Electricity Markets

Federal Energy Regulators Accept PJM Proposal Tied to Base Residual Auction

The Federal Energy Regulatory Commission recently accepted a PJM Interconnection proposal addressing a unique set of circumstances discovered during the clearing process for PJM’s 2024/2025 Base Residual Auction conducted as part of the capacity market administered by PJM.

The Feb. 21 order will allow PJM “to complete the auction in a manner that ensures just and reasonable results consistent with the reliability requirements of each Locational Deliverability Area in PJM,” the grid operator said.

FERC found PJM’s proposed tariff revisions to be just and reasonable and did not require PJM to reopen the bidding window.

As a result, PJM will post the Base Residual Auction results for the 2024/2025 Delivery Year on Feb. 27 after 4 p.m.

In the 2024/2025 Base Residual Auction, which closed Dec. 13, a large amount of planned generation with signed interconnection service agreements did not offer in the auction in one small Locational Deliverability Area of Delmarva South (DPL South), resulting in a supply and demand condition that did not reflect underlying fundamentals, according to PJM.

As a result, PJM estimated that customers in DPL South would be required to pay four times more for capacity for the 2024/2025 Delivery Year absent updating the Locational Deliverability Area Reliability Requirement.

In late December, PJM sought narrow tariff revisions to ensure a just and reasonable outcome for consumers in DPL South for the 2024/2025 Base Residual Auction in particular. PJM’s proposal to update the Locational Deliverability Area Reliability Requirement would also apply to future RPM Auctions where the requirement increases by more than one percent from the prior auction.

PJM’s proposed Tariff revisions, prevent “consumers from being charged unnecessarily high capacity prices that do not reflect actual reliability needs or supply and demand fundamentals,” the FERC order stated. “That exorbitant price increase would not be the result of supply and demand fundamentals – or an actual reliability need – meaning that there is no economic or reliability justification for those additional costs.”

FERC accepted the PJM tariff changes over the objection of a number of protestors, including merchant generators, who argued that PJM was improperly changing the auction rules retroactively.  In a dissent, FERC Commissioner Danly agreed with the protestors, likening FERC’s action to a casino where the house changes the rules of blackjack in the middle of a game.  He suggested that the order would reduce generators’ willingness to participate in the PJM capacity market.

While accepting the PJM proposal, the FERC order directed the convening of a forum in the near future to consider generally the PJM capacity market and “how best to ensure that it achieves its objective of ensuring resource adequacy at just and reasonable rates.”