Over Retail Supplier's Objection, FERC Allows PJM To Sell-Back Excess Capacity For Pennies On The Dollar, To Detriment Of Load

FERC accepted a filing to allow PJM to sell excess capacity in the third incremental auction for the 2016/2017 Delivery Year, which retail suppliers and load had said is contrary to the tariff and would result in a flooding on the incremental auction, depressing prices received by load for such capacity.

PJM had sought tariff changes at FERC to allow the release of capacity resulting from the procurement of new capacity in the Capacity Performance Transition Incremental Auctions, in the third incremental auction for the 2016/2017 Delivery Year. Some 4,000 MW of excess capacity was proposed to be sold back under this proposal

Direct Energy and industrial customers had protested PJM's proposal, which they said is not authorized under the tariff's current language, by noting that such a large amount of excess capacity would depress prices received by load for the sale of excess capacity, with load likely realizing pennies on the dollar for sold back capacity. Moreover, Direct Energy said that PJM did not analyze if it would be more beneficial for load to retain such excess capacity given the price suppression impacts excess capacity would have on energy and ancillary service prices

However, FERC dismissed such concerns

"According to PJM, it was always its intent to allow for the release of any excess capacity procured in the Transition Auction; however, upon closer review, it determined that its OATT only permits the release of capacity in limited circumstances. We find that PJM’s proposed revisions, clarified as directed herein, are just and reasonable, because they will correct this oversight for the 2016-17 delivery year, and as a result, ensure that no more capacity is retained than necessary," FERC said

FERC accepted PJM's proposal subject to the condition that PJM submit revised tariff language clarifying that PJM will only sell back non-Capacity Performance Resource capacity in its February 29, 2016 Incremental Auction.

FERC also required PJM to submit an informational report on or before November 15, 2016 to explain whether it intends to submit additional tariff revisions to sell back excess capacity for the 2017-18 delivery year resulting from the associated transition auction, and to explain why it does or does not intend to do so.

Docket ER16-532