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Response to proposed modifications of PJM’s capacity market

David DeRamus and Collin Cain submitted a joint affidavit on behalf of the Electric Power Supply Association (EPSA) in a Federal Energy Regulatory Commission (FERC) docket addressing proposed modifications of PJM’s capacity market auction. FERC previously determined that the PJM auction construct was because it resulted in the suppression of clearing prices by below-cost offers from resources receiving state-sponsored subsidies. The affidavit addressed the solution framework advanced by FERC as well as a range of specific market modifications proposed by PJM and other stakeholders. Dr. DeRamus and Mr. Cain found that the FERC solution framework, and proposals that closely followed that construct, would not correct the market flaw identified by the Commission, but would in fact preserve the price-suppressive effects of state-subsidized resources. They concluded that PJM’s Extended Resource Carve-Out proposal, while not without flaws, would improve economic incentives and offer behavior in the market, and would largely correct existing price distortions.

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