1. Duquesne Light Company Makes Heads or Tails of “PJM Market Design Proposals Addressing State Public Policy Initiatives Capacity Repricing”
OPSI 2017 Annual Meeting Presentation
Tonja Wicks, Manager, FERC and RTO Affairs
Duquesne Light Company
October 3, 2017

2. Duquesne Light Company
Pennsylvania Service Territory
Western PA
817 square miles
Transmission
690 miles of high voltage transmission lines
Customers
590,000 customers
89% residential
Service Centers
Woods Run Complex
Corporate Headquarters
Distribution
7,200 miles of distribution circuit lines
Substations
430 Substations

3. Duquesne Level-Setting Market Facts
Duquesne joined PJM in 2005
Duquesne Operates in the Deregulated Customer Choice State of Pennsylvania
Duquesne Does Not Own Generation
Duquesne is a Default Service Provider
Duquesne’s Primary Concern is Resource Adequacy and Cost to Customers/Load

4. QUESTION?
So Why are We Here?

5. PJM Concern: Impact of State Subsidies on the Competitive Market
Response to that Concern was a Repricing Proposal by PJM
Response to PJM’s Repricing Proposal was additional stakeholder proposals
Some seek to offer some variation of PJM’s initial repricing proposal to reduce the number of infra-marginal units (through reallocating capacity obligations of subsidized units to remaining unsubsidized cleared resources or lowering the capacity clearing price for all resources cleared in the bid stack)
Some seek to eliminate all subsidized resources from participating in BRA and bilateral arrangements
Some seek to institute a price floor for all resources, (i.e. existing and new resources)
Some seek to return to a Pre-RPM model--bilateral arrangements to meet load obligations/with a residual auction
Some seek to maintain the status quo
Is the Concern Warranted?

6. FACTS: PJM MARKET FACT: There is no evidence of a reliability problem
FACT: The Current PJM capacity market construct promotes resource adequacy
FACT: Current Reserve margins exceed UCAP targets
FACT: There is new entry and exits of competitive supply resources
FACT: Capacity prices are significantly below Net Cost of New Entry (CONE)
FACT: PJM Auction results to date have been certified and deemed competitive

7. FACTS AS DUQUESNE SEES IT
Energy is not a natural market.
The current competitive wholesale market is an administrative construct and the product of human design.
As a result, the potential to “accommodate”, harmonize or achieve a market that incorporates enacted state policies is possible.
Duquesne appreciates the thorough analysis of this issue.
But before solutions are implemented, we must ensure there is a problem to be solved through the imposition of market construct modifications.

8. Duquesne’s Perspectives on Current Debate
Theme 1: Duquesne Supports a Competitive Market
Duquesne Believes it is Premature to Redesign the Current PJM Capacity Construct
Capacity Performance not Fully Phased-in and implemented until 2020
Theme 2: States’ Authority
Duquesne Light “understands” a State’s authority and autonomy to initiate public policy that seeks to maintain a desired generation resource mix that meets the needs and preferences of its customer and constituent base.
State entities have the autonomy, authority, and ability to propose public policy initiatives that are in the best interest of their consumers.
Theme 3:Components of a Well-Functioning Capacity Market
Multi-Year Forward Procurement Obligation
Duquesne Light supports retaining the established 3-year forward capacity obligation.
Base Residual and Incremental Auctions
Duquesne Light supports the continued use of capacity auctions, i.e. Base Residual Auction and Incremental Auctions, for procuring short and long-term capacity resources.
Limitations on Bilateral Arrangements
Duquesne Light does not support changing PJM market rules to expand the use of bilateral arrangements beyond the current Fixed Resource Requirement (FRR) model. 

9. Duquesne’s Perspectives on Current Debate (CONT)
Theme 4: Limited Centralized Wholesale Market Changes - Capacity Markets
Duquesne Light supports the most recent PJM Capacity Performance construct that maintains a 3-year forward capacity obligation and applies substantial penalties for non-performance
Capacity Performance provides the most efficient means of providing resource adequacy and guaranteeing reliability at low cost.
Duquesne Light remains concerned with recent activities and endeavors that threaten to undermine or completely undo the current capacity market construct in PJM.
A complete overhaul of Capacity Performance, that has not fully matured and is not slated to be fully implemented until 2020, could undermine the ability of the markets to function.
Theme 5: FERC Identified Solutions “5 Paths Forward”, inclusive of Status Quo
Initially, Duquesne Light expressed support for Path 2, “Accommodation of State Action”.
Upon a deep dive into the impact state actions have had on the PJM market or lack thereof, Duquesne may reevaluate its positon.

10. FERC Proposed 5 Paths Forward:
Analogous FERC Effort: Options for Addressing State Action and Impact on Competitive Markets (AD-17-18)
FERC Proposed 5 Paths Forward:
Limited or No Minimum Offer Price Rule (MOPR)
Accommodation of State Action (allow to obtain capacity obligations, subject to adjustments)
Status Quo
Pricing State Policy Choices (value the attributes or externalities, ex; carbon price)
Expanded MOPR (to both existing and new capacity resources)
Duquesne Light Company submitted FERC Post-Technical Conference Comments
in AD17-18

11. DUQUESNE’S FINAL THOUGHT
The current PJM effort to address the potential impact of state actions and the thorough vetting of market proposals has been informative.
In spite of all of the discussion and effort, Duquesne advocates for the Status Quo, but absent that option, we continue to deliberate and assess the viability of each proposal in the PJM stakeholder forum and their impact on Duquesne’s operations and customers.

12. Are Stakeholders Being Asked to Flip a Coin and Call Heads or Tails?
If Status Quo is Not an Option…Deciding Between PJM Market Design Proposals
Are Stakeholders Being Asked to Flip a Coin and Call Heads or Tails?

13. Duquesne Light Company
CONTACT INFORMATION
Tonja Wicks
Duquesne Light Company
(412) Office
(412) Cellular