PJM seeks reserve market rehearing from FERC, proposes capacity auction schedule

Source: By Jared Anderson, S&P Global • Posted: Tuesday, January 25, 2022

PJM Interconnection has asked the Federal Energy Regulatory Commission for a rehearing in its reserve market proceeding because a recent FERC order departs, without adequate explanation, from prior findings that resource procurement costs to alleviate power supply shortages should be reflected in transparent market prices.

FERC has reversed earlier decisions pertaining to an overhaul of PJM’s reserve market, forcing the grid operator to make two compliance filings before the end of February.

Following May and November 2020 decisions approving PJM’s proposed reserve market changes, FERC decided on Dec. 22, 2021, to no longer support some of those provisions after the case was voluntarily remanded from the DC Circuit Court of Appeals (EL19-58, ER19-1486).

FERC told PJM to revise its tariff and operating agreement to reflect the effective reserve penalty factors and operating reserve demand curves, or ORDCs, within 60 days. The commission directed the grid operator to also restore tariff provisions pertaining to the previous backward-looking energy and ancillary services, or E&AS, offset that became effective Nov. 12, 2020.

However, PJM after business hours on Jan. 21 filed a rehearing request with FERC that cited a dozen “issues and errors” contained in the commission’s order on remand.

Rehearing request

The remand order reverses FERC’s prior orders, “on the same record and in disregard of much of PJM’s extensive evidence in this proceeding,” PJM said in the rehearing request.

FERC had previously approved an ORDC for PJM, finding that the costs of resources procured to alleviate shortages should be reflected in transparent market prices whenever it makes sense to do so, PJM said.

Reversing that decision in the remand order has left unsettled “the commission’s policy principles governing price formation and raises a potential barrier to future reserve pricing reforms that seek to follow the Commission’s prior price formation decisions,” the rehearing request said.

Additionally, in a dissenting opinion regarding FERC’s order on remand, Commissioner James Danly on Jan. 20 questioned how the commission could uphold FERC’s previous findings under section 206 of the Federal Power Act while reversing others when the record remains exactly the same as that upon which the earlier determinations were based.

PJM cited this argument multiple times in its rehearing request. The remand order should, at minimum, have held that there was enough presented on this record to find that PJM’s current reserve pricing may be unjust and unreasonable, thus warranting hearing, settlement, or other means of resolving material questions of fact, the grid operator said.

PJM said it remains concerned whether the existing ORDCs and reserve penalty factors are adequate to ensure the proper reserve market response.

Absent any changes to its findings, the remand order’s departure from the May 2020 order and November 2020 order “falls well short of the reasoned decision making required for administrative agency action,” PJM said.

FERC found in those prior orders, based on substantial evidence, that the pre-existing ORDCs and reserve penalty factors were unjust and unreasonable, but based on the “exact same evidentiary record and without conducting any further evidentiary procedures,” the remand order found that there is not substantial evidence that the ORDCs and reserve penalty factors are unjust and unreasonable, the rehearing request said.

“This fundamental reversal on a basic finding of fact cannot have stemmed from different facts, because no new facts were received,” PJM argued.

The remand order did not address PJM’s “extensive showing and discussion” of the forecast uncertainties that drive the need for reserves and the order also failed to address a key fact cited by the commission’s prior orders: those well-documented uncertainties can substantially exceed the maximum reserve level of the current ORDC, PJM said.

In other words, forecast errors in load, variable resource performance and interchange could under certain circumstances exceed the level of reserves that PJM is allowed to procure in the reserve market under the current ORDC, the grid operator added.

Additionally, in a separate Jan. 21 filing with FERC, PJM requested the base residual capacity market auction for the 2023-24 delivery year be held June 8 with the first and second incremental auctions canceled.

The auction was originally scheduled for late January, but FERC’s remand order required the capacity auction schedule to be delayed.