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Dominion exec: Vertically integrated utilities may flee PJM capacity market

The Federal Energy Regulatory Commission’s actions intended to stamp out artificial price suppression brought on by state-subsidized generation could end vertically integrated utility participation in the capacity markets, an executive of a major U.S. utility said at a renewable energy forum.

FERC’s December 2019 order (FERC dockets EL16-49, EL18-178) directing sweeping changes to the PJM Interconnection’s capacity market expanded application of the minimum offer price rule, or MOPR, to all new resources in PJM that are eligible to receive state subsidies. Exemptions were only provided for certain existing resources.

Emil Avram, vice president of business development at Dominion Energy Inc., interpreted the order as engulfing vertically integrated utilities in the commission’s broad definition of a state subsidy because any new generation assets those utilities brought into the market as self-supply would be subject to the MOPR.

With low electric rates and customers looking to power new large data centers with renewable energy, Avram said Dominion had a strong load growth projection that would facilitate investment in new clean energy assets. At the same time, the MOPR is poised to hit industrial customers with clean energy aspirations the hardest, he said March 4 at a policy forum convened by the American Council on Renewable Energy.

“I think any utility that's vertically integrated that has a growth plan to build renewables, or really any new generation, is going to be subject to the MOPR, and really the only alternative they have is to elect a fixed resource requirement alternative in order to maintain the same economics of those assets in the future,” Avram said.

Avram added that vertically integrated utilities with generation that largely matched their load were especially well suited to choose a fixed resource requirement, or FRR, option allowing a utility to remove all of their capacity from PJM's capacity market. Doing so would put the responsibility for resource adequacy in the hands of the utility rather than the capacity market.

Remaining in the capacity market, Avram reasoned, could be problematic when a vertically integrated utility attempts to secure state utility commission approval to build a new generating facility. In that situation, assets that do not clear the capacity market because they were subjected to the MOPR lack capacity market revenue and thus significantly reduced value, Avram said.

“By electing FRR, what happens is you're now pulling your entire resource and managing your capacity reserve in its entirety,” Avram explained. “As your load grows and you build generation to meet it, now what we're going to be proposing to the [state] commission under the FRR situation is an avoided capacity cost from the load side.”

Avram said he saw no other way to realize the economic benefit of a new asset in a proceeding before state utility regulators. “So that's the reason why I think, personally, vertically integrated utilities are going to have to exit the capacity market if they're growing," he stated.

Joe Kelliher, NextEra Energy’s executive vice president of federal regulatory affairs and a former FERC chairman, asserted that FERC had to act to prevent price suppression in PJM’s capacity market but it “did not have to go that far.” He asserted that the commission could have done a better job of balancing its legal duty to ensure just and reasonable prices with its restriction barring intrusion on state jurisdiction over generation mix decisions.

Current FERC Commissioner Richard Glick, who dissented on the MOPR order, urged stakeholders to bring their ideas for different pricing regimes and market fixes to FERC. Asked if the commission would take the initiative to pursue different approaches or explain why certain market reforms would not be a just and reasonable way to proceed ahead of stakeholder filings, he responded: “The commission certainly has that authority. Do I see the current FERC doing that? Absolutely not.”

Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.