PJM Awaits FERC Direction as Deadlines Near for Next Capacity Auction

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All activities and deadlines associated with the 2022/2023 Base Residual Auction have been halted following a July 25 order from the Federal Energy Regulatory Commission directing PJM to postpone the capacity auction, Pat Bruno, senior engineer – Market Services, told the Market Implementation Committee Wednesday.

The capacity auction had been scheduled for Aug. 14 after being delayed from May to allow time for FERC to weigh in on and PJM to implement proposed rule changes.

Bruno said PJM is hopeful FERC will provide further guidance soon, as deadlines will begin to kick in for the subsequent Base Residual Auction – for the 2023/2024 delivery year – in coming months.

First Deadline Approaches for 2023/2024

The first deadline for the 2023/2024 Base Residual Auction is Sept. 1. That’s for market participants to submit preliminary requests for exceptions to the must-offer rule related to planned deactivations.

Bruno said that since the deadline is for preliminary information only, and it’s highly unlikely FERC would have time to respond to a waiver request by Sept. 1, PJM will not alter that deadline.

Incremental Auctions Proceeding

Incremental auctions are still being run under existing rules, Bruno said.

It is unclear whether incremental auctions that take place after FERC’s expected ruling would be affected.

When FERC provides further instruction, PJM will need to review the ruling with stakeholders and make a compliance filing, Bruno said. Then, it will set a new auction schedule and deadlines.

Capacity Market Reform

PJM administers the capacity market to secure enough power supply three years in the future to ensure sufficient energy will be available to meet customers’ peak demand. Its annual competitive auction aims to obtain these future supplies at the lowest reasonable price.

PJM has been pursuing changes to capacity market rules since early 2017 to accommodate public policy initiatives that result in some supply resources being subsidized.

Addressing the Effects of Subsidies

In April 2018, PJM proposed two alternatives to FERC to address the price-suppressive effects of these subsidies.

In a June 2018 ruling, FERC agreed that state subsidies distort the capacity market as currently designed, finding that the market is no longer just and reasonable. However, it rejected both proposals presented by PJM.

In that order, the Commission indicated PJM should revamp its Minimum Offer Price Rule and develop an alternative for subsidized generation and corresponding load to be carved out of the capacity market on a unit-specific basis.

Plan Submitted Last Fall

PJM submitted a new plan pursuant to the June 2018 FERC order on Oct. 2, 2018. FERC has yet to rule on it, and has no deadline to do so.

In the meantime, FERC granted PJM’s request to delay the capacity auction from May to Aug. 14.

Having heard nothing from FERC by April, PJM notified the Commission of its intention to run the auction under existing rules unless the Commission directed otherwise – which it did with its July 25 ruling. PJM responded to the July 25 ruling in a statement, saying FERC “recognized that confidence in the auction and its results is vitally important to all of our stakeholders and the integrity of the market. We look forward to additional guidance from FERC on the design of PJM’s capacity market.”