Electricity Markets

FERC orders PJM not to hold capacity auction in August

The Federal Energy Regulatory Commission on July 25 ordered the PJM Interconnection not to hold the next Base Residual Auction (BRA), procuring capacity for the 2022-2023 delivery year, in August as originally planned.

In the order, the Commission denies PJM’s April 10 motion for clarification, in which PJM had said it intended to run the BRA in August despite the absence of an order from FERC in the ongoing paper hearing addressing PJM’s capacity market, the Reliability Pricing Model (RPM).

The hearing was initiated with a June 2018 order in which the Commission found the RPM to be unjust and unreasonable. PJM had requested and received approval from FERC for a delay in the 2022-2023 BRA from May until mid-August.

In its April motion, PJM had also requested that the Commission confirm that to the extent the Commission has not established a replacement rate prior to the August 2019 BRA, any replacement rate later established would be applied prospectively and would not require PJM to rerun the August 2019 BRA.

Details on FERC order

In the July 25 order, the Commission denied PJM’s request for clarification that any eventual replacement rate approved by FERC would not require rerunning the August BRA.

“We will not rule prematurely on the issue of any appropriate remedy prior to rendering a determination on the merits of a replacement rate,” FERC said in the order.

FERC directed PJM not to run the BRA in August. While recognizing “the importance of sending price signals sufficiently in advance of delivery to allow for resource investment decisions,” the Commission also stated its belief that “in the circumstances presented here, on balance, delaying the auction until the Commission establishes a replacement rate will provide greater certainty to the market than conducting the auction under the existing rules.”

The order does not provide any indication of when FERC might issue an order in the RPM hearing, nor does it set a date for the 2022-2023 BRA.

Commissioners issued concurring statements

Commissioners Cheryl LaFleur, Richard Glick and Bernard McNamee issued concurring statements. All agreed that in the absence of an order, the BRA could not be conducted. But LaFleur and Glick were highly critical of the Commission for its inaction in this docket.

LaFleur referred to her dissent in the June 2018 order, stating that “At the time, I called the June 2018 Order an act of regulatory hubris; however, given the passage of time, the uncertainty created by the Commission might better be labeled an act of regulatory malpractice.”

LaFleur also reiterated the point made in her dissent “that an ill-considered replacement market design that imposes choices on the states without adequately accounting for their input could ultimately lead to the unplanned demise of the capacity market.”

Glick also referenced his dissent from the June 2018 order, noting that “it was readily apparent at the time that the Commission had neither a coherent, well-supported theory of why the PJM Interconnection, L.L.C. (PJM) tariff was unjust and unreasonable nor a clear, well-articulated vision for how to remedy the perceived deficiencies.”

He also noted that FERC “is now fully responsible for the damage done to date and whatever comes next.”

In his concurrence, McNamee expressed his disagreement “with certain characterizations put forth in my colleagues’ concurrences,” specifically Glick’s statement about the Commission’s responsibility.

“To suggest the Commission is the source of the problems presently facing PJM is to ignore nearly a decade of proceedings attempting to address the interaction between competitive markets and out-of-market subsidies,” wrote McNamee.