ICC: Capacity Markets "Inherently Flawed", FERC Should Focus On PJM Energy Market Price Formation
In comments filed at FERC on PJM's capacity market, the MOPR, and potential "carve-out" for subsidized generation/load, the Illinois Commerce Commission said that, "capacity markets are inherently flawed," and that FERC, "should, reduce reliance on the capacity market and instead, focus on improving price formation in the energy and ancillary services markets.
The ICC eloquently noted that, "Capacity markets are inherently flawed, in that they attempt to procure and allocate capacity for load-serving entities, even though capacity is a product not particularly well suited for allocation through a market process. While the ICC supports competitive electricity markets and system reliability, PJM’s current capacity construct ('RPM') is not a competitive market in any meaningful sense. Instead, it is a complex, administratively determined mechanism for pricing and procuring capacity that has been subject to almost constant rule changes. Since its inception in 2007, RPM has been the subject of nearly thirty significant revisions before the Commission. Moreover, the construct contains numerous administratively determined non-market features such as its Variable Resource Requirement ('VRR') curve, price caps, a MOPR, cost of new entry ('CONE') fluctuations, and significant performance requirements/penalties. Arguably, all of these administrative features serve a purpose, but they also underscore the reality that RPM is a market in name only and will continue to be subject to revision in the PJM stakeholder process and before the Commission."
"Rather than continuing to spend valuable time and effort on ongoing and inevitable future adjustments to PJM’s flawed capacity construct, which, at best, serve as temporary Band-Aids to the structural flaws, the Commission and PJM would be better served by, instead, focusing on improving the price formation in PJM’s energy and ancillary services ('E&AS') markets as a more efficient way to provide necessary revenues and incentives to needed resources while respecting consumer interests. The ICC notes PJM’s recent papers, particularly Energy Price Formation and Valuing Flexibility where PJM discusses revising the demand curve used in shortage pricing, its reserve markets and the manner in which PJM co-optimizes reserve products with energy. Those initiatives suggest means to enhance market price formation and to make the system more resilient through efficient commitment and pricing. The ideas and initiatives in these PJM papers represent concepts that could be useful for achieving resource adequacy, resilience and reliability within the PJM market and ease the reliance on a perpetually and inherently flawed capacity construct," the ICC said