Dive Brief:

• Federal regulators should reject the PJM Interconnection’s proposal to change its capacity market rules in the midst of an auction, in part because it would undermine certainty in wholesale power markets, according to power plant companies such as Constellation Energy Generation, NRG Energy and Vistra as well as generator and clean energy trade groups.
• PJM’s Dec. 23 proposal amounts to “after-the-fact tinkering” that is barred by the filed rate doctrine and the rule against retroactive ratemaking, the Electric Power Supply Association said in a Friday filing at the Federal Energy Regulatory Commission.
• PJM’s market monitor and state regulators generally supported the grid operator’s proposal, which aims to address a flaw in rules that PJM said would lead to a 400% increase in capacity prices in the Delmarva Power South area above what they should be based on supply and demand.

Dive Insight:

When PJM staff reviewed the preliminary results of its early December capacity auction, they found that a “confluence of events” produced exceptionally high capacity prices in Delmarva Power South, which covers part of Delaware, Maryland and Virginia, according to the grid operator.

The results didn’t reflect the area’s reliability needs and were unjust and unreasonable, PJM said in its proposal. The grid operator has delayed releasing the results.

However, NRG Energy, which owns about 593 MW in Delmarva Power South, told FERC the results were roughly in line with expectations for the area. Further, NRG said it made business decisions based on those expectations.

“In its haste to avoid a politically unpalatable auction outcome, PJM has proposed an ill-conceived remedy that will chill beneficial bilateral contracting and hedging activity and undermine the ability of the capacity market to help preserve reliability,” NRG said.

PJM’s proposal would make it impossible for market participants to rely on auction parameters — such as how much capacity is needed in each PJM zone — the grid operator releases ahead of each auction, according to EPSA. It would also deter bilateral contracting and investments while resulting in prices that do not reflect reliability needs, the trade group said. 

“This is particularly true because PJM has repeatedly demonstrated, and continues to demonstrate in the December 23 filings, a bias towards actions that will push down prices while failing to make fixes, much less timely fixes, needed to ensure that resources necessary for reliability have the opportunity and incentive to remain in the market,” EPSA said. 

The American Clean Power Association, the Solar Energy Industries Association and Advanced Energy United jointly protested PJM’s proposal, calling it a “drastic” overreach.

“By giving PJM the ability to reverse engineer the capacity auction to achieve PJM’s own desired outcome, the [Federal Power Act] Section 205 filing, if accepted, would undermine confidence in PJM’s capacity market,” the trade groups said.

If PJM’s proposal is approved, it would set a precedent that any regional transmission organization can change capacity market auction results if the grid operator disagrees with the outcome, the groups said.

The timing of PJM’s proposal in the middle of the auction process is “not preferred,” but the grid operator’s plan is justified, regulators from Delaware, Maryland and Virginia said in a joint filing.

The proposal is “narrow and appropriately tailored to produce outcomes that are just, reasonable, and not unduly discriminatory,” the states said.

The Organization of PJM States, which represent state utility regulators, supported the comments from Delaware, Maryland and Virginia. Old Dominion Electric Cooperative, which serves utilities in the Demarva Power South area, also backed PJM’s plan.

Monitoring Analytics also backed PJM’s plan. “If the flaw is not corrected, prices would be set at scarcity levels in [Delmarva Power South] that do not reflect the actual market supply and demand fundamentals, overstate the local reliability requirement, serve no useful purpose, and are therefore unjust and unreasonable,” PJM’s independent market monitor said.

PJM typically holds annual capacity auctions, called base residual auctions, to secure capacity three years in advance. The grid operator is holding its auctions on an accelerated schedule to make up for a multi-year pause in the auctions in response to FERC orders changing the market structure.

PJM operates the grid and wholesale electricity markets in 13 Mid-Atlantic and Midwestern states, plus the District of Columbia.