Commissioner Clements’ Dissent in PJM Interconnection, L.L.C.

Docket No. ER23-1609-000

I agree with PJM that capacity auctions should be held using accurate, up-to-date rules and assumptions that provide for resource adequacy at just and reasonable rates.  And I share PJM’s concern that current rules may need to be revised in light of risks such as increased frequency of extreme weather, resource performance issues, and correlated outages seen during recent winter storms.  Further, PJM’s three-year forward capacity market structure may be broken in light of supply chain challenges and the region’s congested interconnection queue, which together have delayed new project development cycles and rendered the timing of market entry for new resources uncertain.  I would have voted to approve a reasonable proposal from PJM to provide for a consistent, transparent modification of its auction timelines so as to hold all auctions closer in time to each relevant delivery year, provided such a proposal was accompanied by requisite evidentiary support. 

But I dissent because PJM did not put forth such a proposal, or back the proposal it did put forth with sufficient evidence.  PJM instead proposed to delay only particular auctions for an indeterminate amount of time, without demonstrating that such particularized changes are just and reasonable, and without justifying the incredibly broad discretion that it proposed to grant to itself in scheduling the auctions whenever it sees fit.  While I appreciate that the majority’s Order provides at least a minimal level of clarity by requiring PJM “to revise its Tariff to specify that PJM will conduct the BRAs and Incremental Auctions for the 2025/2026 delivery year through the 2028/2029 delivery year in accordance with the dates set forth in PJM’s illustrative schedule,”[1] the Order sets a dangerous precedent that may essentially allow RTOs to schedule auctions according to their own whims, undermining certainty and stakeholder confidence in market rules and utility tariffs across the country.  If the mere possibility of future market reforms constitutes grounds for delaying particular auctions, absent evidence that existing rules are in fact unjust and unreasonable, how can market participants have any confidence in auction schedules memorialized in their current tariffs?

PJM has not demonstrated its delay proposal to be just and reasonable

In proposing a delay to its capacity market auctions, PJM carries the burden of demonstrating that delay to be just and reasonable.  PJM has not carried its burden in this case.  PJM’s proposed delay is predicated on the need to wait until its current market rules are reformed, but PJM does not even specifically detail what those market reforms will be, let alone make out a legal case for why those reforms are necessary.

Because PJM asserts that auctions must be delayed because its existing rules may not be just and reasonable, it was required to demonstrate that to be true

PJM is correct that in making a section 205 filing, it need not necessarily demonstrate its existing market schedule to be unjust and unreasonable.[2]  For instance, PJM could have proposed to more regularly hold auctions closer in time to the delivery year, and justified such a filing to be just and reasonable based on the benefits of such a “prompt” auction structure.  ISO New England’s external market monitor, Potomac Economics, recently proposed that ISO-NE should transition from its similar forward capacity market structure to a prompt auction, and its proposal suggests that PJM could have articulated many benefits justifying such a shift to be just and reasonable in its own region.[3]  Such a transition may be especially warranted in PJM given current market conditions, where interconnection delays and supply chain disruptions have rendered resource development timelines far different from the four-year development cycle underlying PJM’s initial justification for a three-year forward procurement structure.[4]

But rather than proposing a more general shift to closer-in-time auctions along with a theory why such an alternative design would be just and reasonable (a conclusion which may well be correct), PJM instead proposed to delay only certain auctions, for the 2025/2026 delivery year through the 2028/2029 delivery year, on the theory that holding these particular auctions according to their previously designated schedule would cause reliability concerns due to inadequacies of the existing market rules.  PJM does not retreat from its three-year forward structure and the theory underpinning that structure: namely, that a forward market enhances the price signals for retention of existing resources and development of new resources, and provides more advanced notice of potential resource retirements.[5]  Instead, PJM asserts that upcoming auctions must be delayed because its current tariff provisions “may be unjust and unreasonable and require change.”[6]

As the Organization of PJM States, Inc. (OPSI) states, “[w]hen the sole predicate of the justness and reasonableness of a section 205 filing is that the existing structure may be unjust and unreasonable to the extent that markets must be halted, that point must be proven.”[7]  In other words, given that PJM requests delaying particular auctions based on its assertion that running them according to existing rules will not facilitate a reliable grid mix, it carried the burden of demonstrating that to be true, and a Commission order accepting the proposed delay would have to find that the existing rules may not be just and reasonable. 

PJM has put forth scant evidence demonstrating its case for delay

Yet, far from proving its case, PJM makes only vague claims that existing rules may need reform.  It cites its report, Energy Transition in PJM: Resource Retirements, Replacements & Risk (the 4R Report),[8] and makes unsupported assertions that the existing tariff may be unjust and unreasonable in four areas: (i) risk modeling, (ii) the extent to which risk of committing is reflected in resource offers, (iii) capacity accreditation, and (iv) synchronization between PJM’s capacity market and Fixed Resource Requirement rules.[9]  But PJM largely does not back these assertions with specific evidence. 

As OPSI explains, “[t]he evidence in support of PJM’s delay lacks affidavits or data, and the assumptions underlying its Energy Transition in PJM: Resource Retirements, Replacements & Risk whitepaper are not discussed.”[10]  And while commenters advance reasonable critiques of PJM’s 4R Report, which is the only concrete piece of evidence backing PJM’s requested delay,[11] PJM does not substantively engage with these critiques.  Rather, it makes only high-level statements in response, such as claiming that parties do not contest (i) that existing reserve margins “cannot be taken for granted,” and (ii) that there is a “potential mismatch” between resource retirements and new additions to the system.[12]  These sorts of high-level assertions could be made about nearly any market subject to the Commission’s jurisdiction, given that all markets need to evolve to address changing conditions and oncoming grid challenges.  They fall far short of demonstrating any particularized flaws with the existing tariff or showing that any particular proposed market fix is necessary, such that delaying the upcoming auctions would be warranted on that basis.[13]  Similarly, PJM claims that “delaying the auctions to enable needed capacity market reforms is a better outcome than continuing to commit and pay for resources that do not necessarily enhance system reliability,”[14] but fails to prove either that its capacity market reforms are needed, or that the resources procured by the current capacity construct “do not necessarily enhance system reliability.”  In sum, PJM’s evidence does not support a Commission finding that existing rates may be unjust and unreasonable, nor does the majority make any such finding in its Order.[15]

Even if a Commission order delaying upcoming auctions could be justified short of such a finding, PJM has not given the Commission sufficient concrete information to weigh the benefits of delay against its costs.  As AMP and ODEC explain, PJM “offers no explanation or analysis to demonstrate that the costs, burdens, and potential reliability impacts of delaying the [Base Residual Auction] for the 2025/2026 Delivery Year are outweighed by any benefit to be gained by delaying that [Base Residual Auction].”[16]

And while PJM downplays the costs of delaying the auction, its claims are unconvincing.  PJM states that “while OPSI, New Jersey BPU, and Maryland OPC argue that developers require forward pricing signals to develop new resources, no resource developers or generation owners have submitted protests opposing the delay of RPM Auctions for the 2026/2027 through 2028/2029 Delivery Year.”[17]  But the value of stable, predictable price signals does not accrue to suppliers alone.  By reducing risk for suppliers, stable price signals and clarity in market rules also ensure that consumers get better value for their money.  Were PJM to propose delaying its auction so it could be run according to reformed rules anticipated to reduce prices, I imagine that resource developers and owners would unhesitatingly cry foul at the uncertainty injected into the market by such a decision.  While they have not done so here, perhaps because they anticipate that increased prices will provide a boost to revenues that is greater than the costs they will face due to increased risk of an uncertain auction schedule, those costs will nonetheless likely push future offers yet higher, harming the states and consumers urging PJM to place greater weight on the costs of uncertainty.[18]  Further, as OPSI points out, uncertainty regarding PJM’s auction schedule harms retail choice markets.[19]  Uncertainty “affects the ability to forecast customer bill impact and narrows the products available to customers/ratepayers in competitive retail markets.”[20] 

PJM has not demonstrated concrete benefits of delaying its auction sufficient to outweigh these harms.  To be clear, I take PJM’s claims seriously regarding the potential need to reform its markets to ensure reliability, and I anticipate that PJM’s current rules likely do need to be reformed.[21]  But for the Commission to take legal action as significant as delaying future auctions based on the need to administer them using new market rules, these points must be proven such that the Commission can satisfy its obligation to engage in reasoned decisionmaking based on substantial evidence.

The majority’s rationale for accepting PJM’s proposal is similarly deficient

Perhaps because PJM has entirely failed to supply the Commission with requisite evidence to find that its existing market rules may be unjust and unreasonable or to otherwise justify delay on the basis of reliability concerns associated with proceeding under the current auction schedule, the majority’s Order shifts the discussion by articulating a rationale largely absent from PJM’s filing.  It states that the “scope and magnitude of the capacity market related reforms PJM is considering in its stakeholder process provide sufficient justification under FPA section 205 to delay the auctions,” and finds that “the reforms contemplated in PJM’s stakeholder process mean that market participants would be participating in auctions in the face of significant uncertainty regarding critical rules.”[22]  

But the Order does not even describe PJM’s proposed reforms, much less clearly articulate what about them makes their “scope and magnitude” so significant as to render proceeding under the current rules unwarranted.[23]  Describing these reforms is impossible because PJM has not yet put pen to paper in advancing any particular reform proposal to the Commission.  PJM only discusses the potential market reforms contemplated within its Critical Issue Fast Path-Resource Adequacy stakeholder process at an extremely high level of generality.  And according to the work plan set forth on its website, PJM and its stakeholders are currently developing a matrix of options, and have not even settled on any particular plan.[24]  The majority appears to place special significance on the fact that PJM’s penalty structure may be modified, but the only specific changes to penalty structure that PJM has presented to stakeholders apply to the 2023/2024 and 2024/2025 delivery years, and can therefore hardly justify delay to the capacity auctions for the 2025/2026 through 2028/2029 delivery years.[25]  

The majority purports to balance the “potential harms” of delay against its asserted benefits, finding that the harms are “outweighed by the greater certainty that would be provided by delaying the auctions so that market participants can make informed decisions in the event the Commission were to accept changes to the capacity market construct resulting from PJM’s forthcoming capacity market proposal.”[26]  These purported benefits of greater certainty are speculative, given that they depend on the Commission’s accepting changes to the capacity market construct.  And with only vague reform concepts put before the Commission, any such balancing is a nebulous and standardless exercise. 

For a Commission action to pass muster under the Administrative Procedure Act, “[t]he Commission must be able to demonstrate that it has made a reasoned decision based upon substantial evidence in the record, and must articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.”[27]  The Commission’s conclusion here, unmoored from any concrete evidence or even particular understanding of what the reforms potentially put forth to the Commission may ultimately be, does not clear that bar.[28]  

The Commission’s decision undermines confidence in PJM’s market rules and creates uncertainty regarding the dependability of utility tariffs across the country

Given the majority’s approval of PJM’s proposal, market participants cannot have any confidence in when future auctions may be held.  Today’s Order raises the natural question: what will happen to the auction schedule if the stakeholder process to develop PJM’s capacity market reforms, or the Commission’s evaluation of those reforms (if proposed) take longer than PJM expects,[29] or if the Commission does not issue an order that is “workable” from PJM’s perspective? 

The majority “note[s] that PJM has the ability to make an additional FPA section 205 filing for a further modification of future auction deadlines should it so choose,”[30] and it is reasonable to expect that PJM may put forth such a filing in these circumstances.  Given the extremely low, yet fuzzy bar set by the majority’s Order, it seems likely but not certain that any such future requests would be granted.  Accordingly, with the issuance of today’s Order, it is now impossible to guess when PJM’s future capacity market auctions will in fact be held.  In my view, the cost of this uncertainty outweighs the speculative benefits of running future auctions according to as-yet unspecified new rules.[31]  “Regulatory certainty is critical to the functioning” of PJM’s market, and to “administrative markets for electricity”[32] and the implementation of utility tariffs more generally.

The Commission’s response to PJM’s inadequately justified filing may tempt market operators and utilities across the country to alter deadlines whenever they develop a potentially significant filing.  Such requests for delay, in turn, will inevitably create immense uncertainty.  Today’s order suggests that such requests will be judged by the “scope and magnitude” of the reform at issue and the extent to which proceeding according to previously established deadlines will create uncertainty if the rules might subsequently be changed.  But because it provides no yardsticks by which either factor will be judged, how the Commission may respond to such future requests is anyone’s guess.  This is a recipe for chaos.

Given the Commission’s decision today, I urge PJM and utilities across the country to be mindful of the costs of such uncertainty.  The administration of PJM’s three-year forward auction structure has been, to put it mildly, a mess.  Three-year forward auctions have been repeatedly delayed, in response to the Commission’s misadventure with an extreme Minimum Offer Price Rule in PJM and other factors.[33]  Now, “just as the [auction] schedule was returning to its three-year structure,” PJM’s proposal and the majority’s Order approving it have thrown its future auction schedule into limbo, significantly delaying the prospect that any auction will in fact be held three years in advance of the applicable delivery year.  As PJM contemplates potential capacity market reforms, I urge the RTO to strongly consider establishing a more consistent auction schedule on a going forward basis.  As appealing as a three-year forward structure may be in theory, given the considerable drawbacks it has evinced in practice, a structural move to a more prompt auction design is very likely warranted.  Such a structure would afford PJM greater certainty with regard to all auction inputs, including appropriate market rules, in advance of each auction.  And it could allow the RTO to break from its current cycle of uncertainty that promises a theoretical three-year forward structure but repeatedly fails to deliver it.

For these reasons, I respectfully dissent.