Stakeholders debate N.J. participation in PJM capacity market

New York — Stakeholder comments regarding the New Jersey utility regulator's investigation into resource adequacy options ranged widely, with investor-owned utilities favoring abandonment of the PJM Interconnection capacity market, merchant generators touting capacity market benefits and a call to create a state power authority.

The New Jersey Board of Public Utilities in late March launched an investigation to evaluate alternatives to the state participating in the regional capacity market administered by PJM as the means of ensuring adequate power generation resources to meet state demand.

One of the main options being considered is New Jersey's pursuit of the fixed resource requirement option, which would require load serving entities to meet their capacity obligations through their own generation, if they own such resources, and bilateral contracts with other capacity owners.

In response to a Wednesday comment deadline, multiple stakeholders shared their views and recommendations with the NJBPU.

Other states are also considering the FRR option in response to a new minimum offer price rule for PJM's capacity market that was ordered by the Federal Energy Regulatory Commission (EL-16-49, EL18-178) to address the impact of subsidized power generation resources on capacity prices.

The MOPR sets a minimum price for resources bidding into PJM's capacity market in an effort to level the playing field between resources that receive subsidies like renewable energy credits and resources that do not.

However, officials in states that subsidize generation resources like New Jersey, which provides RECs, offshore wind RECs and zero emissions credits for nuclear generation, have questioned whether a stricter MOPR would limit their ability to achieve their clean energy policies.

FRR RISKS AND BENEFITS

FRR option supporters argue they are engaged in New Jersey's clean energy agenda and see the MOPR as impeding those objectives. The state's 2019 Energy Master Plan sets a course to 100% clean energy by 2050 that relies considerably on developing offshore wind capacity.

"Some resource technologies, such as offshore wind, are unlikely ever to clear in the PJM capacity market under the new bidding rules," Public Service Enterprise Group and Exelon Generation Company, said in joint comments.

They propose revamping the state's energy capacity procurement process within an FRR framework that integrates procurement of environmental attributes.

"Offshore wind projects qualifying for ORECs, new grid-connected solar resources qualifying for state support, and the nuclear plants selected to receive ZECs would compete to sell their capacity and attributes, bundled together, for an all-in price fixed at the outset of a long-term contract" less forecasted energy revenues, based on futures prices for energy at a liquid trading hub, and ancillary services revenues.

Alternatively, merchant power generators represented by trade group Electric Power Supply Association commented that the FRR "is not the right tool to achieve New Jersey's environmental goals."

EPSA called FRR a "costly and risky mechanism" that introduces new challenges "during a time of great uncertainty and economic strain." They asked the NJBPU to formally ask PJM to consider adapting the Competitive Auctions for Sponsored Policy Resources (CASPR) market design pioneered by the New England ISO for the PJM region.

CASPR's secondary substitution auction allows resources interested in retiring to transfer their capacity supply obligations to new state-sponsored resources that did not clear in the primary auction.

Merchant generator NRG Energy in its comments advised against an FRR approach and urged the NJBPU to adopt a 100% clean energy standard implemented through a forward clean energy market.

In the absence of a system that internalizes emissions costs into markets, this forward market would pay clean energy resources for producing energy and displacing fossil fuel-fired generation instead of charging carbon emitters for their pollution.

One unique proposition offered by public finance consultant AGVP Advisors is to create a state public power authority, as a public benefits corporation.

"A New Jersey State Public Power Authority with a strong mandate to use its unregulated status and federal and state tax-exempt financing capability, that is revenue not tax based," could help the state achieve its clean energy goals, AGVP said.

While the FRR option remains a possible way for New Jersey, uncertainty remains as the FERC MOPR proceeding continues and power market dynamics remain upended by the coronavirus pandemic.

"The NJBPU proceeding has raised a number of valuable perspectives into what New Jersey's future holds," Kieran Kemmerer, power market analyst with S&P Global Platts Analytics, said Thursday.

"We believe the FRR alternative still remains a highly probable pathway forward; however, the details are difficult to discern," Kemmerer said. "The results of the BPU proceeding expected in the second half of this year will provide a clear answer, however in the interim, stakeholder input and ongoing discussion help piece together what FRR in NJ actually entails."