An order by the Federal Energy Regulatory Commission aimed at fixing the PJM Interconnection's capacity market will likely sow further mistrust among states that were already concerned by the agency's approach toward accommodating state-level clean energy policies, according to Democratic Commissioner Richard Glick.

But Republican Chairman Neil Chatterjee argued that increasingly aggressive state clean energy and climate goals compelled FERC to act to prevent the capacity markets it oversees from unraveling as a result of different states' energy policy choices.

The conflict is centered on a Dec. 19 FERC order directing PJM to expand what is known as a minimum offer price rule, or MOPR, in its capacity market to all new state-supported generating resources that receive material out-of-market subsidies. PJM operates the largest capacity market in the nation, which is intended to guarantee reliability for 65 million customers in all or part of 13 states and the District of Columbia while ensuring generators make enough money to cover their operating costs.

Sparking the order was a complaint filed in 2016 by a group of competitive power producers asserting that PJM's capacity market rules had become unjust and unreasonable because they allowed state-subsidized participants to effectively lower capacity payments to existing generators.

The order directed PJM to expand the scope of its existing MOPR ⁠— which currently applies to new gas-fired generators ⁠— to cover all new state-subsidized resources while providing certain exceptions for existing resources. "This is all about the price suppression that's coming from subsidies," Chatterjee told reporters during a press conference following the commission's open monthly meeting.

But Glick disagreed during his own separate media availability, asserting that the order favors existing resources over new zero-emitting generation procured by states seeking to take bold climate action. "It seems to me that the whole order is aimed at those particular policy preferences," Glick said.

In particular, Glick noted that the order does not include a carve-out previously proposed by FERC that would have allowed state-supported resources to exit PJM's capacity market along with a corresponding amount of load and enter into bilateral contracts. "We're getting rid of the one last hope that states had, and I think you're going to see some very adverse comments from the states," Glick said.

In remarks during the meeting, Glick also drew a direct line between the commission's PJM order and New York regulators' move to conduct a review of whether the New York ISO's current capacity market construct aligns with that state's climate agenda.

"Now we have the New York PSC that has already established a resource adequacy proceeding in which the state is considering taking back resource adequacy from the NYISO because of their concerns about FERC overreach," Glick said.

Glick said that public utility commissioners in two PJM member states with subsidized nuclear generation — New Jersey and Illinois — have suggested that those states should consider pulling their utilities entirely out of PJM.

Glick during the meeting also recalled a state utility commissioner recently telling him that the state had no interest in participating in a FERC-jurisdictional carbon pricing scheme due to fears the commission would "screw it up." "Given our track record, I can't really blame them," he said. Glick declined to reveal the commissioner's identity to reporters.

When asked about a potential exodus from PJM's capacity market, Chatterjee argued during his press briefing that the market would have unraveled on its own if the commission had opted to do nothing.

"For folks who are concerned that this could potentially lead to an unraveling of the capacity market, I will tell you that this is in effect an attempt on our part to try and save and protect the capacity markets," Chatterjee said. "I can almost assure that had no action been taken, the capacity markets absolutely would have unraveled."

In a Dec. 19 research note, ClearView Energy Partners said, "Taking back full accountability for the capacity obligation is a significant task and states would likely have to rebuild the institutional capacity to do so." The firm therefore said it did not view decisions to leave FERC's capacity markets as a move that state policymakers "will take lightly."

"However, for those states with strong decarbonization agendas, they may do so," ClearView added. If that becomes the case, then the improved outlook for conventional resources participating in PJM's capacity market in the wake of FERC's Dec. 19 order could be short-lived, the firm said. (FERC dockets EL16-49, EL18-178)