Dive Brief:
- The Federal Energy Regulatory Commission on Friday approved the PJM Interconnection’s plan to delay upcoming capacity auctions so it can incorporate potential market reforms into them.
- The agency ordered PJM to set firm dates for the auctions based on an “illustrative” schedule included in its proposal. Under that schedule, the next auction would be moved from June 14 to June 2024. The following three auctions would be held at six-month intervals.
- The decision is a “recipe for chaos,” according to FERC Commissioner Allison Clements, who dissented from the majority. “The commission’s response to PJM’s inadequately justified filing may tempt market operators and utilities across the country to alter deadlines whenever they develop a potentially significant filing,” she said. “Such requests for delay, in turn, will inevitably create immense uncertainty.”
Dive Insight:
PJM in February started a fast-track stakeholder process to reform its capacity market following widespread power plant outages during Winter Storm Elliott and concerns the market may not be maintaining enough resources. The grid operator aims to propose a reform package by Oct. 1 at FERC.
In April, it asked FERC to approve delays to capacity auctions to apply rules to them that emerge from the reform process.
PJM usually holds annual capacity auctions to make sure it has enough generating and other resources to meet its power needs three years in the future. Action at FERC around “minimum offer price rules” and court decisions related to the market have led to delays in recent years.
The scope and magnitude of potential capacity market reforms justify the delays, according to FERC.
“The reforms contemplated in PJM’s stakeholder process mean that market participants would be participating in auctions in the face of significant uncertainty regarding critical rules governing their capacity supply obligations,” FERC said.
FERC acknowledged concerns raised by the Organization of PJM States, American Municipal Power and Old Dominion Electric Cooperative that auction delays could increase uncertainty for market participants, interfere with market signals and disrupt procurements in states with retail choice.
“Although we recognize commenters’ concerns regarding the auction delay, on balance, we find that those potential harms are outweighed by the greater certainty that would be provided by delaying the auctions so that market participants can make informed decisions in the event the commission were to accept changes to the capacity market construct resulting from PJM’s forthcoming capacity market proposal,” the agency said.
The decision comes ahead of a forum FERC will hold Thursday to assess PJM’s capacity market and possible changes to it.
FERC Commissioner James Danly supported the decision but warned that delaying capacity auctions is “an extreme measure that severely destabilizes markets.”
He said he supported delay because PJM’s capacity market is unjust and unreasonable.
To make it just and reasonable, market reforms need to address several issues, including buyer-side manipulation of capacity market prices through below-cost offers, according to Danly.
Reforms should also address what Danly said was “mitigation” of bids so that all offers are essentially set by the independent market monitor and the resetting auction prices after an auction is run.
Clements said PJM’s three-year forward auction may need to be replaced with a “prompt” auction that seeks resources to meet near-term requirements.
“Such a structure would afford PJM greater certainty with regard to all auction inputs, including appropriate market rules, in advance of each auction,” she said. “And it could allow the [regional transmission organization] to break from its current cycle of uncertainty that promises a theoretical three-year forward structure but repeatedly fails to deliver it.”
PJM failed to adequately show it needed to delay its capacity auctions, according to Clements.
“The order sets a dangerous precedent that may essentially allow RTOs to schedule auctions according to their own whims, undermining certainty and stakeholder confidence in market rules and utility tariffs across the country,” she said.
Also, Clements warned that further delays are possible. “What will happen to the auction schedule if the stakeholder process to develop PJM’s capacity market reforms, or the commission’s evaluation of those reforms (if proposed) take longer than PJM expects, or if the commission does not issue an order that is ‘workable’ from PJM’s perspective?” Clements asked.
