FERC Orders PJM to Suspend 2019 Capacity Auction Until Rule Changes Are Implemented

The Federal Energy Regulatory Commission on July 25 directed PJM Interconnection LLC not to move forward with its annual capacity auction scheduled for Aug. 14-28, recognizing the need to ensure certainty for market participants who make resource investment and retirement decisions. The agency has not yet rendered a decision on the grid operator’s proposal filed last year to address the pricing-suppressing effects from the growing influx of state-subsidized generation. PJM announced in April that it will proceed with the auction unless the commission rules otherwise.

The auction, for the 2022-23 delivery year, was delayed from May to August 2019, to allow more time to implement market reforms. In its April filing, PJM said it has started the pre-auction processes, which require preparation and filings months in advance. PJM also sought a confirmation that the agency will not invalidate the auction results under a future replacement rule that would require rerunning the auction.

FERC ruled that under the current circumstances, delaying the auction until a replacement rate is in place will provide greater certainty to the market than holding the auction under the existing rules. The agency also denied PJM’s request to clarify that a replacement rate would operate prospectively and not require the auction to be rerun. FERC said it cannot prematurely rule on the issue of a remedy before rendering a decision on the merits of a replacement rate.

In a statement responding to the order, PJM said that FERC “recognized that confidence in the auction and its results is vitally important” to stakeholders and the integrity of the market.

Last June, FERC ordered PJM to revamp its capacity market rules, finding that existing market design relating to the minimum offer price rule or MOPR applied in the capacity market is unjust and unreasonable. The grid operator responded in October last year, proposing an expanded MOPR that would apply to existing and new resources regardless of fuel and technology types, along with a unit-specific carve-out option for resources that do not want to be restricted by the MOPR.