CPV Retail Report: SEPTEMBER 2023

PJM Regulatory Review

Capacity Market Reform

Market participants continue to await notice from PJM Board as to what capacity market reforms will be filed at FERC. 

Members unable to reach consensus on market design changes including:

  • Potential seasonal capacity products
  • Appropriate capacity procurement levels ​
  • Qualifications ​for participation
  • Performance requirements ​
  • Market seller offer caps ​

Filing targeted for October 1, 2023 requesting FERC approval by end of year to allow for the 2025/26 Base Residual Auction to be held in June 2024.

Additional Agenda Items

  • Parties have reached a “settlement in principle” regarding Winter Storm Elliott penalties and bonuses according to a recent PJM waiver request at FERC and an update from the settlement judge.
  • While details of the settlement are expected to be filed in late September, PJM requested a waiver from FERC to permit it to defer further collection of penalties and payment of bonuses until the settlement filing is ruled on by the Commission.
  • PJM members are looking at initiating a stakeholder proceeding to review and update rules around resource deactivation as planned retirements accelerate.
  • PJM will present the 2023 Resource Adequacy results and request endorsement of Installed Reserve Margin, Forecast Pool Requirement and Winter Reserve Target.
  • PJM received a letter of support by 13 PJM suppliers which supports certain capacity market reforms related to risk modelling, capacity accreditation, generator testing and penalty rates that are tied to the BRA clearing price rather than Net Cone.
  • FERC meeting scheduled for September 21 will include the combined NERC/FERC Inquiry into Winter Storm Eliot and PJM’s FTR Credit Requirements.

Market Drivers

Energy Market Update

  • The hot summer in the south has helped reduce the end of the injection season expectation to 3.8 TCF.
  • Cash prices continue to weaken as power demand falters into the shoulder season.
  • Sub $1.0/MMBTU cash will likely be a regular occurrence until colder weather materializes.
  • Natural gas drilling rigs are now down by 38 year-to-date even as production remains strong.
  • Low gas prices have helped keep power prices in PJM much lower than was observed in 2022.
  • LNG exports have averaged around 12 BCF/D for most of the summer months after hitting 14 BCF/D.
  • Oil supply deficit seen averaging 3 million B/D as the supply boost from SPR is now history and demand surges.

Potpourri Comments

Like Mark Twain once observed “the rumor of his death was greatly exaggerated”…the same can easily be said about the use of fossil fuels which continue to be written off by those determined to spin a yarn about pending peak demand in spite of all the evidence to the contrary. The energy transition will be successful to the extent people are honest about whether it will be both cheap/inexpensive and happen quickly. Neither is the case which is why all the recent analysis about the difficulties currently plaguing offshore wind efforts. At the end of the day what good is an energy transition if only the wealthy will be able to afford reliable electric power? This should be an important consideration even given the dystopian prognostications of the most militant supporters of green energy and their forecasts for upsets to the loop current, the Gulfstream, the Jetstream and the end of Florida. After all, both the Red Sox and the Cubs have now won World Series titles after each of their respective curses were finally lifted. The world is going to need a lot of oil and natural gas to make modern society work for the many and continue to lift those millions of souls who currently lack access to clean water and reliable/affordable electricity.

Forward Pricing

Renewable Energy