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US court backs PJM fines for power shortfalls

20 Jun 2017 17:42 (+01:00 GMT)
US court backs PJM fines for power shortfalls

Washington, 20 June (Argus) — The DC Circuit Court of Appeals has upheld market regulations in the PJM Interconnection that penalize power plants and other capacity resources that fail to perform when electricity demand is high.

The federal appeals court today rejected challenges from environmentalists and public power companies to "capacity performance" market rules in PJM, the largest electric grid operator in the US that covers all or part of 13 states in the mid-Atlantic and the midcontinent.

Those rules, approved in 2015, have benefited nuclear generators, gas-fired generators and coal plants that can operate reliably in extreme weather. But they have frustrated environmentalists, who say the rules are unduly discriminatory to wind, solar and emissions-free resources like demand response. Demand response pays consumers to curtail electricity demand during extreme grid conditions.

PJM created the rules in the wake of cold weather in early 2014 that pushed the grid close to losing power in some areas. Older coal-fired power plants failed to start during the cold snap, while gas-fired plants were unable to find natural gas because of pipeline constraints. PJM at the time lost 22pc of its capacity but the resources that failed to provide power faced very limited financial penalties.

PJM in response took a "no excuses" approach when it wrote the new market rules. The grid operator said if resources were contractually committed as capacity performance, they would have to pay large penalties for non-performance. The DC Circuit today upheld this approach and denied arguments from public power companies that said the rules were driving up electricity prices too much.

Environmental groups had argued that PJM's market rules were too discriminatory toward wind, solar and other resources that cannot reliably operate year-round. Those companies wanted PJM to create a subcategory of resources that would only perform during in summer, when electricity demand typically peaks.

But the DC Circuit affirmed the market rules and said the year-round commitment was "at the core" of what PJM wanted to achieve by switching to capacity performance. The court said there was no evidence the rules were unduly discriminatory.

Capacity prices more than doubled, to $134/MW-day, when PJM held an auction in 2015 where just 60pc of power generators were meeting the tougher rules. But those prices have fallen even as PJM procured more resources meeting high-performance requirements. Capacity prices were about $77/MW-day last month when PJM transitioned to 100pc capacity performance.

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