The PJM Interconnection’s proposal to set a price cap and price floor for its next two capacity auctions — and the way the proposal was developed — may undermine confidence in the grid operator’s markets, according to comments filed at the Federal Energy Regulatory Commission.
“It is impossible for market participants to have confidence in PJM’s markets and stakeholder proceedings if PJM is willing to repeatably and unilaterally upend its market rules in response to externalities, with little to no deliberation with stakeholders,” LS Power said in a Monday filing at FERC.
The issue centers on PJM’s plan to set a roughly $325/MW-day price cap and a $175/MW-day floor for its 2026/27 and 2027/28 delivery year capacity auctions. The “price collar” proposal would resolve a complaint filed on Dec. 30 by Pennsylvania Gov. Josh Shapiro, D, over PJM’s capacity auctions. The next auction is set to be held in July.
The proposed price floor is designed to ensure that investors in generating resources can be assured they will receive at least a minimum amount of revenue to offset the risks of having a price cap, according to PJM.
However, ratepayer advocates and others objected to the price floor.
“The price collar represents a ‘quick fix’ that threatens to simultaneously undermine the market principles that are supposed to be the foundation of [regional transmission organization] pricing, inhibit investment that is sorely needed for resource adequacy, and harm consumers with an artificial price floor that could raise prices without any commensurate reliability benefits,” the North Carolina Utilities Commission and its ratepayer staff said.
PJM’s market monitor also urged FERC to reject the grid operator’s proposal, partly over the price floor provision. “The inclusion of a minimum price greater than zero is a radical break from the definition of the [variable resource requirement] curve since its introduction and does nothing to resolve the complaint,” the market monitor said.
Except for PJM’s last base capacity auction, the proposed $175/MW-day price floor would be higher than the average of all previous capacity market weighted average auction clearing prices of $116.30/MW-day, the market monitor said. For most of the PJM region, capacity prices for the next delivery year that starts on June 1 cleared at nearly $270/MW-day.
“PJM has not alleged — let alone shown — that a price floor is needed to correct a market flaw and ensure just and reasonable rates,” six ratepayer advocates said in a filing. “PJM’s price floor would cause overpayments at different times by requiring customers to pay more than needed for reliability when adequate supply is available at lower prices.”
The filing was submitted by the Illinois Attorney General’s Office, the Illinois Citizens Utility Board, the Maryland Office of People’s Counsel, the New Jersey Division of Rate Counsel, the Office of the Ohio Consumers’ Counsel and the Office of the People’s Counsel for the District of Columbia.
Eroding market integrity
The Public Utilities Commission of Ohio’s Office of the Federal Energy Advocate contends the proposal “further erodes” the PJM market's integrity.
“While a narrow band of administratively allowed prices may inject price certainty in the near term, the impact this proposal may have on the willingness of market participants to make long-term investments in the PJM marketplace remains to be seen,” the PUCO office said. “The Ohio FEA is concerned that confidence in the integrity of the PJM markets, already severely undermined by years of constant litigation, negotiation, and uncertainty, will be further eroded.”
The “price collar” proposal highlights the need for fundamental capacity market reform, according to American Municipal Power, a wholesale power supplier. “Despite years of tinkering, [the capacity market] is failing to produce an adequate supply response at just and reasonable costs to consumers, AMP said.
AMP urged FERC to launch a broad investigation into PJM’s capacity market framework.
American Electric Power also said broad market changes may be needed, including “alternative approaches” to a single-year capacity auction.
Parties supporting PJM’s price collar proposal include the Pennsylvania Public Utilities Commission, the New Jersey Board of Public Utilities, Constellation Energy, Dominion Energy and Duquesne Light, an AES utility.
“Facing the current rate of load growth and a compressed auction timeline, PJM’s proposed symmetrical capacity auction price cap and floor strikes a balance between protecting customers from excessive capacity costs and incentivizing generation to participate in PJM’s wholesale capacity markets,” Dominion said.
