FERC rejects most of PJM’s large load interconnection plan

Dive Brief:

• The Federal Energy Regulatory Commission on Friday largely rejected the PJM Interconnection’s plan for bringing data centers and other large loads onto its system, including proposed interim service and “bring your own new capacity” rules.
• Key elements of PJM’s Interim Resource Adequacy Service framework, or IRAS, which would allow large loads to connect to the grid without matching new capacity if they agree to be curtailed in the lead-up to grid emergencies, intrude on state jurisdiction over retail rates and appear to discriminate against large loads, FERC said.
• The ruling will potentially lead to higher capacity prices for longer in PJM, which is favorable to independent power producers such as Constellation Energy, NRG Energy, Talen Energy and Vistra, according to equity analysts with Jefferies. “While there is still uncertainty within PJM's market construct/rules, the latest development is positive for existing generation/IPPs,” they said in a client note on Monday.

Dive Insight:

PJM is reviewing the commission’s order with “an eye toward how we can fulfill FERC’s requirements while recognizing the responsibilities FERC indicated belong to the states and honoring the concept that existing electricity customers should not be unfairly burdened by new, energy intensive customers in the form of higher costs or decreased reliability,” Jeffrey Shields, PJM spokesman, said in an email to Utility Dive on Monday.

About five weeks after FERC rejected key elements of PJM’s proposal to hold a backstop procurement auction to acquire capacity to fill a pending shortfall, the agency largely rejected the grid operator’s package of proposals for connecting large loads to the grid.

In the latest decision, FERC approved PJM’s proposal for defining large loads and its plan to create a large load “registry” that would include a facility’s location, ramp schedule, capacity supply and other details.

FERC, however, rejected the Interim Resource Adequacy Service package, which made up the core of the proposal.

“We find that several provisions of the proposed tariff appear to place obligations directly on eligible new large loads, which are, for the most part, retail customers; that certain other provisions appear to dictate which retail customers taking retail service will be curtailed; and that the proposed compensation framework appears to establish a retail rate,” FERC said in rejecting the IRAS framework.

Setting rules for large loads presents a shared challenge for federal and state regulators, according to FERC.

“States have a crucial role to play in this challenge by designating which retail customers must be curtailed when the system is stressed, and we strongly encourage states to continue their important work on this issue,” FERC said. 

In their client note, the Jefferies analysts said, “We could see this proposal minimally revived in future iterations and likely led by efforts from states,” with Ohio and Pennsylvania as key states to watch.

PJM’s proposal to exclude IRAS loads from its capacity auction demand curve could lead to market distortions, according to FERC Commissioner David Rosner.

“The result could be a capacity market signaling that PJM has more than enough capacity while the region sheds thousands of megawatts of demand on an involuntary basis,” Rosner said in a concurring statement. “That’s not only economically inefficient, but also likely to prevent supply and demand from coming back into balance.”

In a grid emergency, non-critical data centers should be shut off before ordinary customers, such as homes, hospitals and schools — but states should decide on curtailment priorities, according to Rosner.

“We need state regulators to establish clear rules for which customers should be curtailed first when circumstances require it,” Rosner said. “And we need PJM to be ready to adjust their operations to this evolving paradigm. But such measures should only be taken when necessary to keep the system reliable, after voluntary demand response resources have been exhausted.”