The Federal Energy Regulatory Commission (FERC) on March 18 told the PJM Interconnection, its market monitor and market participants in the region that the existing default market seller offer cap fails to allow for adequate review of potential market power concerns in the capacity market, because it is based on an unreasonable expectation of the number of performance assessment intervals PJM will experience in a given delivery year.
The Commission directed parties to propose alternative methods for market power review and mitigation in the capacity market.
The default market seller offer cap originally was established as part of PJM’s 2015 capacity performance construct, in response to the 2014 polar vortex. The offer cap mechanism is intended to mitigate the market power of capacity resources in PJM by requiring resources seeking to offer above the default offer cap to submit cost data in support of the offer. Offers below the cap are deemed to be competitive and are not required to be cost-justified.
The offer cap is set through a formula that takes into account the number of performance assessment intervals PJM will experience in a given delivery year, essentially the number of hours that PJM might experience an emergency. Under the PJM formula, use of a higher number of performance assessment intervals can result in a higher default offer cap.
FERC’s order stems from two complaints filed in 2019 by the market monitor and consumer advocate groups in the region, alleging that PJM’s calculation of the default market seller offer cap in the capacity market is unjust and unreasonable.
The complaints were supported by the American Public Power Association.
FERC found PJM’s existing rate unjust and unreasonable, concluding that PJM was not using a reasonable estimate of expected performance assessment intervals, and, therefore, the default offer cap resulting from that estimate is also unjust and unreasonable. FERC said it needs additional evidence to set the appropriate replacement rate and therefore ordered additional briefing.
FERC’s action on the complaints will not interfere with PJM’s upcoming May 2021 capacity auction for delivery year 2022-2023, FERC said. The auction should take place as scheduled under current rules.
FERC noted that it will continue to exercise its oversight of the upcoming auction and any anticompetitive conduct observed may be referred to the Office of Enforcement.
The order is available here.