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US generators ask FERC to protect PJM market from federal, state subsidies

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US generators ask FERC to protect PJM market from federal, state subsidies

Facing state and possibly federal moves to subsidize nuclear and coal power plants in PJM Interconnection's capacity market, three power suppliers are urging U.S. federal regulators to direct the grid operator to adopt a new minimum offer price rule instead of alleged subsidy-friendly market reforms that could distort market price signals.

In a May 31 complaint, Competitive Power Ventures Holdings LLC affiliate CPV Power Holdings LP, Calpine Corp. and ArcLight Capital Holdings LLC subsidiary Eastern Generation LLC called on the Federal Energy Regulatory Commission to act quickly to protect PJM's capacity market from below-cost supply offers from resources receiving out-of-market subsidies. The complainants asserted that PJM's current pricing rules are "unjust and unreasonable" because they do not prevent the suppression of prices by subsidized energy resources.

FERC is already considering two market reform proposals PJM asked the agency on April 9 to choose between to accommodate state subsidies of at-risk nuclear power plants, including those in Illinois and New Jersey, known as "zero-emissions credit" initiatives. One proposal, referred to as capacity repricing, would split the region's annual base residual auction into two stages, while the second proposal by PJM's internal market monitor, known as MOPR-Ex, would modify PJM's existing minimum offer price rule, or MOPR.

Perhaps prophetically, the complainants said they are particularly wary of the Trump administration's agenda to keep nuclear and coal resources online. A day after they filed their complaint at FERC, a draft addendum by the U.S. Department of Energy was leaked revealing that the agency is contemplating requiring grid operators to buy power from designated coal-fired and nuclear plants for two years to ensure grid resilience and safeguard national security.

While acknowledging that FERC has no power to overrule a DOE order or that of another federal agency or a congressional act, the complaint said FERC "cannot shirk from its statutory obligation to ensure that the PJM markets produce just and reasonable rates, merely because prices are being suppressed by a federal, rather than a state, thumb on the scale."

If the DOE's 2017 ill-fated grid resiliency proposal for full cost recovery of certain coal and nuclear plants "is any indication," the gas-fired merchant generators said, "the pressure exerted by that federal thumb is likely to be massive and something that the PJM markets will be unable to survive without mitigation."

The generators said they appreciate that PJM in its April 9 filing recognized that its existing MOPR is inadequate and that doing "nothing … is not an option." However, the generators said PJM's capacity repricing and "MOPR-Ex" proposals are also inadequate and urged FERC to require the adoption of a "Clean MOPR" that would apply to all subsidized resources and "without categorical exemptions" like those in PJM's MOPR-Ex proposal.

The complaint said the so-called clean MOPR would satisfy each of the "first principles" set forth in rule changes FERC approved for ISO New England, such as providing price transparency and facilitating robust competition for capacity supply obligations from resources. According to the filing, the clean MOPR would also not impede or distort price signals by guiding orderly entries and exits of capacity resources and letting risk reside with "those who wish to support out of market subsidies, not on others."

"A Clean MOPR results in the selection of the least-cost set of [regional transmission organization] resources that satisfy market needs without artificial price suppression," said the complaint. "There is no price distortion. Subsidies can exist, but at the expense of the sponsor should a mitigated subsidized unit fail to clear the RPM market."

Under a clean MOPR, private capital and governments that take on the burden of subsidizing energy resources face the risk of those resources not clearing in the capacity auction, or they could once again take on the responsibility for resource adequacy and acquire resources outside the market. "The decision is that of the state, and the associated costs are not foisted on the rest of the market," said the complaint.

The complainants asked FERC to fast-track their complaint so a clean MOPR can be implemented in time for PJM's 2022-2023 RPM base residual auction scheduled to be held in May 2019. PJM's competitive wholesale electricity market extends across 13 states and includes Washington, D.C. (FERC docket EL18-169)