Docket No. ER25-2002-000
In the early 2000s what was called “deregulation” of the electric industry was advertised as a way to ‘shift risk from consumers (load) to investors’ by using RTO markets to procure generation resources, instead of traditional rate-based financing. This proposal to reduce the risk for generators in the PJM capacity market and shift that risk to load shows once again that “deregulation” was never about shifting risk away from consumers to generation investors.[1] For the reasons detailed below, I respectfully dissent.
This proposal is only the latest example of the endless Rube Goldberg tinkering with the minute details of the capacity market construct.[2] This time, PJM seeks to “mitigate” potential ELCC variability.[3] Such tinkering has gone on for years and never reaches a point of stability—every “fix” makes the market construct more incomprehensible (and as I have said many times, it’s an administrative construct, not a market).
The Federal Power Act (FPA) is, at its core, a consumer protection statute and the principal role of this Commission is to ensure consumers have reliable and affordable power.[4] Today’s order serves neither of those purposes. On the contrary, I agree with the Market Monitor,[5] that the revisions approved in today’s order—contrary to the FPA and this Commission’s principal role—inappropriately impose reliability risk on consumers.
Under PJM’s market design, ELCC values inherently fluctuate based on many factors, including broader system conditions and how a resource owner operates its unit. In PJM, if a generator is short, they have the ability to purchase replacement capacity in Incremental Auctions to avoid penalty.[6] This is nothing new—PJM itself has long recognized that the purpose of the Incremental Auctions is to “provid[e] a means for a Capacity Market Seller that cannot honor its [Base Residual Auction (BRA)] capacity commitment due to unforeseen physical circumstances to avoid a deficiency penalty while maintaining the level of capacity committed in the BRA.”[7] The PJM Tariff expressly acknowledges and accounts for this common situation:
The need to purchase replacement Capacity Resources may arise for any reason, including but not limited to resource retirement, resource cancellation or construction delay, resource derating, EFORd increase, decrease in Accredited UCAP Factor, a decrease in the Nominated Demand Resource Value of a Planned Demand Resource, delay or cancellation of a Qualifying Transmission Upgrade, or similar occurrences.[8]
The capacity resource deficiency charge at issue in today’s proceeding plays the important role of incenting generators to honor their capacity commitments.[9] Yet PJM’s proposal accepted here affirmatively reduces the incentive of generators that are short capacity to buy replacement capacity in the Incremental Auctions to cover their obligations. Indeed, as the Market Monitor explains:
The proposal [in this docket] eliminates the part of the penalty rate that exceeds the clearing price and thus eliminates any risk. The short generator is paid the capacity market price for its capacity at the higher ELCC and has to pay back the capacity market price as a “penalty” for any of that capacity it cannot provide as a result of the reduced ELCC. There is no risk.[10]
What’s left is a “penalty” with no teeth. Without an incentive for generators to honor their capacity commitments, generators have less incentive to make the system reliable, and consumers are left with increased reliability risk in the event of an emergency.[11] And, as the Market Monitor observes:
[T]he current [proposal] does not address the reliability impacts of a failure to buy replacement capacity. If sellers do not replace the reduced capacity the system is less reliable as a result. This imposes additional risks on load.[12]
The majority seems to hang its hat on the existence of performance penalties to provide the necessary incentive for resources. Based on the Market Monitor’s calculations, the performance penalty is a meaningless mechanism to incentivize resources to purchase replacement capacity. Applying certain assumptions, the Market Monitor notes in part that the cost of replacement capacity for the 2026/2027 and 2027/2028 delivery years will range from $63,875 per MW-year to $118,625 per MW-year, whereas the performance assessment penalty under the 2026/2027 nonperformance charge rate of $2,013 per MW/h would be less than $24,156 per MW-year in 99 percent of the scenarios analyzed by PJM.[13] However one interprets the Market Monitor’s analysis, one thing is certain: it is long past time to reconsider whether this administrative construct called the capacity market—stitched together with endless alterations and “fixes” for every minute detail—is still fit for its purpose, which is to make certain a sufficient amount of power supply is available to ensure reliability, at a cost that is just and reasonable to consumers.
In short, PJM’s proposal undermines market incentives and imposes reliability risk on consumers. I would reject this proposal as unjust and unreasonable.
For these reasons, I respectfully dissent.
[1] See Christie, Mark C., “It’s Time to Reconsider Single-Clearing Price Mechanisms in U.S. Energy Markets,” Energy Law Journal, May 2023, Parts IV and V.
[2] See, e.g., PJM Interconnection, L.L.C., 182 FERC ¶ 61,073 (2023) (Christie, Comm’r, concurring at P 2) (“This proposal is only the latest example — and one of the worst in its hopeless complexity — of the endless Rube Goldberg tinkering with the minute details of the capacity market construct.” (footnote omitted)) (available at https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-pjms-quadrennial-review-er22-2984); PJM Interconnection, L.L.C., 186 FERC ¶ 61,080 (2024) (Christie, Comm’r, concurring at P 7) (“I have described [the capacity market construct] before as ‘Rube Goldberg-esque’ and as replete with ‘hopeless complexity.’ Perhaps PJM should be required to post a warning to every reader who tries to read and comprehend a detailed explanation of how the capacity market construct works (borrowing from Dante): ‘Abandon all hope, ye who enter here!’” (footnotes omitted)) (available at https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-pjms-capacity-market-reform-filing-docket-no).
[3] PJM Transmittal at 1.
[4] E.g., Towns of Alexandria, Minn. v. FPC, 555 F.2d 1020, 1028 (D.C. Cir. 1977) (explaining that the FPA’s “‘primary aim is the protection of consumers from excessive rates and charges’”) (quoting Mun. Light Bds. v. FPC, 450 F.2d 1341, 1348 (D.C. Cir. 1971)); see also Elec. Dist. No. 1 v. FERC, 774 F.2d 490, 492 (D.C. Cir. 1985) (recognizing that the benefits of rate predictability, which are the “whole purpose” of the filed rate doctrine, ought to be considered in light of the FPA’s “primary purpose of protecting the utility’s customers”).
[5] Market Monitor June 9 Answer at 2 (“This proposal would reduce the incentive of generation owners to replace their capacity shortfall and would therefore reduce the incentive to make the system reliable.”); Market Monitor June 16 Answer at 5 (“The proposed rule shifts risk from generators to load. . . . The Market Monitor’s position is that the risk should remain with the generator. That is PJM’s market design.”) (emphasis added)).
[6] PJM Interconnection, L.L.C., 191 FERC ¶ 61,203, at P 2 (2025) (“PJM also holds three Incremental Auctions between each [Base Residual Auction (BRA)] and delivery year, which provide opportunities for capacity market participants to sell available capacity and purchase replacement capacity and for PJM to secure additional commitments of capacity or relieve sellers from prior capacity commitments based on updated reliability requirements.”).
[7] See, e.g., PJM, Transmittal, Docket No. ER18-988-000 (filed Mar. 9, 2018).
[8] PJM, Intra-PJM Tariffs, Tariff, Attach. DD § 5.4 (Reliability Pricing Model Auctions) (10.0.0), § 5.4(d).
[9] PJM Interconnection, L.L.C., 147 FERC ¶ 61,108, at P 25 (2014) (“PJM asserts that the deficiency charge should be set [at] a level that will appropriately incent sellers to honor their capacity commitments, as the Commission has recognized.”) (emphasis added)) (citing PJM Interconnection, L.L.C., 128 FERC ¶ 61,157, at P 119 (2009) (The penalty . . . is designed to motivate resources to honor their commitments . . . . (emphasis added)).
[10] Market Monitor Protest at 5 (emphasis added). The Market Monitor also aptly states that “[m]arkets in general and the capacity market in particular do not excuse market participants from risk that is in whole or in part outside of their control.” Id.
[11] As the Market Monitor explains, instead of “impos[ing] additional risks on load . . . PJM’s goal should be to ensure that generators react to reduced ELCC ratings by buying replacement capacity.” Market Monitor June 16 Answer at 5.
[12] Id.
[13] Id. at 5-6.