PJM on Monday requested a rehearing and clarification of FERC’s order to replace its market seller offer cap (MSOC), arguing that the commission’s decision to side with the RTO’s Independent Market Monitor may lead to over-mitigation of the market (EL19-47).

FERC on Sept. 2 approved the Monitor’s unit-specific avoidable-cost rate (ACR) proposal and required PJM to revise its tariff. That followed FERC’s order in March requiring PJM to revise the MSOC to prevent sellers from exercising market power in the capacity market, having been convinced by the Monitor’s arguments. (See FERC Backs PJM IMM on Market Power Claim.)

In its request, PJM said it “remains concerned” that the unit-specific review of all resources “may prove to be a significant overreach” to address concerns raised by the commission.

“The harm of over-mitigation under a unit-specific ACR approach is real and will inhibit the ability of capacity market sellers to base their offers on their respective cost estimates and assumptions about what is likely to occur three years in the future,” PJM said. “This is because each capacity market seller’s evaluation of risk relating to actual costs and revenues varies for various resources … and it is not appropriate for PJM or the Market Monitor to substitute their assessment of the risks for the capacity market seller’s demonstrable assessment of the risks.”

Because unit-specific reviews involve applying criteria that can “engender significant debate” and “charges of subjectivity” in the application of its components, PJM said disputes will “likely arise” under the revised MSOC because of disagreements over “sufficient support for the valuation of various risks in the unit-specific net ACR calculation.”

“In fact, all of the unit-specific offer caps requested to date for the upcoming BRA [Base Residual Auction] have already been rejected by the Market Monitor,” PJM said. “Thus, contrary to the commission’s finding, the concerns that the Market Monitor will not entertain alternative expectations of risk is not speculative. These disputes will ultimately prove disruptive to the [capacity] auction process given that they will likely end up at the commission — with limited time for resolution before the auction window opens.”

It noted that FERC had acknowledged in its order that replacing the existing MSOC with a unit-specific net ACR “will likely create more work for the Market Monitor and sellers by requiring the individual review of a higher number of capacity offers.” The commission had relied on the Monitor’s position “that its staff would be capable of any additional review resulting from its own offer cap proposal” to determine the new approach would not prove to be excessively burdensome.

But FERC failed to note that the RTO is ultimately responsible for making final determinations on all requested unit-specific ACRs, PJM argued, and it never indicated the reviews could be completed within the 25-day period allotted under the tariff to review the requests. The RTO said the larger volume of unit-specific requests expected under a net ACR approach would make reviews even more difficult. PJM “repeatedly expressed concerns of the administrative burdens” that would result from setting the MSOC at a capacity resource’s net ACR, it said.

The RTO also said the commission may have “inadvertently included default gross ACR values for demand resources and energy efficiency resources” in the tariff changes it ordered, which would make those resources subject to the MSOC and in conflict with an exemption elsewhere in the tariff.

“The current ACR calculation is not designed with demand resources or energy efficiency resources in mind,” PJM said. “Specifically, since avoidable costs are the costs that a demand resource or energy efficiency resource would not inquire absent the load curtailment or shift, the relevant input would be the cost for such load curtailment or shift. However, such costs are difficult to calculate since the cost of curtailment varies by industry, time and individual customer needs.”

Last month, PJM requested a delay of the BRA for the 2023/24 delivery year by almost two months, citing the commission’s Sept. 2 order. The RTO said the auction delay was necessary to give capacity market sellers and the Monitor a “realistic opportunity” to appeal the RTO’s final decisions on unit-specific offer cap requests resulting from the MSOC rules change. (See PJM Proposing 2-Month Capacity Auction Delay.)

Additional Rehearing Requests

Several other stakeholders also requested rehearing on Monday.

Exelon (NASDAQ:EXC) and Public Service Enterprise Group (NYSE:PEG) said in a joint filing that FERC’s order “employed a machete, slashing off the default MSOC” instead of using a “scalpel to fix the discrete problem” of recalibrating the number of expected performance hours.

“In selecting this remedy, the commission never found the broader Capacity Performance framework, including the opportunity cost-based default MSOC, to be unjust and unreasonable,” the companies said.

Vistra (NYSE:VST) said the commission’s order “contains at least three fatal market design flaws”: it was “based on the erroneous assumption that the marginal offer must be reviewed in all circumstances”; it “adopts technology-specific default offer caps that assume resources face zero risk associated with their PJM capacity supply obligations”; and it “unduly limits the costs a resource owner can include in a resource’s offer.”

“Each of those flaws, standing alone, renders the commission’s replacement rate unjust and unreasonable,” Vistra said.

A joint filing by Calpine, LS Power, Talen Energy, the Electric Power Supply Association and the PJM Power Providers Group said a rehearing is required because the commission “failed to properly consider the alternatives” and instead “adopted an MSOC that fails to properly reflect the risks and costs imposed on suppliers and is at odds with PJM’s Capacity Performance structure.”