PJM market participants panned two proposed capacity market reforms in comments filed with the Federal Energy Regulatory Commission on Monday, with most writing they prefer the status quo to the competing proposals floated by the grid operator.
Commenters uniformly rejected PJM’s proposed two-part capacity auction for subsidized resources, but a few — including generator and natural gas trade groups — said that its approach to extend the minimum offer pricing rule (MOPR) could work with changes to the grid operator’s proposal.
PJM filed the two competing reforms last month in an attempt to mitigate what it says is price suppression in its capacity market brought on by state power subsidies and mandates. FERC that month approved a similar two-part capacity auction proposal from ISO-New England in a split vote.
Capacity markets in regions like PJM and ISO-NE compensate generators for their ability to provide power years in the future, so FERC’s judgment of proposed changes to their rules will have an impact on the power mix for decades to come.
Both of PJM’s proposed solutions aim to adapt its market construct to handle state power policies like renewable energy mandates or nuclear subsidies. PJM is concerned those policies are depressing capacity market prices, forcing other plants offline and potentially hampering reliability in the future.
PJM wants to fix that with a reform similar to the two-part capacity auction FERC approved for ISO-NE last month. Resources would bid normally in the first round of the auction, but in the second round PJM would replace offers from subsidized resources with “reference prices” that reflect what the grid operator thinks would be a competitive offer.
A rival proposal from PJM’s Independent Market Monitor would take a more direct approach, expanding the MOPR, which prevents resources from bidding in below a certain price point.
Neither policy received substantial support in PJM’s stakeholder process, so the grid operator last month decided to offer both options to FERC.
The first round of comments, filed Monday, reflects the opposition of many market participants, who argued the grid operator has not proved existing market rules are unjust or unreasonable, the standard set by the Federal Power Act.
PJM has “failed to provide evidence to support its allegations that harmful market impacts occur when resources receive financial support from state policy initiatives,” the Organization of PJM States, Inc. (OPSI) wrote in its comments. “Without such evidence, the Commission should find that both Option A and Option B do not meet the standard set forth in [the Federal Power Act].”
PJM states do not get a direct vote in the grid operator’s stakeholder process, which is reserved for market participants, but FERC members have said their input will be crucial to their assessment of market changes.
Both the states and corporate interests were particularly opposed to the two-part capacity auction, with no commenter directly supporting it. Many stakeholders reflected OPSI’s concern that the repricing proposal is unnecessarily complicated and will raise prices for consumers.
“[I]n this proceeding PJM abandons the cost minimizing principle and instead proposes an exceedingly complex design change that will place more weight on administratively determined artificially inflated prices rather than actual market participant offers,” OPSI wrote. “PJM’s proposal is both unsupported by actual evidence and destined to raise capacity prices for customers.”
Some stakeholders, however, expressed tentative support for an expansion of the MOPR, though not on the terms imagined in PJM’s filing.
The Electric Power Supply Association (EPSA), a generator trade group, wrote that FERC should reject PJM’s two policy options and open a new proceeding with a “focus on a MOPR approach, consistent with its recent commitment to ‘use the MOPR as [its] standard solution’ where state policies threaten the organized capacity markets.” The Natural Gas Supply Association, another trade group, expressed a similar sentiment in its comments.
That “standard solution” language references a passage in FERC’s approval of the ISO-NE capacity repricing proposal, in which FERC said it would use MOPRs as the “standard solution” to handle state policies in the absence of a better option. Chairman Kevin McIntyre appears to have pushed for the language’s inclusion, though at least three of the five FERC regulators oppose it.
If FERC turns toward a MOPR-type rule, it will likely face challenges from another PJM heavyweight — Exelon, the nation’s largest nuclear generator. In its comments, the Chicago-based company railed against the expanded MOPR proposal, which would diminish the impact of nuclear subsidies in Illinois and New Jersey.
“By forbidding resources receiving compensation under state environmental programs from making offers reflecting that compensation, Option B makes the Commission’s markets less efficient, procures redundant capacity, and distorts energy markets — while drawing arbitrary distinctions between favored and disfavored programs,” Exelon wrote.