- The PJM Interconnection plans to ask the Federal Energy Regulatory Commission to approve a rule that would allow the grid operator to change a capacity auction parameter that led to anomalous results in its just-held auction, Stu Bresler, PJM senior vice president for market services, said Wednesday.
- PJM planned to release the auction results Tuesday, but now intends to issue two sets of “indicative” results on Jan. 3. One set will show the results under existing rules and the other will show results under the proposed rule, which was set to be filed at FERC on Dec. 22, according to Bresler.
- PJM’s independent market monitor, Monitoring Analytics, supported the grid operator’s decision to seek the rule change, but some stakeholders said changing the rules after bids were made was “troubling” and “very worrying.”
PJM earlier this month launched an auction to buy capacity for the 2024/2025 capacity year. When the grid operator determined how much capacity it would need, it assumed a mix of generators would offer about 1,000 MW in the Delmarva Power South area because they had signed interconnection agreements, Bresler said during a PJM Members Committee meeting.
Those generators, however, didn’t bid into the auction, which produced a counterintuitive effect of reducing the amount of capacity needed for the area, which covers part of Delaware, Maryland and Virginia, according to Bresler. The capacity prices for the area in the auction were unjustly high, Bresler said.
In the case of a small “locational deliverability area” like Delmarva Power South, additions of large and/or intermittent units can lead to an increase in the area’s reliability requirement because capacity transfers are needed to account for times when the resources are not available, according to Bresler’s presentation.
The results, mainly confined to the Delmarva Power South area, were “unjust and unreasonable,” Bresler said.
“The harm is substantial and imminent if we don't take a step to address it, and we realize all of the significant implications of doing so,” Bresler said. “We don't take that action lightly.”
PJM planned to ask FERC to approve a rule change that would allow it to lower an area’s reliability requirement during the auction process if generators don’t bid into the auction as expected, according to Bresler.
PJM intends to ask FERC to make a decision on the proposal within 60 days, he said, noting it would take effect by “operation of law” if the agency’s four commissioners are split in a 2-2 vote. PJM expects to finalize the auction results after it has a decision from FERC, Bresler said.
The delay in releasing the auction results and getting a rule change isn’t expected to disrupt the grid operator’s next capacity auction set to be held in June, Bresler said.
PJM’s proposal is a “narrow” solution to a problem that has never occurred before, according to Bresler. The grid operator may launch a stakeholder process to craft a long-term solution, he said.
“PJM is doing the appropriate thing within as narrow a frame as possible,” Joseph Bowring, Monitoring Analytics president, said. “I don't believe it's going to create unintended consequences.”
PJM’s proposal was also supported by Michael Cocco, Old Dominion Electric Cooperative senior director of RTO and regulatory affairs.
“If you chose to ignore artificial and incorrect capacity requirements on the Eastern Shore and charge load for those artificially high capacity requirements, that clearly isn't just and reasonable,” Cocco said during the meeting.
Some stakeholders warned that PJM’s proposal sets a bad precedent.
“It's really troubling that we would change the rules in the midst of an auction,” Neal Fitch, NRG Energy senior director for regulatory affairs, said. “We're going to memorialize the option to change the rules along the way … That seems like a really bad outcome.”
“Changing the market rules after resource offers have been submitted … really opens a Pandora's box,” Arnie Quinn, Vistra vice president of FERC-jurisdictional markets, said.
Potentially, generators should be allowed to update their capacity offers in response to any rule change, he said.
PJM Power Providers Group, a trade organization for generators, is concerned about the grid operator’s plan to change its rules after the auction has been run, according to Glen Thomas, P3 president.
“Capacity suppliers participated in this auction with the expectation that PJM will apply its own tariff as it's been approved by FERC,” Thomas said Thursday in an email. “Now, based on PJM's determination of the results of the auction, they are proposing to change the rules and alter the outcome. Effective markets don't work that way – nothing is assured if market rules are not applied. We hope that FERC recognizes the dangerous precedent that PJM is trying to set here.”
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.