PJM May Delay Capacity Auction to Have New Rules in Place

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PJM Interconnection LLC, which runs the largest U.S. power grid, may delay an annual capacity auction until federal regulators approve new rules aimed at avoiding power outages like the ones seen during frigid winter weather in early 2014.

The auction, currently scheduled for May 11 through May 15 and covering the 12 months starting June 2018, will give power companies in the mid-Atlantic network the chance to offer to keep their plants ready to run during times of peak demand in exchange for payments from the grid.

More than 22 percent of grid capacity was unavailable in January 2014, prompting PJM to ask regulators to allow it to assess fines against plants that don’t deliver promised supplies. The Federal Energy Regulatory Commission said Tuesday that PJM’s proposal was “deficient,” and asked the grid to respond within 30 days to a set of questions about the proposed rule.

“We will respond to the FERC’s questions promptly and seek expedited review to allow capacity performance to be in effect for the upcoming annual capacity auction for the 2018/19 delivery year,” PJM said in a release Wednesday.

FERC Commissioner Philip Moeller, who said PJM supplied sufficient information for the evaluation of the capacity performance rule, said that agency’s finding will create confusion in the market.

Market Uncertainty

“Regardless of whether the commission ultimately decides to accept or reject PJM’s capacity performance proposal, by failing to act, the commission is creating market uncertainty on issues that need clarity now,” Moeller said in a statement.

Shares of Dynegy Inc., a power producer based in Houston, declined after FERC issued the PJM letter. The company said it is optimistic about PJM’s filing with the regulator.

“We continue to strongly support PJM’s effort to improve extreme weather reliability through capital and operational investment,” Micah Hirschfield, managing director, communications, for Dynegy, said in an e-mailed statement. “We look forward to PJM’s answers to FERC’s questions and we view this as an opportunity to make sure FERC is completely comfortable with the filing.”

Dynegy fell $1.13, or 2.6 percent, to $30.30 in New York. The stock is up 22 percent from a year ago. Exelon Corp. fell 76 cents, or 2.3 percent, to $32.85.

Exelon, based in Chicago, supports PJM’s proposal to improve reliability on the grid.

Quick Response

“Reforms are urgently needed to reduce the risk of energy price spikes and widespread outages during extreme weather events,” Paul Elsberg, an Exelon spokesman, said in an e-mail. “We encourage PJM to respond quickly to the questions posed by FERC and to defer capacity auctions until this flaw in the market design can be addressed.”

The new PJM rules were projected to boost capacity prices in the auction to a range of $170 to $200 a megawatt per day, according to ICF International Inc., a consulting company based in Fairfax, Virginia. That’s up from last year’s capacity price of $120 a megawatt per day.

ICF said nuclear and coal operators stood to gain the most from the capacity performance program because those units would need to spend less on plant modifications than natural gas plants.

“A one-month delay could make sense, but the bigger issue, clearly, is whether FERC will be satisfied with the numerous detailed responses that it is asking PJM for regarding the capacity performance product,” Kit Konolige, senior analyst of utilities for Bloomberg Intelligence in New York, said in an e-mail. “It’s surprising there should be so many questions given that FERC already approved” a similar plan for New England.

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