FERC punts on major changes to PJM capacity market

OREANDA-NEWS. April 02, 2015. Two major orders issued by federal energy regulators yesterday have created uncertainty about the format and timeline of the PJM Interconnection's forward capacity auction scheduled in May.

PJM today said it would still try to push through new performance requirements on capacity resources despite a decision from the Federal Energy Regulatory Commission (FERC) to defer action on that proposal. FERC late yesterday said PJM's "capacity performance" proposal was deficient and asked for more information.

The delay is a setback for the largest US grid operator, which wanted the change approved before a forward capacity auction set for next month. But PJM said it would respond quickly to FERC's request and would seek expedited review so the proposed reform could be in effect ahead of the auction, which is for capacity delivered between June 2018 and May 2019.

The grid operator said it may delay the auction to accommodate that process, but declined to estimate how long the delay might last.

FERC's failure to quickly approve the capacity performance proposal will disappoint power plant owners who expected an uptick in capacity clearance prices at the auction in May. Analysts at the investment firm UBS predicted a 33pc increase in auction clearance prices, to \\$160/MW-day, if FERC approved the changes.

FERC member Philip Moeller yesterday blasted the delay for "creating market uncertainty on issues that need clarity now." He said the commission could have reached a decision on the merits of the filing but that he did not have the required three votes, out of five, to move forward.

PJM began work on reforming the capacity market after encountering an unusually high rate of forced outages in January 2014. The grid wanted to impose stiff penalties on capacity that failed to perform so that power plants would invest in weatherization and firm fuel supplies.

Adding to the potential uncertainty over the forward capacity auction is a separate FERC order yesterday that rejected as premature what PJM called its "stopgap" plan for demand response, a load management resource that is at risk of being blocked entirely from offering in the auction under an appeals court ruling.

President Barack Obama's administration is appealing that ruling to the US Supreme Court and it has yet to take effect. But PJM requested tariff changes so it could retain at least some demand response in the auction if the appeal request was rejected before next month. The stopgap rules would only have gone into effect if the Supreme Court had rejected the appeal.

FERC yesterday rejected the filing as premature, noting it would limit the commission's future options for dealing with the pending appeals court ruling.

FERC member Tony Clark in a dissent on the ruling said the order "takes a gamble" on PJM's concerns that a Supreme Court decision could harm system reliability and market efficiency.

PJM said in light of the commission's decision, it would hold the auction with its existing rules for demand response resources.