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PJM wants to be ready with solution for state subsidies despite FERC activity

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PJM wants to be ready with solution for state subsidies despite FERC activity

The PJM Interconnection wants to be ready with a proposal to address state subsidies for nuclear power instead of waiting for direction from the Federal Energy Regulatory Commission, a senior vice president at the mid-Atlantic grid operator said.

PJM officials on Oct. 12 heard numerous questions from the task force charged with finding a way to keep PJM's capacity market competitive while still accommodating state policies that subsidize certain types of generation on whether the timeline for developing that solution might change.

PJM Senior Vice President of Operations and Markets Stu Bresler said the task force should stick to the current course, even though FERC will probably act by the end of the year on a U.S. Department of Energy notice of proposed rulemaking designed to provide financial support to struggling nuclear and coal-fired generation.

"From PJM's perspective, we would rather proceed along the lines we had previously articulated so that we can be ready early next year to make a filing [and] so that we could have the potential to have something in place for the next auction," Bresler said.

"I think from our standpoint, we would rather be ready. If we decide to put it off because, like I said, something significant changes, we always can, but we'd rather be ready," Bresler added.

PJM's board had hoped the Capacity Construct Public Policy Senior Task Force could agree on a proposal by the end of 2017 and implement a solution before the next capacity auction in May 2018. PJM and the task force members have already collectively devised 10 proposals for addressing the subsidies. Last month, Old Dominion Electric Cooperative and Dayton Power and Light Co. withdrew their proposals after a PJM preliminary poll revealed a substantial support for status quo, or leaving the capacity market unchanged.

An initial PJM proposal described in a June report would establish a two-stage auction clearing process, with the first stage determining the resources that clear and the second stage repricing the offers of certain subsidized resources.

But in late September, the DOE directed FERC to issue rules within 60 days that protect "fuel-secure" merchant generation operating in regions with organized capacity markets and having at least 90 days of onsite fuel supply, a factor intended to characterize coal and nuclear generation. An Oct. 9 letter from the Organization of PJM States, a group of utility commissioners among PJM's 13-state footprint, then urged PJM to modify the timeline for developing a proposal and allow for a more comprehensive review of a solution.

During the Oct. 12 meeting, PJM released a revised proposal calling for the grid operator's minimum offer price rule to be replaced by the repricing proposal and to have the repricing proposal apply to both new and existing units. The current minimum offer price rule only applies to new gas combined-cycle units and requires the units to file bids that represent their costs.

PJM further proposed to reprice certain offers during the second stage using a "default avoidable cost rate", or ACR, value, which represents the "going forward costs" of a specific unit type, if it cannot determine the value of a state subsidy, Bresler clarified in an Oct. 12 email. Prior versions of its proposal had suggested using the net cost of new entry as a default value, but task force participants opposed that provision, Bresler said during the meeting.

"I would envision [the ACR] it to be something like what we used to have in the tariff. We used to have an offer cap that was based explicitly on ACR," Bresler said in the meeting. A resource owner could also submit a unit-specific ACR if it chose not to use the table values, according to the revised paper. PJM might have separate tables for new and existing units, Bresler indicated.

Monitoring Analytics has also revised its proposal, which in an earlier form had exempted only new units and units that self-supply from having to bid based on their costs. A revised proposal now includes two additional exemptions, one for public power entities and another for renewable generation that states procure using a competitive process, according to the market monitor's summary.