The PJM Interconnection is asking federal regulators for permission to delay its Dec. 1, 2021, capacity auction to Jan. 25, 2022. Source: Alexandr Muşuc/Getty Creative via Getty Images |
The PJM Interconnection is seeking a 55-day delay for its Dec. 1 capacity auction, given a Federal Energy Regulatory Commission order requiring the grid operator's independent market monitor to perform a higher number of unit-specific reviews to guard against market manipulation.
PJM filed for the extension (ER21-2877) Sept. 10 after FERC sided with the market monitor a week earlier by accepting its proposal to cap offers at a resource's unit-specific net avoidable cost rate, or net ACR, minus forward-looking net energy and ancillary service revenues.
Avoidable cost rates essentially reflect a generator's annual costs, while net ACR is defined as a resource's ACR netted against its expected revenue in the energy ancillary services markets. PJM's multibillion-dollar capacity market is designed to ensure grid reliability at all times while enabling generators to recoup any shortfalls in energy and ancillary services revenues.
The market monitor and consumer advocates had previously complained that PJM's methodology for calculating the default market seller offer cap used in capacity auction bidding was producing unreviewable, noncompetitive offers that inflated capacity prices.
'No realistic scenario'
In accepting the market monitor's new methodology, FERC found that the unit-specific ACR proposal would ensure PJM's capacity auctions remain competitive and allow the market monitor, as well as PJM, to review and mitigate offers to prevent the exercise of market power.
The order was issued as PJM is seeking to hold a series of capacity auctions under a condensed timeline as a result of a long-running and contentious proceeding (EL16-49, EL18-178) dealing with alleged price suppression caused by state-level clean energy subsidies.
FERC acknowledged that eliminating PJM's default offer cap will create more work by requiring the market monitor to review a higher number of unit-specific offers. But the commission also noted that the market monitor stated its staff is capable of performing those reviews.
PJM nevertheless argued in its Sept. 10 waiver request that "there is simply no realistic scenario" for it and the grid operator to review and make final unit-specific offer cap and must-offer determinations more than 60 days prior to its Dec. 1, 2021, capacity auction covering the 2023/24 delivery year.
"Any timeline that is shorter than what is being proposed would not provide many capacity market sellers with sufficient time to prepare the necessary supporting documentation as part of the unit-specific offer cap request — particularly given that this would be the first time the majority of capacity market sellers will ever have needed to request a unit-specific offer cap and such request may take a significant amount of time and effort to complete," PJM said.
The grid operator also warned of "potential disruptions and uncertainty" if capacity market participants challenge determinations for unit-specific offer caps and must-sell obligations days before the upcoming auction.
"It is important that capacity market sellers and the market monitor have a realistic opportunity to appeal PJM's final decisions to the commission prior to the start of the next" capacity auction, PJM said.
Under its updated proposed timeline, PJM's next capacity auction would be held Jan. 25, 2022, allowing for six-and-a-half-month intervals between subsequent auctions through the 2025/26 delivery year.
Comments on PJM's new proposed auction timeline are due by Sept. 20.