Commissioner James Danly Statement
February 14, 2023
Docket Nos. ER22-2984-000 and ER22-2984-001
I concur in the order approving PJM Interconnection, L.L.C.’s (PJM’s) quadrennial revisions to its Open Access Transmission Tariff to revise various Reliability Pricing Model (RPM) auction parameters.[1] PJM has met its burden to demonstrate that these rate proposals are just and reasonable under section 205 of the Federal Power Act (FPA).[2] Under that standard, the Commission “need only find that the proposal is just and reasonable, not that it is the only or even the most just and reasonable proposal.”[3] In cases like this, I might prefer a more rigorous burden of proof, but PJM has satisfied the showing required by the FPA.
Protesters raised several legitimate concerns about PJM’s proposed parameter changes.[4] Most of PJM’s proposals appear to have the effect of reducing capacity market prices in the near term but also increasing volatility. I prefer, for example, an amortization period in Illinois that reflects the Illinois statute banning—as of 2045—the natural gas-burning combined cycle unit adopted as the reference resource in this proceeding.[5] But PJM explained its decision for a twenty-year amortization period, and while I disagree with PJM’s decision, it is not unjust and unreasonable given the record in this case.[6] Indeed, I have similar disagreements with most of the contested aspects of PJM’s filing, but disagreement alone does not require the finding that a proposed tariff revision is unjust and unreasonable.
While the Commission’s powers in reviewing section 205 filings are limited, and do not permit us to substitute our judgement for key components of the rate proposal,[7] I share protestors’ concerns that the capacity construct and mitigation regime in PJM are almost certainly unjust and unreasonable. As P3 summarized,
While capacity markets were established in PJM as a tool to ensure resource adequacy in future delivery years, a series of recent regulatory, policy and other changes counter any notion that the capacity market will send a signal to current investors seeking to invest at risk capital in assets that will deliver reliability at least cost. Changes to the Market Seller Offer Cap . . . have removed any independent judgement of asset owners to make decisions about the viability of their assets going forward. Changes to the Minimum Offer Price Rule . . . have effectively eliminated protections against the exercise of buyer market power, while the so-called protections against seller market power have gone to the extreme of having capacity offers effectively set by the PJM Independent Market Monitor. Other decisions related to the [Operating Reserves Demand Curves] and the removal of the 10% adder from capacity market offers have served to compound the problem. The proposed changes [in this proceeding] continue a pattern of complete devaluation and corruption of a market established to compensate investment in long-term capacity resources.[8]
I agree with every word of this. I add that there appears to be an implicit but prevailing view shared by many consumers and regulators that “regulatory, policy and other changes”[9] to the PJM capacity market and mitigation construct are always justified if they lower prices, so much so that it appears to me that the only evidence that could be brought to bear that would finally convince them that prices are actually confiscatory would be the impending financial collapse of the entire existing generation fleet. It may come to this. However, for obvious reasons, generators generally are not in a position—and likely never will be—to publicly predict and support with data their own potential bankruptcies. Generators have investors.
We thus should carefully listen when groups like P3 routinely warn us about “a pattern of complete devaluation and corruption of a market established to compensate investment in long-term capacity resources.”[10] We should also remember that evidence of imminent collapse is not the required statutory showing. Under foundational precedent, regulated utilities are entitled to an opportunity to recover their prudently-incurred costs.[11]
The time is ripening for the Commission to investigate whether the PJM rate construct (including the capacity market) is just and reasonable and not confiscatory. But in this section 205 proceeding, I agree—reluctantly—that PJM has made the required showing that these piecemeal proposals are just and reasonable.
For these reasons, I respectfully concur.
[1] PJM Interconnection, L.L.C., 182 FERC ¶ 61,073 (2023).
[2] 16 U.S.C. § 824d.
[3] Sw. Power Pool, Inc., 166 FERC ¶ 61,019, at P 31 (2019) (citing Cities of Bethany, 727 F.2d 1131, 1136 (D.C. Cir. 1984), cert denied, 469 U.S. 917 (1984) (describing the Commission’s authority under section 205 of the FPA as “limited to an inquiry into whether the rates proposed by a utility are reasonable—and not to extend to determining whether a proposed rate schedule is more or less reasonable than alternative rate designs”)).
[4] See PJM Power Providers Group October 21, 2022 Protest (P3 Protest); J-POWER USA Development Co., Ltd. October 21, 2022 Protest (J-POWER Protest).
[5] See J-POWER Protest at 1-2.
[6] Contra N.Y. Indep. Sys. Operator, Inc., 175 FERC ¶ 61,012 (2021) (Danly & Chatterjee, Comm’rs, dissenting in part) (opposing the Commission’s rejection of New York Independent System Operator, Inc.’s proposed seventeen-year amortization period based on a similar state statute and replacement by the Commission of a twenty-year amortization period), vacated and remanded, Indep. Power Producers of N.Y., Inc. v. FERC, 2022 WL 3210362 (D.C. Cir. Aug. 9, 2022).
[7] See NRG Power Mktg., LLC v. FERC, 862 F.3d 108 (D.C. Cir. 2017).
[8] P3 Protest at 4.
[9] Id.
[10] Id.
[11] See FPC v. Hope Nat. Gas Co., 320 U.S. 591, 603 (1944); see also Mkt.-Based Rates for Wholesale Sales of Elec. Energy, Capacity & Ancillary Servs. by Pub. Utils., Order No. 697, 119 FERC ¶ 61,295, clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A, 123 FERC ¶ 61,055, at P 409, clarified, 124 FERC ¶ 61,055, order on reh’g, Order No. 697-B, 125 FERC ¶ 61,326 (2008), order on reh’g, Order No. 697-C, 127 FERC ¶ 61,284 (2009), order on reh’g, Order No. 697-D, 130 FERC ¶ 61,206 (2010), aff’d sub nom. Mont. Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 2011).