Generators and clean energy trade groups on Jan. 20 urged federal regulators to reject a PJM Interconnection LLC proposal to alter the results of its latest capacity auction, arguing the grid operator's proposed solution to a mismatch in supply and demand will undermine confidence in PJM's capacity market.
But state regulators and consumer advocates asked the Federal Energy Regulatory Commission to approve PJM's proposed fix, calling it the best way to address what would amount to a more than 400% increase in prices for the Delmarva Power & Light Co. capacity zone, covering Delaware and Maryland's and Virginia's Eastern Shore.
The jump in capacity prices is tied to the planning and modeling parameters PJM uses to conduct its forward capacity auctions, which are designed to procure a sufficient level of power supplies three years ahead of when they are needed.
When calculating a local delivery area's reliability requirement, PJM models generating units with signed interconnection agreements and expected in-service dates that fall within the auction's delivery year. PJM then incorporates those assumptions into a downward-sloping demand curve that aims to reflect the actual supply and demand for power capacity in local delivery areas within PJM's 13-state footprint.
Clearing prices will increase significantly if the amount of capacity offered in an auction falls short of the demand curve, which can reflect the need to invest in new generation.
The issue in Delmarva Power & Light's capacity zone, dubbed DPL-S, is that approximately 1,000 MW of planned new generation resources did not participate in the 2024/2025 capacity auction as PJM had expected. PJM does not require planned generation resources to participate in capacity auctions. Generation owners may decline to do so for reasons such as permitting challenges, interconnection delays, or a desire to avoid costly performance penalties.
Given the lack of participation in the latest auction, DPL-S fell 181 MW short of the 1,505-MW reliability requirement PJM had calculated. If the results for the 2024/2025 capacity auction were allowed to take effect, prices in DPL-S would clear at a price cap of $426.17/MW-day, an amount about six times higher than the prior auction's clearing price of $69.95/MW-day.
State regulators call solution 'narrow and appropriately tailored'
In December 2022, PJM sought to address the problem through a pair of filings (ER23-729, EL23-19) with FERC under Section 205 and Section 206 of the Federal Power Act.
In its Section 205 filing, PJM proposed to recalculate the reliability requirement for DPL-S by excluding the nonparticipating generation resources from its modeling assumptions. PJM also proposed a set of technical rule changes that would allow the grid operator to address supply-demand mismatches before future auctions commence.
PJM made its separate Section 206 filing "out of an abundance of caution" to allow FERC to require its own changes if the commission determines the rates in the 2024/2025 capacity auction are unjust and unreasonable.
A coalition of state agencies representing Delaware, Maryland and Virginia supported PJM's preferred Section 205 approach, calling it "both narrow and appropriately tailored."
The coalition noted that PJM has been struggling to return to a regular three-year forward capacity auction schedule due to delays caused by disputes at FERC over whether state-subsidized clean energy resources should be subjected to a contentious minimum offer price rule.
"Avoiding further delays in the [auction] timeline is particularly critical as PJM stakeholders seek to reestablish the three-year forward procurement of capacity resources that has already been delayed by various proceedings before the commission," the agencies said in joint comments.
In separate comments, the Maryland Office of People's Counsel said it is "mindful that 'after-the-fact' changes in PJM's rules for procurement ... are not preferred." However, the office noted "there are special and extraordinary circumstances" at play in the DPL-S capacity zone, including "very adverse rate consequences for consumers" in the area.
Generators, clean energy groups protest approach
Conversely, power generators and clean energy trade groups were united in opposition to PJM's proposed approach.
PJM's proposal runs afoul of FERC's filed rate doctrine and rule against retroactive rate-making, the American Clean Power Association, Solar Energy Industries Association and Advanced Energy United argued in a joint protest.
"PJM's Section 205 filing constitutes one of the most drastic proposed administrative overreaches by a regional transmission organization or utility that the clean energy associations have observed," the groups said. "If the Section 205 filing is accepted, market participants will lose confidence that future capacity market auction results will reflect competitive forces as PJM will effectively have a unilateral right to administratively adjust auction results at its discretion on a post-hoc basis."
The groups urged FERC to use its authority under Section 206 of the Federal Power Act to direct "a full re-run" of the 2024/2025 capacity auction that incorporates accurate modeling assumptions.
"A full auction re-run with corrected modeling assumptions would allow all market participants to engage in the auction with full awareness of the changes that PJM seeks to implement," the groups said.
Changing the rules after-the-fact would be "unlawful, unjust, unreasonable, unwise and unfair," NRG Energy Inc. said in a protest that also asked the commission to "summarily reject" PJM's proposals.
Independent power producer Vistra Corp. said that allowing PJM to change the rules after auction parameters were set, after market participants submitted offers, and after PJM has run the auction but before auction results are posted is "unlawful, unnecessary, and would set a precedent that could have cascading effects on future PJM auctions and potentially on system reliability." The company also asked FERC to reject PJM's filings.
PJM should "not attempt to shoehorn in a momentous change that impacts all market participants after the auction is all but complete simply because it does not like the auction outcome," Electric Power Supply Association president and CEO Todd Snitchler said in a statement sent late Jan. 20. The trade group, which represents competitive power suppliers, also filed a protest in the proceedings.
S&P Global Commodity Insights reporter Jared Anderson produces content for distribution on Platts Dimensions Pro. S&P Global Commodity Insights is owned by S&P Global Inc.
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