PJM to Run Capacity Auction in August under Current Rules

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PJM will hold the upcoming capacity auction as scheduled under current market rules, barring an order to the contrary from the Federal Energy Regulatory Commission, president and CEO Andy Ott announced Wednesday.

PJM’s decision was made in consultation with the PJM Board of Managers, and the plans are outlined in a Wednesday filing, Ott said at a meeting of the Market Implementation Committee. The filing also asks FERC to clarify that it will not invalidate the results of the auction with a subsequent order that would require rerunning the auction.

Providing a Path Forward

“We’re trying our best to provide a path forward that provides as much clarity as we can,” Ott said.

Certainty in the market is essential, Ott said, and PJM is legally obligated to operate under current market rules, which include holding the auction in 2019.

Ott noted that the industry environment is the same as the previous year. No new major resources have received subsidies under current legislation, and while expected in the future, no large-scale renewable penetration has happened in the last year.

The filing emphasizes that the number of resources falling under the Minimum Offer Price Rule is relatively small.

“We think this is the best approach. There is no way to get absolute certainty,” Ott said. “This was not an easy decision.”

The filing does not ask FERC to rule by a certain date, and the Commission is not compelled by any deadline to respond. However, PJM will be “strenuously asking” FERC to provide clarification, Ott said.

Auction Timeline and Background

The auction, for the 2022-2023 delivery year, is scheduled for Aug. 14. It was delayed to allow time for FERC to approve and PJM to implement changes to the capacity market.

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. 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 to correct the problem.

In its 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.

PJM submitted a new plan on Oct. 2, 2018, but FERC has yet to rule, and has no deadline to do so.

The ensuing uncertainty has led to a broad discussion among stakeholders about how to proceed, including whether to request yet another auction delay. Ott said stakeholders are free to petition FERC for such an order, but noted that FERC would be under no time obligation to respond.