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PJM tells FERC that capacity sellers are following both existing, proposed rules

The PJM Interconnection has notified capacity market sellers to follow all relevant pre-auction deadlines under both existing market rules and proposed changes on which the Federal Energy Regulatory Commission has yet to rule in order to keep the auction on schedule for August.

"The lack of a final commission order frustrates the internal planning processes of market participants and becomes more problematic over time," the grid operator explained in a March 11 informational filing.

Specifically, PJM has advised those sellers that existing capacity market rules as well as PJM's proposed changes — with revised minimum offer price rules and a "resource carve-out," or RCO, alternative — should be followed. The RCO would allow a capacity market seller with an actionable subsidy to choose to be carved out from the capacity market while potentially still earning revenue from other PJM markets.

The grid operator raised this "parallel path" approach to preparing for the auction, which FERC already agreed could be pushed back from May to August, during a March 6 stakeholder meeting at which some market participants said they would prefer delaying the auction again.

Stakeholders expressed concern about making generation unit retirement decisions on tight deadlines amid rule uncertainty. PJM is "basically saying this could be life or death for your unit and yet you want us without a tariff to comply with these provisions that might be in place and do it in a week and a half," a stakeholder said during the online Market Implementation Committee meeting.

Sellers must specify whether a capacity resource is receiving an actionable subsidy, such as a state-level zero-emissions credit, by March 17, according to PJM. They also must notify the grid operator if they plan to deactivate a unit with the intention of seeking a must-offer exception by that same date.

In the latter case, the capacity market seller still may bid in the auction if its deactivation plans change such that it will be available for the relevant delivery year, which is 2022/2023 for the upcoming capacity auction.

The next important milestone is April 16, by which information about market seller offer caps and must-offer exception requests need to be submitted, according to PJM's informational filing.

PJM previously conducted auctions with pending Federal Power Act Section 205 filings as well as pending Section 206 complaints, the grid operator explained. But it has not done so when the commission already has found that its existing capacity market rules are unjust and unreasonable, "with no established just and reasonable replacement rate in place, as is the circumstance PJM finds itself in now."

FERC in June 2018 found that PJM's existing tariff governing its capacity market is unjust and unreasonable and initiated a proceeding to adjust the rules. The order said PJM's capacity pricing model had become "untenably threatened by out-of-market payments provided or required by certain states."

In the event FERC does not issue an order prior to the commencement of the upcoming base residual auction scheduled for August 14-28, PJM will have to consider conducting the auction under its existing rules, the grid operator said.

PJM urged FERC to issue a final order with "expediency," noting that "the current market uncertainty and confusion over the state of the capacity market will only grow as the commission's order is further delayed." (FERC docket EL18-178)