The PJM Interconnection will hold its newly-configured capacity auction for the 2025-2026 year starting June 12 and closing June 18, aiming to avoid the near-catastrophe in 2022’s holiday season Winter Storm Elliott. The revised auction responds to two Federal Energy Commission orders to the nation’s largest regional transmission organization designed to reform a capacity market that failed to keep generation, mostly fueled by natural gas, online during the winter deepfreeze.
The latest approach to the PJM capacity market is the second in eight years in a so-far inadequate response to extreme weather, although PJM has performed far better in keeping the lights on than the Electric Reliability Council of Texas. PJM adopted capacity market reforms in 2016, responding to the 2014 Polar Vortex, adding a provision for penalties for failures of generators to provide power in a deep freeze.
Those reforms were a failure demonstrated in Elliott. In a post-mortem of the 2022 storm performance, FERC Commission Mark Christie said the 2016 market design “was a failed experiment, as we saw during Elliott,” which “came close to rotating outages.” He noted that most of the failures were “dispatchable” capacity, which turned out to be not dispatchable.
PJM’s new attempt to reform its capacity market is the result of FERC’s January order (ER24 99-000), giving the RTO a general green light, and FERC’s Feb. 6 response to a PJM two-step design proposal. The commission rejected the second element of the reform, originally submitted last October and modified in December. A key feature of the December PJM proposal was a mechanism to quantify the costs of mitigating probable risks in their bids, such as insurance costs to cover failure to perform.
The PJM proposal got wide opposition, including from the RTO’s independent market monitor. A thrust of the opposition was that the new approach would effectively separate the energy and capacity markets, instead of using the capacity market to bolster the energy market. As summarized by FERC in the rejection order, “The Market Monitor argues that PJM’s proposal will redefine the capacity market as a standalone market where a separate capacity product is bought and sold, unconnected to the fact that the only purpose of the resource is to provide reliable energy.” FERC rejected that complaint.
In rejecting the plan, FERC said that the risk probability mechanism PJM proposed is not “just and reasonable” because it does not provide “sufficient transparency for interested stakeholders, including the Market Monitor, sellers, and the Commission, to know how PJM would calculate [the measure] under the standard methodology, or what the inputs might be.”
The commission rejected several other elements of the PJM proposal, including a bonus payment plan, while making a series of suggestions about how PJM could correct its approach in the upcoming capacity auction. Stu Bressler, PJM executive vice president for market services and strategy, commented, “The approved reforms represent a substantial step forward in helping PJM maintain resource adequacy over the near and long terms, by ensuring alignment of market results with reliability impacts thereby driving effective investment signals.”
In other FERC news, the commission’s February meeting will be Thursday (Feb. 15) at 1 p.m. at the Howard University School of Law, 2900 Van Ness St. NW, Washington, D.C., in honor of Black History Month. Howard’s law school is the oldest Black law school in the U.S. FERC Chairman Willie L. Phillips is a Howard Law graduate and many FERC employees are alumni of Historically Black Colleges and Universities (HBUCs).
In a related event, last Friday (Feb. 9) President Biden named Phillips FERC chairman, removing the “acting” modifier from his title. Phillips has been a commissioner since November 2021 and became the acting chairman on Jan. 3, 2023. He’s an experienced regulatory attorney with over 20 years in private practice, as in-house counsel, and as a utility regulator. He was chairman of the District of Columbia Public Service Commission.
–Kennedy Maize