FERC approves PJM capacity auction delays; Clements warns of 'recipe for chaos'

The Federal Energy Regulatory Commission approved the PJM Interconnection LLC's request to delay a series of power capacity auctions as the mid-Atlantic region's 13-state grid operator pursues a package of market reforms.

But Commissioner Allison Clements argued in a dissent that PJM failed to justify the delay and called FERC's June 9 order accepting the proposal "a recipe for chaos."

In April, PJM proposed (ER23-1609) a roughly one-year delay for its next forward capacity auction, previously set to begin in June, amid a fast-track review of its market rules with stakeholders.

The review effort was launched shortly after PJM announced a systemwide capacity clearing price of $28.92/MW-day for the 2024/2025 delivery year, marking the third consecutive decline in capacity prices.

Under PJM's capacity market construct, auctions have traditionally been held three years in advance of when power supplies are needed. The three-year forward approach was originally conceived with the assumption that most new generation resources in PJM will be developed on a four-year timeline.

However, PJM has been struggling to return to its three-year forward auction schedule after multiple delays due to disputes at FERC over rules designed to blunt the impact of state-level clean energy subsidies.

To justify a fresh round of auction delays, PJM cited a February analysis warning of a "potential mismatch between resource retirements, load growth and the pace of new generation entry."

The analysis found that 40 GW of existing generation is at risk of retirement by 2030. PJM's generator interconnection queue has approximately 290 GW of proposed projects, 94% of which are renewables, but queue processing delays may prevent new generator additions from keeping pace with retirements by 2030, according to the analysis.

In its April filing, PJM explained that the fast-track review will address four key aspects of its capacity market design.

Specifically, the process will address correlated generator outages in the winter months and rules that would allow capacity sellers to reflect market risks in their offers. Those reforms are being considered as PJM expects to assess $1 billion to $2 billion in penalties to generators that failed to perform as expected during a severe winter storm in December 2022.

The stakeholder review process also includes enhanced capacity accreditation methodologies for all resource types. PJM said it expects to file a package of market reforms with FERC by Oct. 1.

FERC concludes benefits of delay outweigh harms

In its June 9 order, FERC determined that "the potential scope and magnitude" of the reforms under consideration by PJM and its stakeholders "provide sufficient justification" for PJM's requested delay under Section 205 of the Federal Power Act.

"In particular, the reforms contemplated in PJM's stakeholder process mean that market participants would be participating in auctions in the face of significant uncertainty regarding critical rules governing their capacity supply obligations in the relevant delivery year, such as the penalty structure," FERC said. "We find the extent of that uncertainty sufficient to carry PJM's burden under [Federal Power Act Section 205] to justify the proposed changes to the auction dates."

In approving the delay, FERC disagreed with protests raised by multiple state regulators, who argued that a delay would undermine confidence in PJM's capacity market.

"Although we recognize commenters' concerns regarding the auction delay, on balance, we find that those potential harms are outweighed by the greater certainty that would be provided by delaying the auctions so that market participants can make informed decisions in the event the commission were to accept changes to the capacity market construct resulting from PJM's forthcoming capacity market proposal," FERC said.

'A dangerous precedent'

But Clements argued in a dissent that the majority's order will set a "dangerous precedent" that may allow FERC-jurisdictional grid operators to "schedule auctions according to their own whims."

Clements also questioned the assumptions in PJM's February analysis warning of a potential mismatch between generator retirements and new capacity additions.

"These sorts of high-level assertions could be made about nearly any market subject to the commission's jurisdiction, given that all markets need to evolve to address changing conditions and oncoming grid challenges," Clements said.

Clements expressed concern that FERC's approval "may tempt market operators and utilities across the country to alter deadlines whenever they develop a potentially significant filing."

The June 9 order "suggests that such requests will be judged by the 'scope and magnitude' of the reform at issue and the extent to which proceeding according to previously established deadlines will create uncertainty if the rules might subsequently be changed," Clements said. "But because it provides no yardsticks by which either factor will be judged, how the commission may respond to such future requests is anyone's guess. This is a recipe for chaos."

In a June 12 notice, PJM said capacity auctions covering the 2025/2026 through 2028/2029 delivery years will be held in accordance with the illustrative schedule included in its April filing. Starting in June 2024, capacity auctions will be held at roughly six-month intervals until PJM returns to its regular three-year forward schedule in May 2026, barring any further changes.

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