Item E-17: Commissioner James Danly Concurrence Regarding Independent Market Monitor for PJM v. PJM

Commissioner James Danly Statement
January 20, 2022
Docket Nos. EL19-47-000, et al.

Competitive power markets simply cannot attract the capital needed to build adequate generating infrastructure without regulatory certainty . . . .”[1]  So cautioned the Commission in 2002, and twenty years later the Commission’s orders have so interfered with PJM’s markets that PJM routinely has to delay capacity auctions to sort out which rules still apply and which rules are defunct, obsolete, or superseded.  Power markets simply cannot function when the rules constantly change, and for that, the blame lies squarely with the Commission.

I concur in today’s order[2] dismissing the Independent Market Monitor’s (IMM) November 19, 2021 motion for clarification or waivers as moot.[3]  We have since issued another order providing additional clarification and ordering PJM to propose yet another new schedule for their base residual auction to accommodate changes to implement new rules.[4]

I write separately to highlight that for every dollar my colleagues think they are saving ratepayers by eviscerating the buyer-side market mitigation measures we had recently expanded,[5] or imposing the IMM’s unit-specific review of all seller offers (thereby supplanting scores of carefully vetted and balanced offer provisions, including the ones at issue in today’s order),[6] or reversing ourselves on the inclusion of a 10% adder in the modeled energy market offers of the Reference Resource used to establish the Variable Resource Requirement Curve (the demand curve),[7] or, as related to this case, seeking voluntary remand from an appellate court to reverse ourselves on less than two-year-old orders finding that the Reserve Penalty Factors and two-step Operating Reserve Demand Curves (ORDCs) are unjust and unreasonable and consequently overturning the determination that the prior backward-looking energy and ancillary services offset (E&AS Offset) is unjust and unreasonable,[8] we also impose ever-mounting regulatory risk.

Greater risk means greater costs, means more expensive power, means higher rates.  In most markets, the cost of risk is passed on to customers.  But we do not allow capacity sellers in PJM to offer according to their own assessment of risk, including the very real risk that the Commission will change fundamental market design elements immediately ahead of the next auction.  We instead impose upon sellers the risk assessment of the IMM (who has himself assumed no risk), with PJM acting as the arbiter of whether the seller’s or the IMM’s offer (and therefore risk assessment) will be allowed.[9]

The result is that the Commission creates unfettered regulatory risk and then sets it up so that sellers likely can only offer what the IMM tells them they can offer.  This structure is not a market.  It also is unsustainable.  It “simply cannot attract the capital needed to build adequate generating infrastructure,”[10] and the eventual result will be reliability crises, bankruptcies, and an eventual full retreat to cost-of-service ratemaking.  Who does it ultimately harm the most?  Ratepayers.

For these reasons, I respectfully concur.