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PJM task force sends market monitor solution on capacity markets for approval

A senior task force at the PJM Interconnection decided to send a capacity market solution proposed by their independent market monitor, Monitoring Analytics, for higher-level reviews.

Though the task force still showed large support for status quo, there was a simple majority backing the market monitor's "extended MOPR" proposal. That simple majority vote lets the market monitor's proposal move to PJM's Markets and Reliability Committee, or MRC, for initial review on Dec. 7 and a committee vote Dec. 21, PJM Director of Stakeholder Affairs David Anders said during the Capacity Construct Public Policy Senior Task Force meeting Nov. 21.

Out of eight remaining proposals, 63% of 287 companies that voted supported the market monitor's solution, according to PJM's presentation showing voting results. A two-stage auction design proposed by the grid operator itself was second-highest in terms of votes, but the remaining six proposals got less than 20% support. The other proposals came from market participants NRG Energy Inc., American Municipal Power Inc., Exelon Corp., LS Power Group and Northern Virginia Electric Cooperative and environmental group the Natural Resources Defense Council, which represents a coalition called the Sustainable FERC Project. Certain proposals had members who abstained from voting, but PJM officials dismissed the abstentions as minor.

The senior task force began meeting earlier this year to evaluate PJM's Reliability Pricing Model, the key component of PJM's capacity markets, after certain members including competitive generators felt that subsidies like Illinois' zero emission program for nuclear plants distort competitive markets.

In early October, 10 proposals were on the table, but two were dropped after a preliminary poll showed little support. Monitoring Analytics proposes an extension of an existing minimum offer price rule, or MOPR. Dubbed MOPR-Ex, the solution requires existing resources that receive subsidies to still bid into PJM's annual capacity auction at competitive levels. The MOPR mechanism had originally applied to only new resources, but the market monitor's proposal would extend the application to existing resources. Conceptually, the proposal would require subsidized resources to bid at or above an "MOPR floor offer price" to discourage noncompetitive offers that are influenced by subsidies, according a paper from Monitoring Analytics dated Nov. 12. The proposal retains exemptions included in the existing MOPR but also adds exemptions for public power entities and for state subsidies for renewable power, according to the paper.

During the meeting, participants were also curious about whether a solution could move ahead if about 64% of voters backed status quo or no change to capacity market design. Anders clarified that PJM would defer to the status quo only if the main motion for the market monitor's proposal and any other alternate motions fail to pass. Before the Dec. 21 vote, task force participants can move for alternate motions such as a vote on one of the seven other proposals, Anders said.

"We never vote on status quo. We're just left with the status quo if all proposals for change fail," Anders said in response to a question.

Stu Bresler, PJM's senior vice president of operations and markets, said the majority vote for status quo is important information, but he did not "think it necessarily would keep PJM or the PJM board from making a decision that actions need to be taken at [the Federal Energy Regulatory Commission] ... to defend the wholesale markets from this type of influence," referring to state subsidies. Bresler also said PJM's board will need to take into account FERC's response in December to a request from the U.S. Department of Energy.

The DOE in late September asked the commission to require grid operators to revise their tariffs and allow resources with 90 days of fuel supply to receive full cost recovery. Industry observers say this could be a lifeline to assist existing coal and nuclear plants, but the DOE claims it is a way to address the resilience of the grid. FERC has until Dec. 11 to respond.

The capacity market reforms are just one of a number of broad market reforms PJM has embarked on this year to address "price formation," or how prices are set in wholesale markets. Before the DOE's proposal, PJM in June released various papers describing how it could modify its energy and capacity markets.