MOPR Self-Supply Exemption
Review of Net-Short & Net-Long Thresholds
Jeff Bastian
Manager, Capacity Market Operations
Markets & Reliability Committee
June 27, 2016
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Minimum Offer Price Rule (MOPR)
• MOPR provisions of Section 5.14(h) of Attachment DD are intended to prevent
price suppression by uncompetitively low new entry offers
• A minimum offer price is applicable to any CT, CC or integrated gasification CC
resource (or uprate to any such resource) greater than 20 MW that has not yet
cleared in a prior RPM auction
• A MOPR applicable resource may offer below the MOPR floor price if it
qualifies for one of three MOPR exemption types: self-supply, competitive
entry, or unit-specific
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Self-Supply Exemption
• The self-supply exemption is applicable to self-supply LSEs (Single Customer
Entity, Municipal/Cooperative Entity, or Vertically Integrated Utility) that meet
certain net-short and net-long criteria
• The self-supply exemption requires a comparison between an LSE’s capacity
obligation and its owned and contracted capacity, and specify thresholds for the
maximum acceptable amount by which an LSE could be short or long on
capacity and still receive the self-supply exception
• Thresholds were developed with intent to reasonably balance the need to
protect the market against price suppression with the need to accommodate
normal business operations of self-supply LSEs
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Net-Short Thresholds
•
Net-short thresholds are levels at which an uneconomic new entry strategy could become
profitable (i.e., benefit to an LSE of a clearing price reduction for its capacity purchases
outweighs the cost to the LSE of a new generating unit that is offered at an uneconomic price)
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Net-Long Thresholds
•
Net-long thresholds limit a self-supply entity from substantially overbuilding while
recognizing that the addition of a large resource that may be efficiently sized to
accommodate the LSE’s long-term needs may put the LSE in a net long position at the
beginning of the resource’s life
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Required Periodic Review of
Maximum Net-Short and Net-Long Positions
•
•
Section 5.14(h) requires periodic review of net-long and net-short thresholds:
Beginning with the Delivery Year that commences June 1, 2020, and continuing no later than
for every fourth Delivery Year thereafter, PJM shall review the Maximum Net Short and Net
Long positions
•
Such review may include, without limitation, analyses under various appropriate scenarios of
the minimum net-short quantities at which the benefit to an LSE of a clearing price reduction
for its capacity purchases from the RPM Auction outweighs the cost to the LSE of a new
generating unit that is offered at an uneconomic price, and may, to the extent appropriate,
reasonably balance the need to protect the market with the need to accommodate the normal
business operations of Self-Supply LSEs
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Required Periodic Review of
Maximum Net-short and Net-long Positions (cont.)
•
Based on the results of such review, PJM shall propose either to modify or retain the existing
Maximum Net-Short and Net-Long positions
•
If PJM proposes to modify the Net-short and/or the Net-long positions, PJM must post publicly
and solicit stakeholder comment regarding the proposal
If, as a result of this process, changes to the Maximum Net-Short and/or Net-Long positions
are proposed, the Office of the Interconnection shall file such modified Maximum Net-Short
and/or Net-Long positions with the FERC by October 1, prior to the conduct of the BRA for the
first Delivery Year in which the new values would be applied
•
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PJM Review and Recommendations
•
•
PJM has reviewed existing maximum net-long and net-short thresholds and recommends that
the existing thresholds be retained
The review included analyses under various scenarios of the minimum net-short quantities at
which the benefit to an LSE of a clearing price reduction for its capacity purchases outweighs
the cost to the LSE of a new generating unit that is offered at an uneconomic price
– Analysis conducted in 2012 to support the existing thresholds was updated to reflect the Net CONE
values, VRR Curves and supply curves of the 2018/19 BRA
– Analysis details contained in appendix section of this presentation
•
Updated analysis results confirm that existing net-short thresholds provide reasonable range to
protect against self-supply LSEs from economically benefitting from a strategy of using a new
resource to artificially suppress price for their net-short position
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PJM Review and Recommendations (cont.)
•
•
•
While there is seemingly little financial incentive to do so, the net-long threshold acts to limit an
LSE with a relatively large amount of excess capacity from “unloading” new entry capacity on
the RPM auction pushing down capacity prices in the process
Net-long thresholds limit a self-supply entity from substantially overbuilding while recognizing
that the addition of a large resource that may be efficiently sized to accommodate the LSE’s
long-term needs may put the LSE in a net long position at the beginning of the resource’s life
PJM recommends that existing net-long thresholds be maintained since they provide a
reasonable limit to the quantity that an LSE can offer relative to its capacity obligation at
uncompetitive low prices while recognizing that a new resource may put the LSE in a net long
position at the beginning of the resource’s life
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Appendix
Net-Short Analysis
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Net-short Analysis Methodology - Overview
•
PJM assessed the potential benefit to an LSE of an uneconomic new entry
strategy by analyzing the impact of adding hypothetical uneconomic new
entry offers (at $0 per MW-day) from representative combustion turbine and
combined cycle plants on the RPM clearing prices from the most recent
RPM Base Residual Auction.
•
By using the actual VRR Curves that were applicable in the most recent
BRA, as well as the actual supply offers for that auction, and the RPM
clearing software used in that auction, this analysis provides an accurate
assessment of the impact of potential uneconomic new entry on the RPM
clearing prices. Use of the most recent BRA results also ensures that the
analysis reflects the latest PJM market rules.
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Net-short Analysis Methodology - Overview
•
Analysis was performed for each relevant LDA that had a separate VRR
Curve in the 2018/2019 Base Residual Auction (“BRA”), i.e., the MAAC,
EMAAC, SWAAC, COMED, and ATSI LDAs, and for the unconstrained
portion of the PJM Region from that auction.
•
While a few other LDAs (i.e. PEPCO, DPL South, PS North, PS, PPL and
BGE) also had separate VRR curves defined for that auction, these LDAs
add little to a forward looking assessment of the Self-Supply LSE net short
thresholds either because the LDA contains no vertically integrated utilities
or significant sized public power entities, or because the LDA did not clear
separately in the BRA or any of the the BRA scenarios.
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Net-short Analysis Methodology - Scenarios
•
For the purposes of this analysis, scenario analyses that are based on
actual auction simulations and are publicly posted, were utilized to evaluate
price impacts of uneconomic offers.
•
For the 2018/2019 BRA, these posted sensitivity scenarios included
simulations of uneconomic entry, offered at $0, in the PJM Region and
various LDAs.
http://www.pjm.com/~/media/markets-ops/rpm/rpm-auction-info/2018-2019-bra-scenario-analysis.ashx
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Net-short Analysis Methodology – New Entry Resources
•
Typical approximate values were used for the types of plants to which
MOPR will apply, i.e., a 150 MW combustion turbine plant and a 600 MW
combined cycle plant. This approach promotes a more robust analysis by
considering the effects of both a smaller resource and a larger resource.
•
These specific new entry amounts, i.e., 150 MW and 600 MW, were not
studied in the sensitivity analyses performed last year, but these amounts
are within the range defined by the various new entry amounts that PJM did
analyze, and the relationship between the added MWs of new entry and the
resulting prices was objectively linear. PJM therefore derived the clearing
price impacts of 150 WM or 600 MW uneconomic new entry by linear
interpolation of the results of last year’s analyses.
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Net-short Analysis Methodology – New Entry Resources
•
The per-MW/day competitive cost of such new entry resources was
determined by applying the CT and CC cost elements stated in the Tariff for
use in the VRR Curve and in the MOPR.
•
The uncompetitive offer for such resources was assumed to be zero, since
that type of offer would provide the greatest benefit to an LSE seeking to
suppress price, and because an LSE that successfully obtains a SelfSupply Exemption under the proposed MOPR is permitted to offer at a price
as low as zero.
http://www.pjm.com/~/media/markets-ops/rpm/rpm-auction-info/final-mopr-floor-offer-prices-for-2018-2019.ashx
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Net-short Positions
•
In the tables below, the LSE’s costs if it offers the uneconomic new entry
consist of its cost to deliver the new entry resource (MWs times the per
MW-day competitive cost for the resource – Column J), plus the cost of
buying RPM capacity for its self-supply increment at the RPM clearing price
that was reduced by the LSE’s uncompetitive new entry (Column I).
•
The LSE’s total costs if it does not submit an uncompetitive new entry offer
(Column H) are subtracted from its costs if it does submit an uncompetitive
new entry offer (Column K).
•
A negative number indicates a strategy that is profitable, i.e., the LSE’s total
costs are lower with the new entry offer (Column L).
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Net-short Positions - RTO
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - RTO
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 17,850 MW and 18,350 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 15,900 MW and 16,400 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,800 MW , which is the maximum
permissible net-short level for a multi-state public power LSE in PJM, is not
profitable. The sixth row confirms a net-short level of 4,000 MW, which is
20% of the approximate size of the largest vertically integrated utility LSE in
PJM, is also not profitable.
•
Thus, these thresholds are within a reasonable range to protect the market
from uneconomic new entry incentives in the unconstrained RTO area.
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Net-short Positions - MAAC
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - MAAC
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 11,850 MW and 12,350 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 5,900 MW and 6,400 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,800 MW , which is the maximum
permissible net-short level for a single-state public power LSE in MAAC, is
not profitable.
•
Thus, this threshold is within a reasonable range to protect the market from
uneconomic new entry incentives in the MAAC LDA.
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Net-short Positions - EMAAC
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - EMAAC
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 1,850 MW and 2,350 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 900 MW and 1,400 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,000 MW , which is the maximum
permissible net-short level for a single-state public power LSE in EMAAC, is
profitable. However, because none of the single-state LSEs in EMAAC are
large enough to ever have a net-short position of 1,000 MW, this threshold
is within a reasonable range to protect the market from uneconomic new
entry incentives in the EMAAC LDA.
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Net-short Positions - SWMAAC
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - SWMAAC
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 1,850 MW and 2,350 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 900 MW and 1,400 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,000 MW , which is the maximum
permissible net-short level for a single-state public power LSE in SWMAAC,
is not profitable.
•
Thus, this threshold is within a reasonable range to protect the market from
uneconomic new entry incentives in the SWMAAC LDA.
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Net-short Positions - COMED
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - COMED
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 3,350 MW and 3,850 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 2,400 MW and 2,900 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,800 MW , which is the maximum
permissible net-short level for a single-state public power LSE in COMED,
is not profitable.
•
Thus, this threshold is within a reasonable range to protect the market from
uneconomic new entry incentives in the COMED LDA.
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Net-short Positions - ATSI
 A negative value in column L indicates a profitable strategy.
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Net-short Positions - ATSI
•
An uneconomic offer for a new 150 MW CT would begin to be profitable at a
net-short position between 17,850 MW and 18,350 MW (rows 1 & 2) and an
uneconomic offer for a new 600 MW CC would begin to be profitable at a
net-short position between 15,900 MW and 16,400 MW (rows 3 & 4).
•
The fifth row confirms a net-short level of 1,000 MW , which is the maximum
permissible net-short level for a single-state public power LSE in ATSI, is
not profitable.
•
Thus, this threshold is within a reasonable range to protect the market from
uneconomic new entry incentives in the ATSI LDA.
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