Lacking consensus, PJM Thursday dropped plans for a vote on measures to prevent speculation in the capacity auctions, returning the issue to a lower committee.
The Markets and Reliability Committee voted by acclimation to approve PJM’s recommendation to return the issue to the Capacity Senior Task Force.
Because clearing prices in Incremental Auctions (IAs) are usually lower than those in the Base Residual Auction (BRA), participants can profit by selling capacity in the BRA and buying out their commitments in the IAs.
The CSTF voted earlier this month on 11 proposals to remove arbitrage incentives, with PJM’s proposal winning 60% support and the others ranging from 0% to 33%. Two-thirds of voters backed a change in the status quo.
Executive Vice President for Markets Andy Ott said officials hope the delay will allow more members to coalesce around a single proposal, resulting in “less angst” over whether the result will be approved by FERC.
Craig Glazer, vice president for federal government policy, noted that FERC staff raised questions about the issue at a FERC technical conference Nov. 13. Ed Tatum, of Old Dominion Electric Cooperative (ODEC) told the staff at the hearing that one reason for the disparity in prices between the Base and Incremental auctions is that PJM has procured too much capacity in the BRA — imposing excessive costs on load. (See FERC Staff Skeptical on PJM Demand Response Changes.)
Dan Griffiths, director of the Consumer Advocates of PJM States (CAPS), said the MRC would have rejected the staff proposal had it come to a vote. But he was skeptical about the chances of reaching consensus. “I don’t want anyone to think we’re going back to the CSTF to negotiate against ourselves,” he said.
Members spent the first half of yesterday’s CSTF session attempting to narrow their differences on the issue with no apparent breakthrough. Much of the discussion focused on developing penalties — and related credit requirements — tough enough to discourage speculation without creating barriers to entry for small market participants.
Task Force Chair Scott Baker called the delay a “reset … not a reboot,” saying the previous work had provided a “solid foundation” to move forward.
Market Monitor Joe Bowring said the committee needs to develop “clear enforceable rules” to define prohibited speculation. “Right now there’s nothing I can do regarding a participant that I know for a fact is engaging in behavior that we’re concerned about.”
The CSTF has three additional meetings scheduled through January. PJM hopes to win passage of a consensus plan by the end of January in time for a FERC filing in February.
