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A federal agency has told the operator of the nation’s largest power grid to cancel a planned auction next month that helps determine how much consumers and businesses pay for electricity.

The decision by the Federal Energy Regulatory Commission on Thursday delays an August auction by PJM Interconnection to line up the extra capacity of power it may need to meet peak electricity demand.

The issue of how the latter goes about setting prices for that power has been the core of a long-running dispute among PJM, power suppliers, policymakers in New Jersey and elsewhere, and the federal agency, which ruled a year ago the current rules for doing so are “unjust and unreasonable.’’

But the FERC commissioners have been unable to come up with a fix they can agree on, leading PJM to ask the agency to allow it to run the forward-looking capacity auction this August under the old rules, a waiver denied last week. PJM operates the power grid stretching from the Eastern Seaboard to Illinois, serving more than 55 million customers.

The denial causes greater uncertainty in a market already in tumult because several states have moved to subsidize carbon-free generation, including nuclear power, to prevent plants from closing. In PJM’s territory, New Jersey and Illinois have done so, and Ohio followed suit last week. New York state also has adopted incentives to avert plants closing, but it is not in the PJM territory.

Wrangling over financial incentives

Those policies are opposed by other power suppliers, such as those who provide coal-fired and natural gas-fired electricity, who argue the financial incentives given to carbon-free generation tend to depress power prices, leading to the premature closing of generating units.

In New Jersey, officials with the Board of Public Utilities and the state’s Division of Rate Counsel have frequently been critical of PJM and FERC policies, accusing some of them for increasing costs to consumers. At one point last year BPU president Joseph Fiordaliso threatened to pull New Jersey out of PJM.

Credit: Photo courtesy of FERC

“It is causing frustration for many stakeholders,’’ said Paul Patterson, an energy analyst at Glenrock Associates in New York, referring to the ongoing dispute over revisions to how the deregulated energy market works. “It’s a bureaucratic rat nest. It never ends.’’

That weariness was reflected in a concurring opinion from outgoing FERC Commissioner Cheryl LaFleur. “I hope the commission is able to give PJM some clarity of direction soon,’’ she wrote.

The delay, the second given by the federal agency to PJM, tightens the time frame for a consensus to be reached. Typically, the capacity auctions are held each May to line up capacity commitments for the next three years, beginning the following June.