Docket Nos. ER22-2984-000 and ER22-2984-001
I concur in approving this filing from PJM because, as has been oft said, an FPA section 205 filing does not have to be the best proposal, but must be just enough to meet the “just and reasonable” standard;[1] further, under NRG,[2] the Commission’s ability to direct revisions to a section 205 filing is limited.
While I concur that this specific filing arguably meets the section 205 standard, there is a much bigger issue, an elephant in the room, so to speak. That issue is whether the PJM capacity market itself needs to be reconsidered on a comprehensive basis to determine whether it is still fit for 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. This proposal is only the latest example — and one of the worst in its hopeless complexity — of the endless Rube Goldberg tinkering[3] with the minute details of the capacity market construct.[4] Such tinkering with the rules has gone on for years and never reaches a point of stability, yet stability of market design is essential to attract the necessary capital investment in capacity resources.
Moreover, we cannot ignore the events of last December 24 and 25 — Winter Storm Elliott.[5] One of the common criticisms over the years has been that the PJM capacity market procures too much capacity,[6] yet during at least two recent extreme weather events, the Polar Vortex of 2014 and Winter Storm Elliot last December, PJM reportedly came very close to ordering rotating outages. After the Polar Vortex, PJM proposed measures that were designed to prevent any such future close calls.[7] As we do not have the final forensic analysis of the events of December 2022, we cannot draw any conclusions about whether specific earlier measures were ineffective or which measures may have worked better to avoid the threat of rotating outages. My point in this concurrence is not to analyze, favor or criticize earlier changes to the capacity market construct or propose new changes; my point is a larger one, that these events raise important broad questions about this capacity construct’s efficacy.
Because of its limited scope and the applicable statutory framework, this proceeding is not the proper proceeding for the Commission to undertake a review of the entire PJM capacity market construct in order to ask whether it is still fit for purpose, and, just as importantly, to consider alternatives to the entire construct. I believe, however, that such a review is both timely and compelling.
For these reasons, I respectfully concur.
[1] PJM Interconnection, L.L.C., 171 FERC ¶ 61,210, at P 29 n.77 (2020) (“To be just and reasonable, proposed revisions do not have to be the most just and reasonable among all possible alternatives.”) (citations omitted); see also Louisville Gas & Elec. Co., 174 FERC ¶ 61,188, at P 48 (2021) (“In submitting an FPA section 205 filing, the public utility need only demonstrate that its proposal is just and reasonable . . . not that its proposal is the most just and reasonable among all possible alternatives.”).
[2] NRG Power Mktg., LLC v. FERC, 862 F.3d 108 (D.C. Cir. 2017) (NRG).
[3] See, e.g., Delia Patterson and Harvey Reiter, FERC Chasing the Uncatchable: Why trying to fix mandatory capacity markets is like trying to win a game of Whack-A-Mole, (Parts I and II), Fortnightly Magazine, June 2016 (available at https://www.fortnightly.com/fortnightly/2016/06/chasing-uncatchable) (“FERC’s efforts to get capacity markets ‘right’ . . . have instead led to endless — and futile — tinkering. . . . It’s time for FERC to start over, or at least regroup and reassess.”).
[4] Let me emphasize that I am not implying any criticism of the dedicated experts in market design at PJM, who have tried to make this complicated construct work. Much of the instability of market design over the years has been imposed by this Commission itself, or is inherent in a Byzantine governing structure that enables rent-seeking market participants and other interest groups, in effect, to participate in writing and rewriting the market rules.
[5] See, e.g., @pjminterconnect, Twitter, Update from PJM Senior Vice President of Operations Mike Bryson (Dec. 24, 2022, 9:33 a.m.), https://twitter.com/pjminterconnect/status/1606659412436852737 (asking consumers to conserve electricity and noting: “One of the things we also want to point out is the possibility of rotating customer outages is real. We are going to do everything we can to try to prevent that but we think it’s important that consumers are ready in case we have to take that step.”); Naureen S. Malik, Millions of Americans urged to cut power use and keep grid stable, Bloomberg News, Dec. 24, 2022 (available at https://www.bloomberg.com/news/articles/2022-12-24/storm-elliott-latest-pjm-leans-on-consumers-to-keep-grid-stable) (“Rotating blackouts continue to be ‘a real potential risk’ and people are being asked to help the grid until Sunday afternoon, said Michael Bryson, PJM Interconnection [L.L.C.’s] senior vice president of operations. . . . While frigid temperatures were expected heading into the weekend, ‘one of the things we under forecast was how cold it would get and how much customer demand there would be on a holiday weekend,’ Bryson said in a telephone interview Saturday. ‘We are doing everything possible to keep from having to do any rotating outages.’”); Madeleine Hubbard, Utility companies issue pleas to conserve power, warn of rolling blackouts, Justthenews.com, Dec. 2, 2022 (available at https://justthenews.com/nation/states/utility-companies-issue-warnings-conserve-power-impose-rolling-blackouts) (“‘It will do everything possible to keep power flowing in the region,’ said the company, while also warning: ‘If necessary, PJM may take additional steps, such as reducing voltage.’”); Sonal Patel, Bulk Power System Deficiencies During Winter Storm Elliot Prompt Inquiries, Power Magazine, Dec. 29, 2022 (available at https://www.powermag.com/bulk-power-system-deficiencies-during-winter-storm-elliot-prompt-inquiries/) (“PJM, which issued its first conservation call since the 2014 polar vortex storm crisis, on Dec. 24 warned the risk of rotating customer outages ‘is very real.’”).
[6] In this docket alone, several filers mentioned excess procurement. See, e.g., Sierra Club, the Illinois Citizens Utility Board, New Jersey Division of Rate Counsel, Maryland Office of People’s Counsel, the Office of the People’s Counsel for the District of Columbia, the Delaware Division of the Public Advocate, PennFuture, Southern Environmental Law Center, Natural Resources Defense Council, and the Sustainable FERC Project (filing jointly as “Public Interest Entities”) Oct. 21, 2022 Comments at 2 (“However, PJM’s proposed reforms are not a complete solution to the RTO’s chronic pattern of over-procuring capacity. PJM has procured capacity in excess of its target reserve margin in every auction for at least the last decade. This persistent over-procurement —not only beyond what is needed to serve load but beyond the safety margin that PJM determined is necessary to ensure reliability — has inflated costs to consumers in the PJM region by billions of dollars and distorted the capacity market’s ability to send accurate signals for the development or retirement of generating assets.”); Organization of PJM States Oct. 21, 2022 Comments at Attach. A (Sept. 2, 2022 OPSI Letter to PJM Board of Managers) at 1 (“With customers experiencing the largest increase in load-weighted average energy prices for the first six months of a year since the creation of PJM markets in 1999, it is important that the Quadrennial Review elements work to maintain reliability at the most economic cost to ratepayers. OPSI has previously expressed concerns with the Reliability Pricing Model’s (‘RPM’) chronic over-procurement of capacity resulting from the shape of the VRR curve and load forecasting issues. Accordingly, OPSI generally supports Package B as it begins to address these over-procurement concerns better than the other package.”) (citations omitted); Independent Market Monitor Nov. 16, 2022 Answer at 6-7 (“The shape of the VRR Curve results in the purchase of excess capacity and higher payments by customers. The impact of the VRR Curve shape used in the 2023/2024 BRA compared to a vertical demand curve was a significant increase in customer payments for load as a result of buying more capacity than needed for reliability and paying a price above the competitive level as a result. The defined reliability goal is to have total supply greater than or equal to the defined demand for capacity. The level of purchased demand under RPM has generally exceeded expected peak load plus the target reserve margin, resulting in reserve margins that exceed the target.”).
[7] See, e.g., Bentham Paulos, PJM Tightens Capacity Market Rules to Improve Reliability, Power Magazine, Dec. 18, 2014 (available at https://www.powermag.com/pjm-tightens-capacity-market-rules-to-improve-reliability/).