachment O, Appendix 2; 

Attachment P, Appendix 2, Attachment GG, Appendix 3; Attachment KK; and 

Attachment LL. 

330 Proposed OATT at Attachment K-Appendix, sections 5.2.2(f) and 7.4.2(i).
Docket No. ER15-623-000, et al. - 155 -

proposed list of events giving rise to a Catastrophic Force Majeure, arguing that under 

these triggering conditions even the most serious natural disasters or other circumstances 

outside the control of a utility, including Hurricane Sandy or a terror attack, would not 

qualify. Homer City argues that requiring that a disaster affect the entire PJM region 

before it qualifies for relief, at PJM’s discretion, is arbitrary. 

454. Essential Power argues that adopting the new force majeure provisions for existing 

Base Capacity Resources without providing for additional compensation is unjust and 

unreasonable. Essential Power argues that PJM is essentially rewriting the contractual 

relationship with those generators without any compensation.

455. Intervenors also dispute PJM’s assertion that its proposed definition of a 

Catastrophic Force Majeure is warranted, based on a similar clause used by the 

New York Mercantile Exchange. The PJM Utilities Coalition responds that the 

force majeure provision to which PJM alludes is not as narrow as PJM’s proposed 

language. Joint Protestors objects to the analogy, arguing that the New York Mercantile 

Exchange, unlike PJM’s capacity markets, is not a mandatory construct. The PJM 

Utilities Coalition also objects to PJM’s proposed designation of itself as the sole arbiter 

of force majeure. The PJM Utilities Coalition argues that the party that suffers such an 

event is typically the one with the responsibility to declare and establish that such an 

event has occurred. The PJM Utilities Coalition also questions PJM’s asserted 

independence, in this context, given that PJM shares a legal responsibility for meeting the 

reliability standards within its region. 

456. Rockland protests that PJM’s characterization of the force majeure provisions is 

vague and unclear, particularly regarding how the provisions concerning relief from 

specific performance interact with the obligation to pay. Rockland argues that PJM 

should clarify that invocation of force majeure protection excuses performance and 

payment under the Capacity Performance regime. 

457. Joint Protestors argue that PJM has not explained or justified how its proposed 

changes to the force majeure provisions impact load serving entities’ Stage 1A Auction 

Revenue Right guarantees.

3. PJM’s Answer

458. PJM, in its answer, responds to Joint Protestors’ argument that PJM’s proposal 

fails to demonstrate that its existing force majeure provisions are unjust and 

unreasonable. PJM argues that it has met this burden, given that PJM’s existing force 

majeure provisions could be used to excuse performance under circumstances that would 

conflict with underlying objectives of PJM’s markets, as they relate to the provision of 

energy and reserves when needed the most, including in the case of emergencies.
Docket No. ER15-623-000, et al. - 156 -

459. PJM also responds to Joint Protestors’ argument that PJM’s proposed limitations, 

as to the circumstances giving rise to a force majeure event, are excessive, given that they 

will impose risks on generators that are beyond the generators’ control. PJM argues that 

its proposed limitations do nothing more than conform the operation of force majeure to 

the intended design of PJM’s markets. PJM asserts that, regardless, in a multilateral 

market such as PJM’s, there is no opportunity for a buyer and seller to come together to 

negotiate which party will take on risks that neither can control. PJM argues that, 

instead, market participants are appropriately required to assume performance obligations 

under all conditions, other than those expressly recognized by PJM in the case of planned 

outages, maintenance outages, and circumstances relating to a dispatched-down directive.

460. PJM also responds to Rockland’s request for clarification as to whether a 

Catastrophic Force Majeure event would relieve performance as well as penalties. PJM 

confirms that such an event would relieve performance and any Non-Performance 

Charges that would have otherwise accrued. 

4. Additional Answers

461. Exelon, in its answer, responds to the argument raised by Dominion, Joint 

Protestors, and the PJM Utilities Coalition that PJM’s proposed force majeure revisions 

will expose generators to penalties for circumstances beyond their control. Exelon argues 

that a generation outage of any kind, whether within or beyond the generator’s control, is 

a risk that should be reflected in that generator’s capacity offer, such that the resulting 

market clearing price will reflect the selection of the most reliable resources available. 

Exelon adds that, in the ISO-NE Capacity Performance Order, the Commission fully 

accepted this economic rationale in its approval of an even more stringent force majeure 

provision.331 

5. Commission Determination

462. For the reasons discussed below, we accept PJM’s proposed force majeure 

revisions. We agree with PJM that an expansive definition of force majeure in the 

context of PJM’s markets is incompatible with reasonable expectations of performance 

by market participants and is therefore unjust and unreasonable in this context. PJM 

notes that it is not aware of any instance in which a market participant has invoked force 

majeure to excuse its performance. Nonetheless, we agree that the ability to do so in the 

context of PJM’s two-settlement energy market construct is inappropriate and should be 

 331 See Exelon answer at 6 (citing ISO-NE Capacity Performance Order, 147 

FERC ¶ 61,172 at P 64 (“suppliers, not consumers, are in the best position to assess and 

price the performance risk associated with their resources[, including] risks beyond a 

resource’s control[.]”). 
Docket No. ER15-623-000, et al. - 157 -

remedied. Without a replacement provision narrowing the reach of a force majeure event 

to excuse performance only in the most unforeseen and catastrophic circumstances, a 

market participant would be able to escape its obligations under circumstances not 

contemplated by the design of PJM’s markets. 

463. Given our acceptance of PJM’s proposed Capacity Performance reforms, as 

discussed supra, the need to close a related potential loophole is appropriate. As the 

Commission explained in the ISO-NE Capacity Performance Order, exemptions for nonperformance should be limited.332 If PJM were to implement its proposed two-settlement 

capacity market design without clarifying and revising the application of its force 

majeure provisions, exemptions for non-performance would be inappropriately broad. 

We therefore find that PJM has met its burden under section 206 of the FPA to 

demonstrate that its existing force majeure provisions of its Tariff and Operating 

Agreement are unjust and unreasonable.

464. We now turn to PJM’s proposed force majeure revisions. Multiple intervenors 

argue that PJM’s proposed definition of the new term, Catastrophic Force Majeure, is 

unnecessarily narrow and improperly assigns risk to capacity suppliers without 

compensation for bearing that risk. We disagree. As the Commission stated in the 

ISO-NE Capacity Performance Order, the risk of capacity resource non-performance 

must be borne by either capacity suppliers or consumers, and capacity suppliers are in the 

best position to assess and price the performance risk associated with their resources, 

including performance risks beyond a resource owner’s control, such as weather-related 

outages.333 Under PJM’s proposed definition of Catastrophic Force Majeure, a resource 

will be excused from its performance in the event that all, or substantially all, of the 

electric transmission or fuel delivery infrastructure in the PJM region is incapacitated. 

We find this definition consistent with the principle that risk should be borne by the party 

that is best able to assess and price it. 

465. Intervenors assert that PJM’s analogy to a clause used by the New York 

Mercantile Exchange (NYMEX) is inapposite because, unlike RPM, the NYMEX is not a 

mandatory construct. However, our basis for accepting PJM’s force majeure revisions is 

unrelated to PJM’s reference to the NYMEX, so we need not address the proposed 

comparison. 

466. We disagree with intervenors’ argument that capacity suppliers will not be 

compensated for bearing this risk. An integral component of the two-settlement capacity 

market design is an expectation that capacity suppliers will include in their capacity 

 332 ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 62.

333 ISO-NE Capacity Performance Order, 147 FERC ¶ 61,172 at P 64.
Docket No. ER15-623-000, et al. - 158 -

offers the additional performance risk imposed on them by a more stringent performance 

standard. In fact, it is this expectation, and the likely higher clearing price for the 

Capacity Performance product that will result, that will help incent investments in 

maintenance, dual or firm fuel, or weatherization to improve capacity resource 

performance, particularly during summer and winter peak periods. If capacity resources 

price their performance risk into their capacity offers and obtain a capacity commitment, 

they will, in fact, be assured of compensation commensurate with the performance risk 

that they assume.

467. The PJM Utilities Coalition objects to PJM’s proposal to designate itself as the 

entity who will determine whether a Catastrophic Force Majeure event has occurred. 

However, given that this determination will require an assessment of region-wide, or 

nearly region-wide, infrastructure impairment, and related operational facts, we agree 

with PJM that PJM is the most appropriate choice as the arbiter of this provision. In 

addition, any party that disagrees with a PJM decision in declaring or failing to declare 

Catastrophic Force Majeure will be free to seek recourse with the Commission. 

468. With respect to Rockland’s requested clarification that PJM’s proposed 

Catastrophic Force Majeure provision, if invoked, will relieve the resource of both its 

performance obligation as well as any associated payment obligation, we accept PJM’s 

clarification on this issue and will not direct a compliance requirement. 

469. We disagree with Essential Power’s argument that the Commission should reject

PJM’s proposal to apply its revised force majeure provisions to resources with existing 

capacity obligations in the 2016-2017 and 2017-2018 delivery years. We find it 

appropriate to have uniform and consistent force majeure provisions for capacity 

resources in PJM and do not believe that resources with existing obligations will be 

materially impacted by the revised force majeure provision.

334 As PJM notes, under its 

tariff, a force majeure event has yet to be invoked, despite instances of major storms, 

floods, extreme weather and numerous instances of individual unit or customer 

unavailability, accidents and breakages. 

470. Finally, Joint Protestors argue that PJM has not explained or justified how its 

proposed changes will affect load-serving entities’ Stage 1A Auction Revenue Right 

guarantees given a proposed revision to section 5.2.2(f)(ii) of the OATT. PJM proposes 

to remove from that provision the term “event of force majeure” and insert in its place the 

term “unanticipated event outside the control of PJM.” We find PJM’s proposed revision 

as applicable to Financial Transmission Rights and Auction Revenue Rights to be 

 334 See, e.g., ISO New England Inc., 145 FERC ¶ 61,095 at P 29 (2013) 

(explaining how the Commission balances proposed revisions to market rules and market 

participants’ reliance on existing market rules).
Docket No. ER15-623-000, et al. - 159 -

reasonable given that it is generally consistent with the other force majeure revisions 

adopted herein. We also deem it appropriate that PJM retain some discretion in 

determining when to relax a binding constraint in allocating Financial Transmission 

Rights. To the extent a market participant believes PJM to have impermissibly applied 

this discretion under the revised definition of “extraordinary circumstances,” that market 

participant may file a complaint with the Commission. 

C. Maximum Emergency Offers

471. PJM’s currently-effective energy market rules require all generation capacity 

resources to submit offers for their available capacity in the day-ahead market, but allow 

sellers, in certain circumstances, to designate all or part of their capacity as a Maximum 

Emergency Offer.335 Resource capacity so designated is available to PJM only when 

PJM declares a Maximum Generation Emergency and requests that the relevant resource 

run.336

1. PJM’s Proposal

472. PJM proposes to prohibit, on a phased-in basis, a generation resource seller from 

designating its offer as a Maximum Emergency Offer during certain extreme weather 

alerts, or other more severe emergencies.337 PJM states that, for Base Capacity 

Resources, the bar on designation as a Maximum Emergency Offer will apply during the 

months of June through September when PJM has issued a Hot Weather Alert338 or has 

declared an Emergency Action.339 For Capacity Performance Resources, PJM proposes 

 335 Operating Agreement at Schedule 1, section 1.10.1A(d). A seller may submit a 

Maximum Emergency Offer when its resource is subject to one or more of the following 

conditions: (i) environmental limitations (e.g., run limits due to an air quality permit); 

(ii) fuel limitations (e.g., temporary interruption in fuel supply); (iii) temporary 

emergency conditions, or (iv) the ability to provide certain of its capacity on a temporary 

basis only. Id. 

336 Operating Agreement at Schedule 1, at section 1.3.12A.

337 Proposed Operating Agreement at Schedule 1, section 1.10.1A(d).

338 Operating Agreement at Schedule 1, section 1.3.9.01 (defining a Hot Weather 

Alert as an alert issued by PJM to market participants and others in advance of extreme 

hot and/or humid weather conditions that are expected to persist).

339 PJM Manual 13, section 2.3.2 (defining an Emergency Action as a PreEmergency Load Management Reduction Action and any more severe Emergency 

Action). 
Docket No. ER15-623-000, et al. - 160 -

that the bar on designation as a Maximum Emergency Offer apply year-round at any time 

when PJM calls a Hot Weather Alert, an Emergency Action, or a Cold Weather Alert.340

2. Protests and Comments

473. The Pennsylvania Commission filed comments generally supportive of PJM’s 

proposal. PSEG, too, generally supports PJM’s proposal to limit the use of Maximum 

Emergency offers during extreme conditions but argues that this change cannot be 

implemented for combined cycle units at this time because PJM’s dispatch software does 

not adequately model the actual capabilities of combined cycle units. PSEG states that 

the Market Monitor raised this issue to the PJM membership and developed a problem 

statement in 2012. PSEG argues that absent a resolution of this problem, it is not 

reasonable to impose operating requirements on combined cycle units that cannot be 

accurately reflected in those units’ offers. PSEG therefore requests that the Commission 

direct PJM to implement a combined cycle model that addresses this shortcoming.

474. Joint Protestors contend that PJM has not demonstrated that its existing provisions 

governing offers during Maximum Generation Emergencies are unjust and unreasonable 

or that its proposed revisions are just and reasonable. They argue that by not allowing a 

capacity resource to designate a portion of the resource as a Maximum Emergency Offer 

in circumstances that are warranted, PJM’s proposal may have the unintended 

consequence of reducing resources available during certain extreme conditions if the 

resource’s alternative action is to take a forced outage. 

3. PJM’s Answer

475. PJM, in its answer, responds to Joint Protestors’ argument that PJM’s proposal, as 

to Maximum Emergency Offers, fails to demonstrate that PJM’s existing tariff provisions 

are unjust and unreasonable, as to when a given resource will be permitted to submit such 

an offer into PJM’s day-ahead energy market. PJM argues that, under its existing rules, 

the submission of a Maximum Emergency Offer in the day-ahead market unreasonably 

precludes PJM from dispatching that resource, in real-time, absent the declaration of a 

Maximum Generation Emergency. PJM asserts, however, that it is unjust and 

unreasonable that PJM cannot rely on such a resource when an emergency condition has 

not yet been declared but is nonetheless possible. PJM adds that it is unjust, 

unreasonable, and unduly discriminatory and preferential to allow certain resources to 

 340 PJM proposes to define a Cold Weather Alert as an alert issued by PJM to 

market participants and others in advance of extreme cold weather conditions. Proposed 

Operating Agreement at Schedule 1, section 1.3.1B.01A. 
Docket No. ER15-623-000, et al. - 161 -

avail themselves of this excuse for their non-performance, while requiring the 

performance of other resources. 

4. Commission Determination

476. For the reasons discussed below, we find that PJM has not demonstrated that the 

existing Maximum Emergency Offer provisions of its OATT and Operating 

Agreement341 are unjust and unreasonable. We therefore reject PJM’s proposed revisions 

with regard to Maximum Emergency Offers. However, we find that PJM has shown its 

OATT and Operating Agreement to be insufficiently clear, and therefore unjust and 

unreasonable, with respect to a Generation Capacity Resource’s obligation to offer the 

installed capacity equivalent of the resource’s cleared unforced capacity into the dayahead energy market. We therefore accept PJM’s proposed revisions with regard to 

clarifying the day-ahead energy market obligation for these resources.

477. PJM asserts that the existing Maximum Emergency Offer provisions allow a 

Generation Capacity Resource to effectively, by virtue of an uneconomic offer price, 

remove itself from the day-ahead energy market until PJM has reached the point of 

declaring a Maximum Emergency. We acknowledge PJM’s concern and agree that under 

existing market rules, the Maximum Emergency Offer designation may be subject to 

misuse that allows a capacity resource to avoid honoring its capacity commitment. 

However, we conclude that proper application of Non-Performance Charges, rather than 

revision of the Maximum Emergency Offer designation, is the appropriate method of 

eliminating this concern. 

478. Consistent with our findings in section V.C of this order, we find that any capacity 

that is designated by a Generation Capacity Resource as a Maximum Emergency Offer 

and not dispatched by PJM because of its use of a Maximum Emergency Offer should be 

considered non-performing for application of Non-Performance Charges. We deem this 

modification to PJM’s Capacity Performance proposal sufficient to eliminate the existing 

shortcoming in the Maximum Emergency Offer rules, whereby a Generation Capacity 

Resource might attempt to avoid taking a forced outage by designating its capacity as a 

Maximum Emergency Offer. Under the application of Non-Performance Charges, a 

resource that attempts such a strategy will be subject to Non-Performance Charges for 

any of its capacity that is not dispatched by PJM during a Performance Assessment Hour. 

This charge exposure will thus act as an incentive for a resource to provide as much of its 

capacity as possible during an emergency condition, consistent with PJM’s dispatch 

instructions. 

 341 PJM OATT at Attachment K-Appendix, section 1.10.1A(d); Operating 

Agreement at Schedule 1, section 1.10.1A(d).
Docket No. ER15-623-000, et al. - 162 -

479. PJM’s proposal to instead preclude a Capacity Performance Resource from 

designating its capacity as a Maximum Emergency Offer could, as Joint Protestors 

contend, have the unintended consequence of reducing the number of resources available 

during emergency conditions if the resource’s alternative action is to take a forced 

outage. There is, therefore, value in allowing a Capacity Performance Resource to offer 

capacity on an emergency-only basis when it is subject to environmental limitations, fuel 

limitations, or temporary emergency conditions, or when it can provide its capacity on a 

temporary basis only. Based on these conclusions, we reject PJM’s proposal to preclude 

Capacity Performance Resources from using Maximum Emergency Offers during 

Emergency Actions and hot or cold weather alerts and direct PJM to remove this 

proposed revision when it submits its compliance filing. 

480. We next turn to PJM’s proposal related to Generation Capacity Resources’ dayahead energy market offer obligation. PJM proposes to clarify that seller offers from 

Generation Capacity Resources shall be based on the resource’s installed capacity 

equivalent of the market seller’s cleared unforced capacity. We agree that existing 

section 1.10A(d) of the OATT and its parallel section 1.10A(d) of the Operating 

Agreement are insufficiently clear as to this requirement, and that this lack of clarity 

could lead to unnecessary confusion. We also agree that a Generation Capacity 

Resource’s day-ahead energy market sell offer should be based on the installed capacity 

equivalent of its unforced capacity that cleared a capacity auction. We therefore accept

PJM’s revisions as proposed.

481. With respect to PSEG’s assertion that PJM’s current dispatch software does not 

adequately model the actual capabilities of combined cycle units, we are not persuaded 

that our action here introduces or exacerbates the problem that PSEG describes. We do 

not have sufficient information at this point to know whether PJM’s dispatch software 

inadequately models combined cycle units. PSEG should pursue these issues with PJM 

and seek a resolution of any modeling issues, as may be warranted. 

D. Generator Outages

482. PJM’s existing rules address both Generator Planned Outages and Generator 

Maintenance Outages. A Generator Planned Outage is defined as an outage taken to 

conduct inspection, maintenance or repair of a generating facility.342 A Generator 

Maintenance Outage, on the other hand, is defined as an outage taken to perform repairs 

 342 PJM Operating Agreement at Schedule 1, section 1.9.2. 
Docket No. ER15-623-000, et al. - 163 -

on specific components of a generating facility and is typically taken for a shorter period 

of time.343

1. PJM’s Proposal

483. PJM proposes to revises its existing rules, as to Generator Maintenance Outages, 

by addressing contingencies similar to those addressed as to Generator Planned Outages. 

Specifically, PJM proposes to add language to section 1.9.3 addressing the generator’s 

obligation to return to service if PJM rescinds approval, during an emergency. First, PJM 

proposes that a Generator Maintenance Outage not be allowed to proceed unless it is 

submitted to PJM for approval, in accordance with the standards and procedures set forth 

in PJM’s Manuals, and is approved prior to the outage start date.344 PJM also proposes to 

clarify its authorization to withhold approval, or withdraw a prior approval, by tying that 

action to the need “to ensure adequacy of reserves or the reliability of the PJM Region in 

connection with anticipated implementation or avoidance of Emergency procedures.” 345

484. PJM’s proposal also provides that it will be required to give notice to the seller at 

least 72 hours prior to requiring the generator to return to normal operation. Finally, PJM 

states that, if it withholds, withdraws, or rescinds approval for an outage, it will work 

with the seller to reschedule the outage at the earliest practicable time.

485. With respect to Generator Planned Outages, PJM proposes that a seller, in seeking 

approval for such an outage, be required to provide PJM with an estimate of the amount 

of time it needs to return to service.346 PJM states that it will use this information to 

facilitate a voluntary solution, should emergency conditions approach, or arise, that could 

implicate the need to return the resource to service. 

 343 PJM Operating Agreement at Schedule 1, section 1.9.3. While section 1.9.2(b) 

allows PJM to withhold approval of a Generator Planned Outage, or withdraw a prior 

approval, as necessary, to ensure the adequacy of reserves, or the reliability of the PJM 

region, in connection with anticipated implementation, or avoidance, of emergency 

procedures, section 1.9.3, by contrast, requires PJM to approve a Generator Maintenance 

Outage, “unless the outage would threaten the adequacy of reserves in, or the reliability 

of, the PJM Region.”

344 Proposed Operating Agreement at Schedule 1, section 1.9.3(b). 

345 Proposed Operating Agreement at Schedule 1, section 1.9.3(b). 

346 Proposed Operating Agreement at Schedule 1, section 1.9.2(b).
Docket No. ER15-623-000, et al. - 164 -

2. Protests and Comments

486. Intervenors challenge PJM’s proposal giving it the authority to rescind approval 

for a Generator Maintenance Outage. Rockland argues that permitting PJM to rescind 

approval, subject to only a 72 hour notice requirement, would allow PJM to unreasonably 

penalize resources. Homer City asserts that returning to service, under these 

circumstances, should be voluntary. P3 asserts that PJM has provided no justification for 

its selection of a 72-hour notice period. 

487. The PJM Utilities Coalition argues that PJM’s proposal will be particularly 

burdensome for units that have extensive safety procedures or long start-up times. PSEG 

argues that a generator should not be required to reschedule a Generator Maintenance 

Outage in the event it is too expensive or difficult to do so. P3 adds that PJM should be 

required to excuse a unit’s under-performance, in this instance, until such time as the unit 

is able to complete its required maintenance. Essential Power argues that PJM’s proposal 

is unjust and unreasonable because it could require a generator to choose between safety 

and incurring penalties from not complying with PJM’s instruction.

488. Intervenors also argue that, in the event PJM is authorized to rescind approval of a 

Generator Maintenance Outage, compensation should be required covering the additional 

risks and costs at issue.347 PSEG notes that, in anticipation of a Generator Maintenance 

Outage, generators are required to hire contractors, rearrange staffing schedules, and 

incur other administrative expenses. NRG/Dynegy argues that compensation is 

warranted, given that it is possible that PJM, when required to rescind an outage, may 

have a choice as to which unit it selects. NRG/Dynegy note, for example, that the cost of 

rescission may be $10,000 for one unit, but $1,000,000 for another. NRG/Dynegy argue 

that, in this instance, PJM be given the incentive to select the unit with the lower cost, 

i.e., the $10,000-cost unit. NRG/Dynegy conclude that the efficient economic rule would 

be to require PJM to pay the owner of the generation unit the costs of the withdrawal or 

rescission, thus providing PJM the incentive to seek the lowest cost option of securing the 

additional generation that it is seeking. NRG/Dynegy add that such a rule would also 

directly compensate the generation owner for the actual costs of the PJM withdrawal or 

rescission notice, rather than pushing these costs into the capacity market.

 347 See P3 comments at 7; PSEG protest at 4 (asserting that such a requirement 

would be consistent with the practice followed by the Midcontinent Independent System 

Operation, Inc. (MISO)); NRG/Dynegy protest at 28-29; Coalition of Resource Projects 

protest at 18; Essential Power protest at 12. 
Docket No. ER15-623-000, et al. - 165 -

3. PJM’s Answer

489. PJM, in its answer, responds to intervenors’ argument that compensation should 

be required to cover any costs that may be incurred by a generator in the event that PJM 

is authorized to rescind or modify a Generator Maintenance Outage. PJM argues that no 

such payment should be required. PJM notes that, under its Capacity Performance 

proposal, as summarized in Section V.B of this order, above, approved Generator 

Planned Outages and Generator Maintenance Outages comprise two of only three limited 

excuses that would allow a seller to avoid a Non-Performance Charge it would otherwise 

incur during a Performance Assessment Hour. PJM adds that, in proposing this 

allowance, PJM balanced the seller’s interest in scheduling and completing maintenance, 

with PJM’s responsibility to ensure reliability and provide adequate reserves. PJM states

that, based on this measure, its proposed revisions, as to generator outages, provide a 

reasonable, transparent process, authorizing PJM to take needed action, when 

appropriate, to address an unexpectedly high level of forced outages, or other unexpected 

circumstances requiring withdrawal or rescission of a prior outage approval. 

490. PJM argues that for its Generator Maintenance Outage construct to work, PJM has 

to be given the authority to reschedule, withhold approval, or rescind a prior approval, to 

account for changing, unforeseen conditions that may impact reliability. PJM adds that 

absent this authority, it may be required to remove Generator Maintenance Outages from 

the Operating Agreement altogether, and require any resource seeking to conduct 

maintenance to take a forced outage.

491. PJM also defends its proposal as beneficial to both consumers and the affected 

resources. Specifically, PJM argues that consumers will benefit if PJM has input into the 

coordination and scheduling of a Generator Maintenance Outages in a way that reduces 

system impact, while resources will benefit to the extent that maintenance is carried in a 

way that reduces the resource’s exposure to Non-Performance Charges. Finally, PJM 

argues that, as the Commission has held, MISO’s adoption of a given rule, or practice, 

does not mandate that PJM conform to that rule, or practice, where its proposal is 

otherwise just and reasonable.348 

4. Additional Answers

492. The Market Monitor, in its answer, responds to intervenors’ argument that 

generation resources should be reimbursed for costs they may incur, in the event a 

Generator Maintenance Outages is rescinded or modified by PJM, under the 

circumstances set forth by PJM in its filing. The Market Monitor agrees with PJM that, 

 348 See PJM February 13, 2015 answer at 32 (citing Order No. 719, FERC Stats. & 

Regs. ¶ 31,281 at P 129). 
Docket No. ER15-623-000, et al. - 166 -

in this instance, it is the resource, not PJM, that should be responsible for the resource’s 

performance. 

5. Commission Determination

493. For the reasons discussed below, we agree with PJM that the currently-effective 

Generator Planned Outage and Generator Maintenance Outage provisions of PJM’s 

Operating Agreement, and the parallel provisions of PJM’s OATT, are unjust and 

unreasonable, to the extent these existing rules impede PJM’s ability to ensure reliability 

and maintain adequate reserves at a reasonable cost. We also accept, as just and 

reasonable, PJM’s proposed changes, addressing PJM’s authority to rescind a Generator 

Maintenance Outage, under specified circumstances, and to require a resource on a 

Generator Planned Outage to provide an estimate of the amount of time required to return 

to service. 

494. With respect to Generator Maintenance Outages, Schedule 1, section 1.9.3 

currently provides that PJM shall approve requests for such an outage “unless the outage 

would threaten the adequacy of reserves in, or the reliability of, the PJM Region,” but 

grants no authority that would allow PJM to rescind such an outage, should the relevant 

unit be needed.349 Such a limitation might not be problematic if emergency conditions 

were foreseeable. But emergency conditions are often not foreseeable. Accordingly, we 

find this allowance inconsistent with a two-settlement capacity market construct that 

requires resources with a capacity commitment to deliver energy or reserves when 

needed. 

495. PJM’s proposed changes make clear that a generator may not begin a maintenance 

outage without PJM’s approval, and authorizes PJM to rescind approval of a Generator 

Maintenance Outage, when required. PJM also proposes that a generator will be subject 

to any Non-Performance Charges that may apply 72 hours following the issuance of 

PJM’s rescission notice. We find these proposed changes to be just and reasonable and 

hereby accept them. 

496. As an initial matter, we note that PJM’s proposal applies a more lenient 

application of Non-Performance Charges than does the analogous proposal made by 

ISO-NE, which the Commission, in the ISO-NE Capacity Performance Order, has also 

found to be just and reasonable. We also note that the more significant of PJM’s 

proposed revisions relates to Generator Maintenance Outages, not Generator Planned 

Outages. We agree with PJM that a generator on a planned outage should not be 

expected to return to service within a time interval of less than 72 hours. We also find 

reasonable PJM’s proposal requiring a generator on a planned outage to provide PJM 

 349 Operating Agreement at Schedule 1, section 1.9.3.
Docket No. ER15-623-000, et al. - 167 -

with an estimate of the amount of time it will require to return to service. This 

requirement presents no significant burden to the resource, but will assist PJM in 

operating its system during tight conditions.

497. Intervenors argue that PJM’s proposed 72-hour notice allowance is too strict. i.e., 

that a generator on a maintenance outage should be provided more – or unlimited – time 

to return to service, or should be compensated for doing so. NRG/Dynegy adds that a 

generator that fails to perform during a Performance Assessment Hour after the 72-hour 

allowance period ends should not be counted as a forced outage. We reject these 

arguments as inconsistent with the Commission’s finding in the ISO-NE Capacity 

Performance Order that a capacity market design may properly require that capacity 

resources deliver energy or reserves during critical times or be subject to NonPerformance Charges. A core principle of such a design is that a capacity resource is 

held accountable for its actual performance during these critical times and is not excused 

for its non-performance, even when the factors giving rise to that non-performance are 

beyond the resource’s control. While PJM proposes, and we accept above, an outage 

exemption from the Non-Performance Charge, the exemption is strictly limited such that 

we are satisfied that it will not undermine the resource performance incentives that are at 

the core of the Capacity Performance construct. We do not find that extending the 

exemption indefinitely to resources on a Generator Maintenance Outage – by preventing 

PJM from recalling those resources – is a necessary addition to PJM’s proposal to make it

just and reasonable. 

498. P3 argues that PJM’s proposed 72-hour notice allowance is unjustified. We are 

not persuaded that a 72-hour notice allowance is unjust or unreasonable. In fact, such a 

notice period appears to strike an appropriate balance, i.e., it appears to give a resource a 

reasonably sufficient interval prior to its required return to service, while giving PJM the 

leeway it requires in responding to any emergency conditions that may arise. 

499. Essential Power argues that a notice requirement limited to a 72-hour period could 

compel a generator to sacrifice safety in attempting to return to service to avoid a NonPerformance Charge. We find this argument without merit. There are myriad theoretical 

instances where a resource owner could choose financial profit over safety if it were so 

inclined. An owner with a resource on an outage during times of high day-ahead and 

real-time energy prices would face the same possible incentive to bypass safety 

precautions to bring the resource back online more quickly. Market rules cannot be 

expected to protect against all forms of potential negligent behavior, and we do not find it 

reasonable to hold the instant proposed revisions to that standard.

500. Intervenors also argue that permitting PJM to rescind approval for a maintenance 

outage, subject to a 72-hour notice requirement, penalizes a resource for the exact 

maintenance behavior that PJM’s Capacity Performance proposal seeks to incent. We 

disagree. While maintenance is a critical component of ensuring a resource’s ability to 

perform when needed, a properly-functioning capacity market must also possess the 
Docket No. ER15-623-000, et al. - 168 -

proper incentives, over the long term, allowing it to clear those resources that will 

provide the greatest value to the system at an efficient price. Viewed in this context, a 

resource required to take a maintenance outage for a significant period of time is 

providing less reliability value than a resource requiring less maintenance. We also note 

that the resource requiring less maintenance would be capable of submitting a lower 

capacity offer price and thus have a greater probability of clearing. However, if the 

resource requiring more maintenance is excused for its inability to perform during the 

duration of its maintenance outages, it could be capable of submitting a lower capacity 

offer than its more reliable counterpart, thus distorting the market-clearing price. 

501. Finally, based on this same logic, we disagree with intervenors’ argument that a 

capacity resource whose maintenance outage approval is rescinded by PJM should be 

compensated. A compensation requirement of this sort would both mask the 

unavailability of capacity resources that require more maintenance outages during the 

year and provide an out-of-market revenue stream that could skew market clearing prices. 

Rather than pricing the risk of charges for expected non-performance into its capacity 

offer, a resource could submit an artificially low capacity offer, knowing that PJM would 

compensate it for maintenance outage-related non-performance through a separate, outof-market payment. 

The Commission orders:

(A) PJM’s proposed tariff revisions, in Docket No. ER15-623-000, are hereby 

accepted, in part, subject to condition, as discussed in the body of this order, and subject 

to making a compliance filing within 30 days of this order.

(B) PJM’s tariff provisions, in Docket No. EL15-29-000, are granted, in part, 

subject to conditions, as discussed in the body of this order, and subject to making a 

compliance filing within 30 days of this order.

(C) Essential Power’s request to dismiss its complaint in Docket No. EL15-41-

000 is hereby granted, as discussed in the body of this order.

By the Commission. Chairman Bay is dissenting with a separate statement attached.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.
Docket No. ER15-623-000, et al. - 169 -

Appendix A

List of Intervenors in

Docket Nos. ER15-623-000 and ER15-623-001

AEP Companies * (EKPC/AEP) (PJM Utilities Coalition)

(AEP/Duke Energy)

Advanced Energy Management Alliance * (AEMA)

Alevo Energy, Inc.

Allegheny Electric Cooperative, Inc * (Allegheny).

American Gas Association

American Municipal Power, Inc. (Joint Protestors) 

America’s Natural Gas Alliance * (Gas Alliance)

American Public Power Association * (APPA/NRECA)

American Wind Energy Association and Mid-Atlantic Renewable Energy

Coalition * (Wind Energy and Renewable Energy Coalition)

Ares EIF Management, LLC ** (AEIF)

Attorney General of Kentucky 

BP Wind Energy North America Inc.

Brookfield Energy Marketing, LP * (Brookfield)

Buckeye Power, Inc. * (PJM Utilities Coalition)

CPV Power Development, Inc. * (Coalition of Resource Projects) 

Calpine Corporation * (Calpine)

Champion Energy Companies

CleanGrid Advisors LLC * (CleanGrid)

Community Energy, Inc. * (Community Energy)

Comverge Inc.

Consolidated Edison Companies

CPower Corporation

Covanta Energy LLC ** (Covanta)

DC Office of the People’s Counsel * ((Joint Consumers) 

DTE Energy Trading, Inc.

The Dayton Power and Light Company * (PJM Utilities Coalition) 

Delaware Public Service Commission * (Delaware Commission)

(Transition Coalition) (Joint Consumers)

Direct Energy Companies * (Direct Energy) (Transition Coalition)

Dominion Resources Services, Inc. * (Dominion)

Dynegy Companies * (NRG/Dynegy)

Duke Energy Corporation * (Duke) (AEP/Duke Energy) 

Duquesne Light Company * (Transition Coalition) (Joint Consumers)

EMC Development Company, Inc. * (EMC)

E. ON Climate & Renewables North America LLC
Docket No. ER15-623-000, et al. - 170 -

East Kentucky Power Cooperative, Inc. * (EKPC/AEP) (PJM 

Utilities Coalition)

Edison Electric Institute * (EEI) 

Electricity Consumers Resource Council

Electric Power Supply Association * (EPSA)

EnergyConnect, Inc.

EnerNOC, Inc.

Energy Storage Association * (ESA)

Environmental Defense Fund * (Public Interest Organizations)

Environmental Law and Policy Center

EquiPower Resources Corp. * (EquiPower)

Essential Power Companies * (Essential Power) (Coalition of Resource Projects)

Exelon Corporation 

FirstEnergy Service Company * (PJM Utilities Commission)

GDF Suez Energy North America, Inc.

H.Q. Energy Services (U.S.) Inc. * (H.Q. Energy)

H-P Energy Resources, LLC

Homer City Generation, L.P. * (Homer City)

IMG Midstream LLC

ITC Lake Erie Connector, LLC

Iberdrola Renewables, LLC

Illinois Citizens Utility Board * (Joint Consumers)

Illinois Commerce Commission * (Illinois Commission)

Illinois Industrial Energy Consumers

Illinois Municipal Electric Agency

Indiana Office of Utility Consumer Counselor * (Indiana

Commission and Indiana Consumer Counsel) (Indicated State Regulators)

Indiana Utility Regulatory Commission * (Indiana Commission

and Indiana Consumer Counsel) (Indicated State Regulators)

Invenergy Companies * (Invenergy)

LS Power Associates, L.P. * (LS Power)

Macquarie Energy LLC * (Transition Coalition)

Maryland Office of People’s Counsel * (Joint Consumers)

Maryland Public Service Commission * (Maryland Commission)

Michigan Public Service Commission* (Michigan Commission)

Monitoring Analytics, LLC, acting as PJM’s Independent Market

 Monitor * (Market Monitor)

Morgan Stanley Capital Group Inc. and TAQA Gen X LLC ** * (Morgan Stanley)

NRG Companies * (NRG/Dynegy)

National Fuel Gas Distribution Corporation

National Rural Electric Cooperative Association * (APPA/NRECA)

Natural Gas Supply Association * (NGSA) 

New Jersey Board of Public Utilities * (Joint Consumers)
Docket No. ER15-623-000, et al. - 171 -

New Jersey Division of Rate Counsel * (Joint Consumers)

NextEra Energy Resources, LLC * (Coalition of Resource Projects) (Transition 

Coalition)

Noble Americas Energy Solutions LLC ** (Noble)

North Carolina Electric Membership Corporation 

Ohio Consumers’ Counsel * (Joint Consumers)

Old Dominion Electric Cooperative * (Transition Coalition) (Joint Protestors)

Panda Power Funds ** * (Panda) (Coalition of Resource Projects)

Pennsylvania Office of Consumer Advocate * (Joint Consumers)

Pennsylvania Public Utility Commission * (Pennsylvania Commission)

PHI Companies * (PHI)

PJM Industrial Customer Coalition * (Transition Coalition) (Joint

Consumers)

PJM Power Providers Group * (P3)

PPL Companies (PPL)

PSEG Companies * (PSEG)

Public Citizen, Inc.

Public Power Association of New Jersey * (Joint Consumers)

Public Service Commission of Kentucky * (Indicated State Regulators)

Public Utilities Commission of Ohio * (Ohio Commission)

Raven Power/Sapphire Power Companies

Retail Energy Supply Association * (RESA)

Rockland Electric Company * (Rockland) (Transition Coalition)

Sequent Energy Management, L.P.

Shell Energy North America (US), LP * (Shell)

Sierra Club * (Public Interest Organizations)

Solar Energy Industries Association * (Solar Association)

Southern Maryland Electric Cooperative, Inc. * (Transition Coalition)

 (Joint Protestors)

Steel Producers

Sun Edison Utility Holdings, Inc. **

Sustainable FERC Project and Natural Resources

Defense Council * (Public Interest Organizations) 

UGI Companies * (UGI)

Union of Concerned Scientists * (Concerned Scientists) (Public 

Interest Organizations)

U.S. Federal Executive Agencies * (U.S. Agencies)

Virginia Municipal Electric Association No. 1

WGL Energy Services, Inc. * (Transition Coalition)

West Virginia Consumer Advocate 

List of Coalitions’ Individual Members 
Docket No. ER15-623-000, et al. - 172 -

Coalition of Resource Projects

CPV Power Development, Inc.

Essential Power Companies

NextEra Energy Resources, LLC

Panda Power Funds

Indicated State Regulators

Indiana Office of Utility Consumer Counselor

Indiana Utility Regulatory Commission

Public Service Commission of Kentucky

Joint Consumers

DC Office of the People’s Counsel

Delaware Public Service Commission

Duquesne Light Company

Illinois Citizens Utility Board

Maryland Office of People’s Counsel

New Jersey Board of Public Utilities

New Jersey Division of Rate Counsel

Ohio Consumers’ Counsel

Pennsylvania Office of Consumer Advocate

PJM Industrial Customer Coalition

Public Power Association of New Jersey

Joint Protestors

American Municipal Power, Inc.

Old Dominion Electric Cooperative

Southern Maryland Electric Cooperative, Inc.

PJM Utilities Coalition

AEP Companies

Buckeye Power, Inc.

The Dayton Power and Light Company

East Kentucky Power Cooperative, Inc.

FirstEnergy Service Company

Public Interest Organizations 

Environmental Defense Fund

Sierra Club

Sustainable FERC Project and Natural Resources Defense Council

Union of Concerned Scientists

Transition Coalition
Docket No. ER15-623-000, et al. - 173 -

Delaware Public Service Commission

Direct Energy Companies

Duquesne Light Company

Macquarie Energy LLC

NextEra Energy Resources, LLC

Old Dominion Electric Cooperative

PJM Industrial Customer Coalition

Rockland Electric Company

Southern Maryland Electric Cooperative, Inc.

WGL Energy Services, Inc.

______________________

* Entities submitting protests or comments.

 ** Entities submitting motions to intervene out-of-time.
Docket No. ER15-623-000, et al. - 174 -

Appendix B

List of Intervenors in

Docket No. EL15-29-000

AEP Companies * (PJM Utilities Coalition)

Alevo Energy, Inc.

Allegheny Electric Cooperative, Inc. 

American Municipal Power, Inc. * (Joint Protestors) 

American Public Power Association * (APPA/NRECA)

American Wind Energy Association and Mid-Atlantic Renewable Energy

Coalition * (Wind Energy and Renewable Energy Coalition)

Attorney General of Kentucky 

Ares EIF Management, LLC ** (AEIF)

BP Wind Energy North America Inc.

Brookfield Energy Marketing, LP * (Brookfield)

Buckeye Power, Inc. * (PJM Utilities Coalition)

CPV Power Development, Inc. * (Coalition of 

Gas Generators and Project Finance Resources) 

Calpine Corporation 

Champion Energy Companies

DC Office of the People’s Counsel * (Joint Consumers)

Delaware Public Service Commission * (Joint Consumer 

Representatives)

Direct Energy Companies

Dominion Resources Services, Inc. * (Dominion)

Dynegy Companies * (NRG/Dynegy)

Duke Energy Corporation

Duquesne Light Company * (Joint Consumers)

EMC Development Company, Inc.

E. ON Climate & Renewables North America LLC

East Kentucky Power Cooperative, Inc. ** (EKPC)

Electricity Consumers Resource Council

Electric Power Supply Association

EnergyConnect, Inc.

Energy Storage Association * (ESA)

Environmental Defense Fund * (Public Interest Organizations)

Environmental Law and Policy Center

EquiPower Resources Corp. * (EquiPower)

Essential Power Companies * (Essential Power) (Coalition of 

Gas Generators and Project Finance Resources)
Docket No. ER15-623-000, et al. - 175 -

Exelon Corporation * (Exelon)

FirstEnergy Service Company * (PJM Utilities Commission)

GDF Suez Energy North America, Inc.

Homer City Generation, L.P. * (Homer City)

Iberdrola Renewables, LLC

Illinois Citizens Utility Board * (Joint Consumer 

Representatives)

Illinois Commerce Commission

Illinois Industrial Energy Consumers

Invenergy Companies

LS Power Associates, L.P. * (LS Power)

Macquarie Energy LLC

Maryland Office of People’s Counsel * (Joint Consumer 

Representatives)

Maryland Public Service Commission 

Morgan Stanley Capital Group Inc. and TAQA Gen X LLC ** * (Morgan Stanley)

NRG Companies * (NRG/Dynegy)

National Rural Electric Cooperative Association * (APPA/NRECA)

New Jersey Board of Public Utilities *(Joint Consumer 

Representatives) 

New Jersey Division of Rate Counsel * (Joint Consumer 

Representatives)

NextEra Energy Resources, LLC * (Coalition of Resource Projects) 

Noble Americas Energy Solutions LLC

North Carolina Electric Membership Corporation 

Ohio Consumers’ Counsel * (Joint Consumers)

Old Dominion Electric Cooperative * (Joint Protestors)

Organization of PJM States, Inc.

Panda Power Funds ** * (Coalition of Resource Projects)

Pennsylvania Office of Consumer Advocate * (Joint Consumer

Representatives)

Pennsylvania Public Utility Commission * (Pennsylvania Commission)

PHI Companies * (PHI)

PJM Industrial Customer Coalition * (Joint Consumers)

PJM Power Providers Group * (P3) 

PPL Companies

PSEG Companies * (PSEG)

Public Power Association of New Jersey * (Joint Consumer 

Representatives)

Raven Power/Sapphire Power Companies

Retail Energy Supply Association * (RESA)

Rockland Electric Company * (Rockland) 

Shell Energy North America (US), LP * (Shell)
Docket No. ER15-623-000, et al. - 176 -

Sierra Club * (Public Interests Organizations)

Solar Energy Industries Association * (Solar Association)

Southern Maryland Electric Cooperative, Inc. * (Joint Protestors)

Sustainable FERC Project and Natural Resources

Defense Council (Public Interest Organizations)

UGI Companies * (UGI)

Virginia Municipal Electric Association No. 1

West Virginia Consumer Advocate 

List of Coalitions’ Individual Members 

Coalition of Resource Projects

CPV Power Development, Inc.

Essential Power Companies

NextEra Energy Resources, LLC

Panda Power Funds

Joint Consumers

DC Office of the People’s Counsel

Delaware Public Service Commission

Duquesne Light Company

Illinois Citizens Utility Board

Maryland Office of People’s Counsel

New Jersey Board of Public Utilities

New Jersey Division of Rate Counsel

Ohio Consumers’ Counsel

Pennsylvania Office of Consumer Advocate

PJM Industrial Customer Coalition

Public Power Association of New Jersey

Joint Protestors

American Municipal Power, Inc.

Old Dominion Electric Cooperative

Southern Maryland Electric Cooperative, Inc.

PJM Utilities Coalition

AEP Companies 

Buckeye Power, Inc.

The Dayton Power and Light Company

East Kentucky Power Cooperative, Inc.

FirstEnergy Service Company

Public Interest Organizations 
Docket No. ER15-623-000, et al. - 177 -

Environmental Defense Fund

Sierra Club

Sustainable FERC Project 

Natural Resources Defense Council

Union of Concerned Scientists

______________________

* Entities submitting protests or comments.

 ** Entities submitting motions to intervene out-of-time.
Docket No. ER15-623-000, et al. - 178 -

Appendix C

List of Conditions for Acceptance in 

Docket ER15-623-000

B. Performance Requirements

• P 92

• P 95

• P 97

• P 100

• P 101

C. Non-Performance Charges

• P 165

• P 167

• P 171

• P 178

• P 181

• P 185

D. Fixed Resource Requirement Plans

• P 208

• P 209

• P 210

• P 212

F. Market Power Mitigation

• P 353
Docket No. ER15-623-000, et al. - 179 -

• P 356

G. Credit Requirements

• P 382

• P 383
Docket No. ER15-623-000, et al. - 180 -

Appendix D

List of Compliance Requirements in 

Docket EL15-29-000

A. Operating Parameters

• P 437

• P 440

C. Maximum Emergency Offers

• P 479
UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

PJM Interconnection, L.L.C.

Essential Power Rock Springs, LLC

Docket Nos. ER15-623-000

EL15-29-000

ER15-623-001

EL15-41-000

(Issued June 9, 2015)

BAY, Chairman, dissenting:

Today’s order accepts PJM’s Capacity Performance Proposal (CPP), as 

modified by PJM’s response to FERC’s deficiency letter. Unfortunately, I cannot 

support that result because I do not believe the CPP will result in just and 

reasonable rates. First, even on its own terms, the proposal has a serious design 

flaw that undercuts the very aim that it seeks to achieve, which is to provide 

greater assurance of delivery of energy and reserves during emergencies. Second, 

this flaw is an expensive one: the CPP may result in billions in additional costs for 

consumers without achieving its intended aim. PJM’s capacity market is 

structurally non-competitive, and the CPP largely eliminates mitigation as a safety 

net up to .85 of Net Cost of New Entry (CONE). I recognize the difficulty of 

doing cost-benefit analysis and do not believe it is needed every time a market rule 

is changed. But, here, given the potential multi-billion dollar cost of the CPP and 

the burden consumers will be asked to bear, any analysis, no matter how 

rudimentary, would have been helpful before concluding this proposal is just and 

reasonable. 

First, PJM’s current capacity market, the Reliability Pricing Model (RPM), 

has worked tolerably well. PJM itself does not contend that the RPM is unjust and 

unreasonable; rather, it says that the current rules do not create “sufficient 

incentives” to ensure that capacity resources provide energy and reserves when 

needed. To be sure, the RPM has shortcomings, but it has been in operation for 

almost a decade and has allowed PJM to maintain reliability. In each year since 

2007, reserve margins have been met, new capacity has been added, and, most 

importantly, the lights have stayed on.

Moreover, it is important to emphasize what the CPP is not about: it is not 

about the need to incent the development of new capacity, and PJM does not 
Docket No. ER15-623-000 et al. - 2 -

advocate for the CPP on that basis.1

 Even under the RPM, PJM has developed 

sufficient capacity to meet its reserve margins. Indeed, PJM’s 2014 reserve 

requirements study – a study completed prior to submission of the CPP – indicated 

that for the 2018-19 delivery year reserve margins would be met, despite 

significant generator retirements.2

 Even in the absence of CPP, PJM has 

forecasted adequate reserve margins through at least 2019.

Nor is the CPP necessarily required to enhance generator performance. In 

the winter of 2014, uplift payments were $667 million (January - February 2014) 

and the forced outage rate was 22 percent.3 But this winter saw marked 

improvement, even though it was almost as cold as last winter and PJM had a 

higher peak load at 143,086 megawatts.4 The outage rate dropped to 12 percent, 

and uplift was $105 million (January - February 2015).5

 Better preparation and 

winterization, which are relatively inexpensive fixes, and the addition of gas 

 1 PJM Deficiency Letter Response at 2 (“PJM’s RPM capacity market 

design has worked effectively to spur new investment to replace the nearly 26,000 

megawatts (‘MWs’) of retiring generation since 2008, and projecting forward to 

2019 and ensure forward reliability in a period of unprecedented turnover of a 

large portion of the generation fleet. In the 2017/2018 BRA alone, PJM procured 

nearly 6,000 MWs of new generation resources. Approximately, 35,000 MWs of 

total new generation have been procured since RPM was implemented in PJM’s 

markets.”).

2 PJM, 2014 PJM Reserve Requirement Study, at 15 (Oct. 9, 2014), 

http://www.pjm.com/~/media/committees-groups/subcommittees/raas/

20141003/20141003-reserve-requirement-study-draft-update.ashx

3 Office of Enforcement, 2014 State of the Market Report, at 17 (Mar. 19, 

2015), https://www.ferc.gov/market-oversight/reports-analyses/st-mkt-ovr/2014-

som.pdf (OE 2014 State of the Markets Report).

4 PJM declared cold weather alerts on 26 days in the first three months of 

2015 compared to 25 days in the first three months of 2014. See PJM, State of the 

Market Report for PJM, at 138 (May 18, 2015), 

http://monitoringanalytics.com/reports/PJM_State_of_the_Market/2015/2015q1-

som-pjm.pdf.

5 OE 2014 State of the Markets Report at 19.
Docket No. ER15-623-000 et al. - 3 -

infrastructure, with better gas-electric coordination, helped make this happen.6

 

Against this backdrop, PJM has proposed a new capacity market that 

suffers from a serious design flaw that undermines its very purpose to provide 

greater assurance of delivery of energy and reserves during emergency conditions. 

To do this, the CPP establishes a “two-settlement” process and a “NonPerformance Charge,” or, to put it more colloquially, two carrots and a partial 

stick. With respect to the first carrot, a resource is allowed to offer up to Net 

CONE times the balancing ratio (currently calculated to be .85).7

 But this is not a 

ceiling per se if a resource can justify higher unit specific costs; those costs in turn 

could drive the market clearing price even higher. Resources that over perform 

can receive a second carrot as well: a bonus share of penalties collected from 

units that fail to perform.

To approximate the expected total Non-Performance Charge a resource that 

fails to perform would pay, one needs to make an assumption about the expected 

number of performance assessment hours. The total yearly expected NonPerformance Charge or penalty payment per megawatt of capacity for a resource 

that never performs is calculated by multiplying .85 of Net CONE by the ratio of 

the number of actual performance assessment hours in the relevant capacity zone 

divided by 30. The number 30 is important because it represents PJM’s 

expectation of performance assessment hours in a year. In 2011-12, PJM declared 

7; in 2012-13, 5; and in 2013-14, 30.8

 The average over the three-year period is 

14. If the outlier is excluded (2013-14), the average is 6. An estimate of 30 

expected performance assessment hours appears to be overly generous and, 

depending upon the number of actual assessment hours, may result in a partial 

stick. For example, if PJM declared 14 actual performance assessment hours in a 

capacity zone, a resource that failed to perform during each of those hours would 

be subject to a total Non-Performance Charge per megawatt of capacity of 14/30 

 6 Id. at 17.

7 PJM Deficiency Letter Response at 7.

8 PJM, Performance Assessment Hours for 2011-2014, (Mar. 23, 2015), 

http://pjm.com/~/media/committees-groups/committees/elc/postings/performanceassessment-hours-2011-2014-xls.ashx
Docket No. ER15-623-000 et al. - 4 -

times .85 Net CONE, which equates to .40 of Net CONE for the delivery year.9

 

Taken together, the CPP’s incentive structure creates an opportunity for 

resources to profit from non-performance, as long as the first carrot – the auction 

clearing price, which can be up to .85 of Net CONE or more if the marginal 

generator can justify its unit specific costs – is larger than the partial stick, which, 

with 14 assumed performance assessment hours, would be .40 of Net CONE. A 

rational profit-maximizing resource could simply seek a capacity award in the 

auction, fail to perform during each performance assessment hour, and likely pay a 

penalty less than the carrot it has received. To put it more bluntly, the resource 

could be paid for doing nothing during the emergency hours of the year when it is 

most needed and for which it has been well compensated. And there is a built-in 

optionality period of three years, since the auction has a delivery year of 2018-19. 

During that three-year period, the resource may decide whether it wishes to meet 

its obligation when called upon, purchase replacement capacity to buy its way out 

of its obligation, or fail to respond. During the delivery year itself, the resource 

also has optionality because it can weigh the penalty of failing to perform during 

each Performance Assessment Hour, as a fraction of one-thirtieth of .85 of Net 

CONE. In short, PJM has purchased little certainty for what may be a lot of 

money. 

To be sure, the second carrot provides a financial incentive for resources to 

deliver during emergencies. But it is also true that the resource that fails to 

perform may be able to pocket the difference between the award it received and 

the penalty. As a matter of economic theory, to incent performance, a resource 

that never performs should pay a penalty at least as large as the amount it receives 

in compensation. Here, performance is not incented because the gain may be 

substantially greater than the penalty; the first carrot is larger than the partial stick. 

The second carrot provides even more compensation to incent performance but 

does nothing to remedy the initial disparity. 

The weakness inherent in the CPP’s design creates significant incentives to 

move auction clearing prices up to .85 of Net CONE, because only prices above 

that level are subject to mitigation in the form of unit specific review. The 

 9 PJM has another penalty, the Capacity Deficiency Charge, that is 1.2 

times the capacity clearing price or clearing price plus $20 per megawatt day, 

whichever is greater, but this penalty would be lower than the Non-Performance 

Charge imposed for failure to respond during an emergency. 
Docket No. ER15-623-000 et al. - 5 -

temptation to exercise market power in the auction will be considerable. This 

would be less of a problem if one could count on the salutary benefits of 

competition. But, as PJM and the Market Monitor recognize, this market is 

structurally non-competitive.10 And the mitigation rules that are usually the safety 

net in such markets have largely been removed. Thus, the CPP creates the very 

real risk of the unmitigated exercise of market power up to .85 of Net CONE.11

The majority also undercuts the CPP by rejecting PJM’s proposal to limit 

operating parameters to unit-specific physical constraints.12 In this order, the 

majority requires that resources be eligible for make-whole payments based on 

their “actual constraints,” a new and ambiguous term that would, at the very least, 

include fuel delivery arrangements. It is unclear what other constraints would fall 

into this category, and the provision increases the opacity of make-whole 

payments. While the majority’s proposal includes a reminder that a resource 

should consider such expected make-whole payments in its projected revenues 

when calculating its capacity offer, it may be impossible to reconcile whether a 

resource has been compensated for a constraint through its capacity payment. Nor 

 10 See PJM, 2014 State of the Market Report for PJM, Vol.2: Detailed 

Analysis, at 179 (Mar. 12, 2015), 

http://monitoringanalytics.com/reports/PJM_State_of_the_Market/2014/2014-

som-pjm-volume2-sec5.pdf.

11 It is important to note that even though the Market Monitor offered 

support for PJM’s filing, his support was qualified on a number of conditions. For 

instance, the Market Monitor pointed out that PJM offers no analytical basis for 

using 30 as the expected number of performance assessment hours. Instead, he 

suggested using an “annual probabilistic analysis” to approximate the appropriate 

Non-Performance Charge rate. In addition, the Market Monitor strongly 

supported PJM’s proposal to limit operating parameters to unit-specific physical 

constraints, arguing that this would lower uplift payments during tight operational 

conditions and provide greater operational flexibility to PJM dispatchers.

12 PJM proposed the following new language to its Operating Agreement 

Schedule 1, section 3.2.3(e): "A Generation Capacity Resource that operates 

outside of its physically determined parameter limitations due to external 

requirements such as fuel delivery arrangements, for example, will not receive 

Operating Reserve Credits nor be made whole for such operation when not 

dispatched by the Office of the Interconnection."
Docket No. ER15-623-000 et al. - 6 -

does this provision take into account the progress that has been, and continues to 

be, made on gas-electric coordination, and it is inconsistent with the CPP’s goal of 

incenting generators to make more flexible fuel arrangements. A gas generator 

has little incentive to make such arrangements if it knows it can wait and have its 

costs covered anyway. 

The CPP’s potential cost is also troubling relative to the benefit it may 

provide. In October 2014, PJM estimated that the net incremental cost for the CPP 

would be $1.4 to 4.0 billion. One way of viewing the CPP is that it fixes a several 

hundred million dollar uplift problem in the energy market with a multi-billion 

dollar redesign of the capacity market. Let me be clear: I support reliability. It is 

one of the most fundamental services a Regional Transmission Organization or 

Independent System Operator can provide. I also believe in the benefits of 

competition and markets. But the question here is not whether to support markets 

or reliability; rather, it is one of cost relative to the potential benefit and whether 

the CPP is a just and reasonable way to achieve a higher degree of performance in 

emergencies. Here, despite the potential multi-billion dollar burden consumers 

will be asked to bear, there is no analysis, however rudimentary, indicating 

whether the benefits are at least roughly commensurate with the costs.

 

The majority today accepts a flawed, complex, highly technical market 

construct in which there is a potential mismatch between incentives and penalties, 

in which mitigation has largely been eliminated in a market characterized by 

structural non-competitiveness, and in which there may be billions in additional 

capacity market costs borne by consumers. The reality is that once a market 

construct is accepted and implemented, it is very difficult to unwind. Of all the 

costs associated with the CPP, not the least among them is this: the opportunity 

cost of the time and resources that could have been used to develop a more 

sustainable, efficient, and cost-effective design. 

For all those reasons, I respectfully dissent.

______________________

Norman C. Bay

Chairman