From RTO Insider:

Former Montana regulator Travis Kavulla, director of energy policy for the R Street Institute, said the PJM proposal is “laudable” but may not be just and reasonable without also making changes to the capacity market. “It is not clear why consumers, having paid for capacity once through the forward capacity market, should be expected to pay again for a type of operational capacity in near real time,” Kavulla said. “The commission should make clear that a market design shaped around an increasingly robust ORDC is an off-ramp from, and an eventual substitute for, the forward capacity market, which is an inferior vehicle to pay resources for the capacity that customers actually require.”

Kavulla noted that PJM’s base case projects energy and capacity revenues will increase by $556 million annually while production costs rise only $30 million. “In other words, the vast majority of ORDC revenue is paying for resources’ fixed costs and not the costs associated with production under this new market design. At the same time, avoided uplift costs — one of the core reasons to adopt ORDC that PJM proffers, with which we agree — amount to little more than $3 million.

“An ORDC with high price caps remains administrative in nature, but at least its administrative elements seek to correct blunter and worse administrative interventions in the markets — namely operator commitments and lower price caps,” Kavulla continued. “Importantly, ORDC does not require the degree of speculative planning that forward capacity markets do. Either a resource has dispatchable headroom in near real time, or it does not.”

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