Illness and RTOs: What’s the Prognosis?

Commissioner Danly offered the following observation in a fiery dissent issued this week in response to a FERC order approving a post-bidding change to the PJM capacity auction:

There is significant evidence — particularly increasing reliability risk throughout the country — that the FERC-jurisdictional power markets are sick and dying, and it is the Commission’s fault.

The willingness to take responsibility is refreshing. But it seems that Commissioner Danly is being too hard on himself. The latest developments in PJM are symptomatic of a broader issue that has been in plain sight for some time now: the RTO/ISO model, and particularly the strain of the capacity market model, is not only dysfunctional—it is outright failing.

The folks in the room where it happens, i.e., the intrepid reporters at RTO Insider summarized the outcome as follows:

FERC late Tuesday approved PJM’s request to revise the reliability requirement for the DPL South zone to avoid an artificial fourfold increase in capacity prices for delivery year 2024/25, rejecting complaints that it was changing its rules retroactively (ER23-729).

PJM asked for authority to exclude planned generation capacity resources from the calculation of a locational deliverability area’s reliability requirement if the addition of such resources increases the requirement by more than 1% and the resources do not enter a sell offer into the auction.

The commission ruled that PJM’s proposal will ensure competitive outcomes that conform to the actual reliability needs and fundamentals of supply and demand.

OK – what? Basically, here is how your normal human would see what has happened. PJM held a competitive solicitation. PJM got the results. PJM did not like the results. So PJM changed the rules.

Imagine if an investor-owned utility did this in an integrated resource planning process—all hell would break loose, with allegations of anti-competitive and self-serving behavior abounding. Yet in the RTOs/ISOs, while there are objections and there will be potentially successful litigation against FERC to follow, it is the new normal: a “market” yields a result that you don’t like? Retroactively change the outcome to a result you deem more congenial.

The post hoc solutions and constantly moving parameters are now hallmarks of the shadow, “non-profit” administrative state that are RTOs/ISOs. Indeed, with this latest step, even the greatest restructuring enthusiasts—NRG, Vistra, EPSA to name a few—are up in arms over the outcome.

Commissioner Danly’s dissent drew a Las Vegas parallel:  

The house saves a bit of money on one hand, but no one ever plays blackjack at the Federal Energy Regulatory Casino again. That is this case. The only difference is that the capacity market is not a game but rather the mechanism by which we ensure sufficient generation resources are built and maintained to keep the lights on.

The casino reference is a good one. And perhaps the way the movie Casino ends, with the casinos on the strip reduced to rubble, is the path the current RTO/ISO model is on.