“The markets are not alright,” Federal Energy Regulatory Commissioner Mark Christie told the commission’s March meeting today (March. 16), following the FERC staff’s presentation of its 2022 market update. “Specifically, the capacity markets are not alright.”
The veteran state regulator, who served nearly 17 years on Virginia’s State Corporation Commission, said that the multi-state regional transmission organizations — PJM, MISO, and ISO New England — which are designed to bring competition to electricity markets, are not working. He pointed directly at the PJM Interconnection (of which Virginia is a member) as in serious trouble. PJM, he said, is failing to offer competitive capacity markets.
Christie’s comments highlighted and echoed those contained in the report of PJM’s Independent Market Monitor, led by economist Joseph Bowring and his firm, Monitoring Analytics, released March 3. The analysis was scathing. It found:
- “The aggregate market structure was evaluated as not competitive. For almost all auctions held from 2007 to the present, the PJM capacity market failed the three pivotal supplier test (TPS), which is conducted at the time of the auction. Structural market power is endemic to the capacity market.”
- “The local market structure was evaluated as not competitive. For almost every auction held, all [local distributors] have failed the TPS test, which is conducted at the time of the auction.”
The Bowring report observed that PJM in conducting its recent capacity auctions abandoned “verifiable calculations of the marginal cost of providing capacity in favor of an approach that explicitly relied on wishful thinking about competitive forces resulting in competitive offers, despite the fact that the filing elsewhere recognized the high levels of concentration and the need to protect against market power in the capacity market. PJM ignored the economic logic of marginal cost.”
Last December’s massive Winter Storm Elliott, which swept across the country over the Christmas holidays, demonstrated the weakness of PJM’s capacity market, according to the report. “Elliott showed that the [2014 reform design] does not provide effective incentives,” said the report. “There was an extremely high forced outage level during Elliott despite the incentives and despite the fact that the effectively uncapped market seller offer cap was in place” in PJM’s 2022-2023 capacity delivery year.
The incentives in the PJM capacity market design, said the report, “are not effective market incentives.” Instead, the “incentives are administrative and nonmarket incentives not compatible with an effective market design.”
In his comments at the FERC meeting, Christie said, that the PJM “capacity reform adopted 9 years ago, after the polar vortex of 2014 was a failed experiment, as we saw during Elliott,” which “came close to rotating outages.” He said the PJM capacity market is on the way to losing 50 gigawatts of capacity by 2030. “Most is dispatchable capacity,” he said. “The remaining resources in the queue are intermittent resources,” meaning solar and wind. “And they are not going to be a replacement for the dispatchable resources that are being lost.”
“Can capacity markets do their job?” Christie asked. “Can they deliver power at prices people can afford. It’s a serious problem and needs to be acknowledged. We have a major reliability problem, and if the costs are too high and people are paying way too much, that impacts people too. It’s a fundamental issue FERC is going to have to address. This is going to be a salient issue over the next year or two.”
Christie, a lawyer and a Republican, joined the commission on January 4, 2021, after having been nominated by President Trump in July 2020 and confirmed by the U.S. Senate on November 30, 2020.”
–Kennedy Maize
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