On December 7, 2017, the U.S. Government Accountability Office (“GAO”) issued a report summarizing its review of FERC’s oversight of the nation’s four regional capacity markets. The GAO found generally that “FERC has not fully assessed the overall performance of capacity markets,” and the agency recommends that FERC improve data quality, use consistent metrics reported through standardized definitions, and establish goals, performance metrics, and risk tolerance levels for capacity markets. The report comes at a time when FERC is considering significant capacity market-related issues, including the Department of Energy-initiated “Grid Reliability and Resilience Pricing” docket (see Oct. 2, 2017 Edition of the WER), and reliability-focused pricing reforms from the PJM Interconnection, LLC (see Nov. 21, 2017 edition of the WER).

According to the GAO, Congress directed the agency to conduct this review as part of a Congressional bill for 2016 energy and water development appropriations. The report itself describes the four U.S. capacity markets—ISO New England, Midcontinent ISO, New York ISO, and PJM—and how they have changed over the years; examines available information about resource adequacy and related costs in regions with and without capacity markets; and examines FERC’s oversight of capacity markets.

As the report argued, although FERC works with grid operators and other parties to oversee capacity markets and address misconduct by participants, FERC has no comprehensive means of assessing the overall performance of the four capacity markets. “In particular,” the report stated, “FERC has not established performance goals for capacity markets, measured progress against those goals, or used performance information to make changes to capacity markets as needed.” The lack of visibility into capacity market performance may pose a problem, the report cautions, and exacerbate concerns by some observers that market design problems are failing to ensure resource adequacy—a topic touching on the other ongoing FERC dockets noted above. “By more fully assessing performance,” the report concludes, “FERC may increase opportunities to identify and address potential performance problems and to share effective approaches across capacity markets. This may help ensure customers do not pay more than necessary for resource adequacy.”

A copy of the GAO’s report, along with highlights from the report, can be found here.