PJM will delay 2018-19 forward capacity auction

OREANDA-NEWS. April 27, 2015. The PJM Interconnection can delay its upcoming forward capacity auction by up to three months to give regulators time to decide on approving new non-performance penalties for capacity resources, the Federal Energy Regulatory Commission (FERC) ruled today.

The ruling marks the first delay of PJM's capacity auction since it started a dozen years ago, a move the grid operator said was needed because of the uncertainty surrounding its "capacity performance" market reforms. The market changes impose steep financial penalties on capacity resources that fail to perform during emergency conditions.

The auction was scheduled to start on 11 May but will now begin 30-75 days after FERC decides whether if it will approve the reforms. PJM has committed to hold its auction, for capacity delivered from June 2018 to May 2019, by no later than mid-August.

PJM had wanted its capacity performance reforms to take effect at the start of this month to give market participants time to prepare for the auction. But FERC unexpectedly found the proposal was "deficient" and required more information.

The timing of that deficiency notice meant there was no way to implement the changes before the start of the auction, prompting PJM to take the unprecedented step of asking to delay the auction until the commission reached a decision. The grid operator said it did not want the delay if the commission anticipated rejecting the proposed reforms.

FERC in its decision found that the request for the delay met its requirements for providing a waiver from market rules. The commission said it would address a "concrete problem" and let it fully consider the capacity performance proposal and would not have undesirable consequences.

PJM generation owners are keenly watching the capacity performance proceeding because it potentially means an increase in revenues for coal and nuclear plants and for gas-fired generation with firm fuel supply arrangements.

For American Electric Power (AEP), the timing of the forward capacity auction and the capacity performance decision is of additional significance because the generation holding company is selling 7.9GW of merchant generation in PJM. "Hopefully, FERC will act on that soon and then the markets can go forward with the capacity auctions," which AEP hopes will add value to its merchant generation, chief executive Nick Akins said yesterday on an earnings call.