MIC Mulls Capacity Auction Logistics; PJM Urges FERC to Act

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Pending a ruling from the Federal Energy Regulatory Commission on PJM’s proposed capacity market reforms, members are being instructed to comply with deadlines set out in the proposal so they will be prepared to conduct the capacity auction on schedule.

In a March 11 filing, PJM outlined potential problems created by the absence of FERC direction and urged the Commission to act “with expediency.”

Jeff Bastian, manager – Capacity Market Operations, provided the Market Implementation Committee an update March 6 on the 2022/23 Reliability Pricing Model (RPM) Base Residual Auction.

The auction has been delayed from May to Aug. 14 to give FERC time to weigh in on the proposed rule changes and PJM time to implement the Commission’s eventual decision.

The first deadlines concern the Minimum Offer Price Rule (MOPR) provisions, which would be substantially revised under PJM’s proposal. The most time-sensitive MOPR-related deadline is March 17, by which date Capacity Market sellers must specify whether any capacity resource they intend to offer into the auction includes an “actionable subsidy.” (Find a complete schedule of deadlines here.)

The designation is key, as the reforms intend to respect state subsidies of electricity generators while maintaining competitive capacity market prices. (See PJM Files Capacity Market Proposals on Generator Subsidies.)

The proposal was in response to FERC’s ruling of June 29, 2018, which agreed with PJM that state subsidies distort the capacity market as currently designed, but differed on the remedy and provided certain instruction toward a solution.

FERC had been expected to rule no later than March 15 on PJM’s proposed reforms, but a backlog at the Commission – which experienced the January death of Commissioner Kevin McIntyre – makes action by that date questionable.

Members participated in a long, thoughtful discussion on the uncertainty. Some said it was sowing “chaos,” given that at the same time capacity sellers are preparing for the auction, several states are considering new out-of-market support for certain generation.

Stu Bresler, senior vice president – Operations and Markets, said PJM feels its “parallel path” approach is the most prudent to prepare to the extent possible.

Must-Offer Exception Process Proposals

In separate business, the MIC voted to send one of two alternate proposals addressing PJM’s must-offer exception process to the Markets and Reliability Committee (MRC) for consideration at its March meeting, with a vote set for April.

Capacity Market participants commit to offer their resources in a certain delivery year. If they cannot – for example, if a unit is non-operational – they must apply for a must-offer exception.

Some members have expressed concern about how long a capacity resource can receive such an exception and still retain Capacity Interconnection Rights (CIRs). That is, at what point should a capacity resource be forced to relinquish its CIRs – which could allow the entry of a new resource – and be disqualified from the capacity market and reclassified as an energy resource.

Under the main motion, an existing generation capacity resource continually approved for a Capacity Performance (CP) must-offer exception that has not offered into the capacity market auctions for three consecutive delivery years would be required to change its status.

Previously, the MIC endorsed this proposal with 79 percent approval, sending it out of committee. In December, however, the Markets & Reliability Committee sent it back, requesting more discussion.

During that time, Exelon presented a proposal matching the main motion but without the language for the forced status change. In addition, PJM and the independent market monitor presented an alternate proposal that took the main motion further, requesting documentation about a resource’s plan to become CP. (See how the proposals compare.)

On Wednesday, members rejected the PJM/IMM proposal but endorsed the Exelon proposal with 61 percent approval, exceeding the 50-percent threshold.

When asked if they preferred the Exelon proposal to the status quo, only 49 percent said yes. In a subsequent poll, 85 percent of members said they preferred the Exelon proposal over the main motion.