In an April 25 written statement in advance of a FERC technical conference on the intersection of state and federal policies with respect to organized electricity markets, Pennsylvania PUC Vice Chair Andrew Place, expressed concern with an increasing reliance on "theoretical" prices in capacity markets which lead to an over-procurement of resources.

Discussing the potential for capacity market changes resulting from certain states' policies to pursue goals such as carbon reduction, Place said that, "in the event energy market solutions are not viable," to address various problems arising from competing goals, "capacity market mitigation strategies may be necessary."

"This mechanism must, at its core, mitigate significant market price suppression effects, yet also avoid administratively determined prices that can impose above-market prices in other jurisdictions," Place said

"The Reliability Pricing Model (RPM) has an increasingly heavy dependence on theoretical prices based on assumptions of the marginal technology. In reality, market clearing prices for capacity have cleared well below these theoretical prices, resulting in consistent and ever increasing over-procurement of capacity resources," Place said

Place noted that PJM over-procurement has increased from 5.0GW in 2008 to 8.7GW in 2019. (SOM Report, Volume II, Section 5, p. 232.) The 2019/2020 RPM Base Residual Auction cleared 167,305.9 MW of unforced capacity in the RTO. Accounting for load and resource commitments under the Fixed Resource Requirement (FRR), the reserve margin for the entire RTO for the 2019/2020 Delivery Year as procured in the BRA is 22.4%, or 5.9% higher than the target reserve margin of 16.5%.

"To the extent capacity adjustment mechanisms are considered, any adjustments to market-clearing capacity prices resulting from market mitigation mechanisms should reflect more empirical/market-based pricing, rather than theoretical-based marginal unit pricing, which PJM has historically relied upon. To do otherwise will cause additional over-procurement of capacity resources, which ultimately suppresses long-term energy prices. Given that nuclear units rely substantially on energy market revenues, this approach may be counter-productive. Further, capacity markets are characterized by high market power, and price adjustments can be volatile. Lastly, subsidized generation may impact the level of developer interest in a region, which may distort repricing under a capacity price adjustment mechanism," Place said