Generation owners are attacking PJM’s filing asking FERC to approve a change to the parameters of the RTO’s 2024/25 capacity auction, calling it a tariff violation and an attempt to intervene on behalf of buyers.
But utilities and state advocates argue that the potential impact of the auction’s results on ratepayers justifies the action.
In two filings last month, PJM laid out how a mismatch between the resources used to calculate the reliability requirement for the DPL South (DPL-S) locational deliverability area (LDA) — centered on the Delmarva Peninsula — and those that actually participated in the auction led to a fourfold increase in clearing prices compared with the previous year’s auction (EL23-19, ER23-729).
Describing the outcome as an artificial inflation in prices, the filings asked the commission to allow PJM to revise the reliability requirement to remove those generators that did not enter the auction as an additional step in the optimization algorithm run after bids have closed. (See PJM Decides Against Posting Indicative Capacity Auction Results.)
The core argument of the generators’ protests is that PJM’s tariff requires it to close the auction and post the results as soon as possible and that the RTO lacks the authority to hold it open while making a filing with FERC.
Former FERC Chair Joseph Kelliher submitted an affidavit in support of the PJM Power Providers (P3) protest to PJM’s filing, saying that granting the RTO’s request would violate the filed rate doctrine, which prohibits the charging of rates different from those filed with FERC, and the rule against retroactive ratemaking.
In rebutting PJM’s argument that changing the auction parameters would not violate the rules because the auction has not been completed, Kelliher compared the auction results to Schrodinger’s Cat. He noted that the RTO has stated that the results are preliminary and incomplete, but relies on the figures to estimate the impact to clearing prices in DPL-S.
“[T]he auction process appears to be final, except for the ministerial step of posting the auction results that PJM apparently has in hand but refuses to formally post — are the auction results final or preliminary?” he wrote.
Kelliher also argued that granting PJM’s requests would be bad policy, undermining confidence in capacity auctions and the commission.
“The commission has consistently recognized the importance of assuring market certainty and maintaining market integrity, even to the extent of opposing the re-running [of] RTO auctions to provide refunds as remedies in FPA Section 206 complaint proceedings and in response to court remands, where [the] commission has discretion to order re-running of markets, on the grounds that doing so would ‘undermine confidence in markets,’” he said.
NRG Argues Price Jump was Predictable Months Before Auction
In its protest, NRG Energy said it had relied on the market information and price estimates based on them to make “irreversible commercial decisions.”
“In its determination to retroactively revise the auction results to avoid politically unpalatable results dictated by the rules in effect when the auction was conducted, PJM blithely ignores the substantial and actual reliance interests of the NRG Companies and other market participants and proposes to change the rules after-the-fact,” the company wrote.
It also argued that PJM should have been aware of the likelihood that the reliability requirement would lead to elevated prices in DPL-S, as the company had previously reached out to PJM to inquire about the 12% increase for the LDA. The RTO responded that historical winter forced outages and expected increase in solar resources increased the risk of loss of load in the winter, leading to the higher reliability requirement.
Based on those parameters, the company estimated that the LDA would clear at around the cap of $426.17 MW/day and instructed traders to rely on PJM’s parameters after receiving its response, leading the company to reject capacity purchase offers on the grounds that it expected higher prices.
EPSA Worries About Reliability Impacts
The Electric Power Supply Association (EPSA) noted that the reliability requirement for LDAs looks at existing resources and projected resources expected to be in service, rather than at resources with Reliability Pricing Model (RPM) commitments. For that reason, EPSA contended, revising the reliability requirement to exclude resources not offered into the Base Residual Auction (BRA) would create a “false equivalence between the reliability needs of an LDA and the supply and demand in the LDA in an RPM auction.”
Drawing on information in an affidavit by Paul Sotkiewicz, president of E-Cubed Policy Associates, EPSA argued the effect would be dramatic differences in clearing prices depending on whether resources participated in auctions, regardless of whether those resources are actually available during the delivery year.
“The prices PJM would determine might not be high enough to attract future new resources to take on an RPM commitment especially knowing PJM is willing to put its finger on the scale to reduce prices even in the face of reliability needs with its proposal,” Sotkiewicz wrote.
AMP, Public Citizen Argue PJM Doesn’t Go Far Enough
American Municipal Power argued that FERC approval of PJM’s filing is necessary to avoid ratepayers paying a “Locational Reliability Charge that is unjust, unreasonable and unduly discriminatory.” The nonprofit, whose members include the Delaware Municipal Electric Corporation, said the RTO’s solution could leave future BRAs open to similar issues and called on FERC to establish a technical conference to explore long-term solutions.
In particular, AMP argued that the small size of many LDAs within PJM can cause price volatility through changes in load forecasts, uneven growth in resource development and generators not participating in auctions.
“It is therefore critical that LDAs in PJM be sized large enough that the failure of one resource or a small set of resources to participate in RPM auctions, or the inability to site new generation, does not drastically increase the auction clearing price,” AMP wrote.
The nonprofit power supplier also questioned PJM’s proposal to trigger the process of recalculating the reliability requirement to remove resources not participating in the BRA when the parameter increases more than 1% over the previous year. It noted that a 400% increase in clearing prices could be attributed to the 12% increase in the requirement. A 1% increase in the threshold would still correspond with a 33% rise in prices should the impact prove to be linear, AMP said.
Public Citizen argued that FERC should approve PJM’s requests, establish a refund date and investigate whether market participants engaged in intentional capacity withholding. It also wrote that future BRA results should be filed as standalone Section 205 rate filings to allow for public inspection of rates with the ability for comments and protests to be submitted before rates go into effect.
“Setting the matter for hearing and subjecting the capacity auction to refunds is the statutorily appropriate path for the commission to pursue, rather than PJM’s proposed ‘do over’ which does not appear to be permitted by its tariff. Subjecting the auction results to a hearing with refund authority will protect consumers and ensure accountability for any generators that engaged in capacity withholding,” the organization wrote.
Delmarva Zone Parties, ODEC Support PJM Approach
In its comments supporting PJM’s filings, Old Dominion Electric Cooperative said that actions being proposed are justified given the “artificially increased and unreasonable clearing price” that ratepayers would pay without any added benefits from the higher costs.
“The fact that prices are being increased and LSEs (and, thereby, consumers) will pay for an inappropriately calculated Reliability Requirement is in and of itself sufficient basis for the commission to take action to prevent the imposition of unjust and unreasonable capacity prices for the DPL-S LDA. When there are no discernable benefits from increased prices, the rates cannot possibly satisfy the requirement that customers receive benefits that are at least roughly commensurate with costs,” the cooperative wrote.
Several Delaware, Maryland and Virginia public organizations also supported PJM’s filings and said whatever solution FERC may approve, priority should be given to ensure that further delays in the BRA are avoided. Jointly filed by the Delmarva Zone Parties, the comment was signed by the Delaware Public Service Commission, Delaware Division of the Public Advocate, the Delaware Municipal Electric Corporation, Maryland Public Service Commission and the Virginia State Corporation Commission.
“Avoiding further delays in the BRA timeline is particularly critical as PJM stakeholders seek to reestablish the three-year forward procurement of capacity resources that has already been delayed by various proceedings before the Commission. Instead, in an effort to minimize disruption to the BRA process, PJM proposes to prospectively include a new element to its optimization algorithm that would allow it to reflect more accurately supply and demand levels while evaluating Sell Offers before determining capacity awards,” the parties wrote.
