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PJM auction results provoke disparate views from FERC members on need for reform

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PJM auction results provoke disparate views from FERC members on need for reform

Highlights

Chatterjee, Danly assert 'alarmism' was unjustified

Existing renewables 'grandfathered in,' Glick reminds

Two Federal Energy Regulatory Commission members pointed to the results of PJM Interconnection's recent capacity auction as reason to slow down efforts to overhaul the controversial minimum offer price rule, while the agency's head insisted it was necessary to move ahead full-steam ahead to avoid disruptions to new renewable resources looking to enter the market.

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"The auction prices were significantly lower than they were last time, which is great ... [but] a lot of the existing renewables were grandfathered in so you're not going to see a lot of impact the first year," Chairman Richard Glick told reporters after the commission's June 17 open meeting, during which Commissioners Neil Chatterjee and James Danly pointed to the latest auction to defend the current MOPR regime.

"But we certainly know that all the renewables that are coming online, for instance, offshore wind and everything else in this region, are not grandfathered in, and therefore they're going to be directly affected by this [MOPR] as time goes on," Glick said.

PJM started its first capacity auction in three years on May 19 for the 2022-23 delivery year, with clearing prices coming in 64% below the previous auction at $50/MW-day compared with 2018 clearing prices of $140/MW-day, according to results the grid operator posted June 2.

"If you are charging $10 and you should be charging $2 and you lower the price to $5, it doesn't mean you pat yourself on the back and say, 'Well, everything's worked out great,'" Glick said. "The fact is prices should be a lot lower, and there were people that weren't grandfathered in and did have to bid into the market ... at a higher price than they otherwise would have. So that obviously increases the price above what it should be."

Differing interpretations

PJM's capacity auctions were paused after FERC in 2018 determined that the capacity market rules were unjust and unreasonable because they failed to account for alleged price distortion caused by state-subsidized clean energy resources (EL16-49, EL18-178).

FERC subsequently directed PJM to expand the MOPR to set administrative price floors for all new and some existing resources seeking to bid into its capacity market that receive material state subsidies. The expanded MOPR, however, drew immense criticism from states and utilities with aggressive climate and carbon-reduction goals and spurred some to investigate other options for ensuring resource adequacy.

Glick, a commissioner in the minority at the time, was among critics to suggest that the sweeping changes would raise capacity market prices and essentially block state policies designed to facilitate the transition to a clean energy future.

Chatterjee, who helmed the agency through much of the MOPR proceeding, had been a staunch supporter of the policy as necessary to maintain a level playing field and ensure transparent, efficient markets. Of late, he has expressed an openness to hearing out options for modernizing the wholesale power markets.

During the June 17 meeting, he noted that the long-awaited capacity auction had an increase in cleared renewable resources, a decrease in cleared coal-fired generation and "a significant drop in prices to the lowest level in nearly a decade."

"I think it's safe to say that, for this one, all the sky is falling rhetoric about the expanded MOPR really missed the mark," he said. "Don't get me wrong, we should continue to press forward with efforts to improve competitive market rules, but there's value in slowing down ... and proceeding with deliberate care in the near term so that competitive capacity markets can continue to deliver for consumers over the long term."

Position papers

Danly has also supported FERC's past actions related to the MOPR and issued a white paper in May aimed at explaining why, under the law, capacity markets required mechanisms to protect against the exercise of market power, including buyer-side market power exercised by the states.

He announced at the June 17 meeting the release of a supplement to the white paper, responding to comments from several entities that because the states are not the buyers of power in the market, state action to subsidize resources cannot constitute the exercise of buyer-side market power.

He also said he would be issuing a paper on his reactions to the latest PJM auction.

"One of the primary takeaways here is that the alarmism that we've seen over the effects of the MOPR in the last six months or so was simply unjustified," Danly said during the meeting. "Prices that resulted from the market were not inordinately inflated and the application of the extended MOPR caused very few units that offered at the minimum price to fail."

He welcomed comments from the public on his observations.

Asked about Danly's position papers, Glick said he had not yet read his latest two but found no support in the law for the arguments made in his prior ones regarding a legal obligation for FERC to impose the MOPR.

"Nonetheless, I'm more than willing to have a discussion with him and all the rest of my colleagues as we move forward," Glick said.

He added: "I think almost everyone recognizes that the commission made a colossal mistake when it moved forward with the MOPR program, especially in PJM but elsewhere in other Eastern RTOs as well. And I think folks recognize that the time has come for significant change and to meet our statutory requirements of accommodating state resource decisions."