Rethinking Capacity Markets

Deck: 

A pragmatic new approach to assuring reliability.

Fortnightly Magazine - May 2013
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The Federal Energy Regulatory Commission (FERC) recently issued a deficiency notice that halted the latest reforms proposed by the PJM Interconnection for its regional capacity market—reforms that would rewrite a key market power rule, the Minimum Offer Price Rule or “MOPR,” that targets state programs to develop new generation resources.

This round of changes to PJM’s buyer-side mitigation rule could prevent these states’ load-serving entities from relying on the capacity that certain new, gas-fired generation resources provide, by precluding these resources from clearing in the capacity market.

FERC’s notice suggests that it might be concerned that the proposed changes have finally gone too far. But FERC may yet decide to accept PJM’s proposal, allowing PJM to proceed with implementing the changes in time for the next annual auction. Regardless of how this current dispute ends, these repeated rounds of so-called “reforms” have made rules like the MOPR so convoluted that the resulting market rates can’t comport with the Federal Power Act’s “just and reasonable” mandate. Furthermore, a decade of experience is proving that these market designs can’t assure customer access to adequate, reliable supplies of electric generation capacity.

It’s time for FERC to consider alternative approaches to the current centralized capacity market designs if it is to effectively provide customers with electric reliability at just and reasonable rates.

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