What's Happening?
Recent capacity prices in the PJM Interconnection have led some states to consider withdrawing from the regional transmission organization (RTO). Joseph Kelliher, former chairman of the Federal Energy Regulatory Commission (FERC), cautions against such
actions, highlighting the legal and regulatory complexities involved. The Federal Power Act requires a Section 205 filing for any public utility seeking to exit an RTO, which must be deemed 'just and reasonable' by FERC. The case of Louisville Gas and Electric's withdrawal from the Midwest Independent Transmission System Operator (MISO) in 2006 is often misinterpreted as setting a precedent for easy withdrawal, but Kelliher clarifies that the decision was based on specific circumstances that may not apply to larger entities like American Electric Power.
Why It's Important?
The potential withdrawal of states from PJM could have significant implications for the U.S. energy market. Such actions might disrupt the regional scope and configuration of PJM, affecting its ability to provide jurisdictional service. States considering withdrawal due to high capacity prices may inadvertently undermine their own goals if they cannot offer more attractive conditions to generators. The broader impact could include increased energy costs and reduced market stability, affecting consumers and energy providers alike. Kelliher suggests that states focus on reforming capacity markets rather than pursuing withdrawal, as wholesale competition has historically delivered resource adequacy at lower prices.
What's Next?
States contemplating withdrawal from PJM are encouraged to reconsider and explore capacity market reforms. Legal precedents limit states' ability to compel utilities to exit RTOs, and any pressure to induce voluntary withdrawal could face challenges. The focus may shift towards negotiating long-term power purchase agreements or revisiting traditional rate-based generation models. Stakeholders, including state officials and energy providers, will likely engage in discussions to address capacity price concerns while maintaining market stability.
