Dive Brief:

• The Federal Energy Regulatory Commission last Thursday accepted a request from grid operator PJM Interconnection to delay its next capacity market auction from May to Aug. 14-28, 2019, as it redesigns its market rules.

• FERC invalidated PJM's capacity market rules in June and last month the grid operator asked the federal agency to allow it to delay its next auction if the regulators could not approve new market rules by the end of the year.

• FERC last month also delayed initial filing deadlines for comments in the PJM capacity market docket from late August to Oct. 2, 2018. Federal regulators will need to make a final decision in the docket early next year to allow PJM to implement the market rules for its August auction, which will allocate capacity obligations for the 2022-2023 delivery year.

Dive Insight:

PJM's capacity auction delay sets up a high-stakes battle this fall over the rules governing the largest electricity market in the U.S.

Last month, state members of the Mid-Atlantic electricity market asked FERC to revisit its June decision invalidating capacity auction rules. FERC ruled that state energy policies, like nuclear subsidies or renewable energy mandates, are suppressing capacity prices, but Maryland, Illinois and New Jersey argued the decision overstepped the federal agency's legal jurisdiction.

FERC gave no indication in its Aug. 30 order of whether it would grant those requests for rehearing, but its decision to delay the auction and filing deadlines likely means that it will not make a final decision on market rules before the end of the year.

Debate over the market changes will likely turn on the issue of state policies. States have the legal authority to shape the resource mix within their borders, but fossil fuel generators argue that subsidies for other resources depress market prices for their plants, infringing on the operations of the federally regulated wholesale power market.

PJM in March proposed two capacity reform options — a price floor and a two-part capacity auction that would separate out subsidized resources. But FERC rejected both those options in its June order that also invalidated the grid operator's capacity market rules.

How the grid operator responds could have far-reaching consequences for the balance of state and federal authority in power markets. In its own rehearing request, PJM asked FERC to clarify whether elements of its two-part capacity repricing proposal could be included in a final market fix.

"Elements of, or some variant of, capacity repricing should remain within the realm of possible just and reasonable solutions," PJM wrote.

The grid operator and stakeholders had hoped to get some clarity on that question by the end of August, when FERC was slated to rule on the rehearing requests, but that deadline has been pushed back as well. Last Wednesday, FERC issued a tolling order in the docket, giving it 30 more days to issue a ruling on rehearing.