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Potential federal power plant subsidies complicate PJM capacity market rulemaking

New York — Difficult to decide which subsidies to include: stakeholders

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PJM doesn't want to fight over 'every single tax code provision'

The issue of how to define and address subsidies to power generation resources that participate in PJM Interconnection's capacity auctions proved to be a challenge Wednesday when stakeholders met to discuss capacity market rule fixes ordered by federal regulators.

The US Federal Energy Regulatory Commission June 29 directed the grid operator to develop new capacity market rules, particularly around minimum offer prices, because the existing rules were determined to be unfair (EL 16-49, ER 18-1314 and EL 18-178).

Upon finding PJM capacity market rules were unjust and unreasonable, FERC suggested PJM come up with a minimum offer price rule that contained as few possible exceptions and also suggested the grid operator consider a resource-specific carve out, which PJM has dubbed "ReCO."

The growth of state-level programs like renewable portfolio standards, renewable energy credits and zero-emissions credits for nuclear power plants has created capacity market friction between resources receiving subsidies that bid against those that do not. The first part of any potential solution would be to define "actionable subsidies" or out-of-market payments that should be excluded from capacity auction bids.

Additionally, potential US Department of Energy action to subsidize certain coal and nuclear plants has only added to the complexity. In June, US President Donald Trump directed DOE Secretary Rick Perry to take emergency steps to help financially struggling coal and nuclear power plants and a leaked memo indicated DOE is considering using the Defense Production Act and Section 202c of the Federal Power Act to that effect.

"I think we all know about action at DOE," Adam Keech, PJM's executive director of market operations, said during his presentation at the webcast special session of the Markets and Reliability Committee. As a result, PJM added language regarding federal subsidies to the proposed capacity market rule changes. PJM has attempted to shield its capacity market from the impact of this potential DOE intervention by subjecting any federal subsidies to the minimum offer price rule. "The idea is that a DOE order for subsidies would get caught by this unless DOE says you can't MOPR them," Keech said.

STICKING POINT

One of the main sticking points is where to draw the line about what constitutes a subsidy and which subsidies should be exempted. The existing criteria for actionable subsidies include supply resources equal to or greater than 20 MW that receive out-of-market revenues greater than 1% of actual or anticipated market revenues.

PJM applied a cutoff date for federal subsidies of March 21, 2016, prior to which out-of-market payments would be excluded. That is the refund effective date of a previous case. PJM chose to apply a cutoff date "so we don't have to romp thru a million federal programs and have to say yes or no" this should be exempted and this should not, Craig Glazer, PJM's vice president of federal government policy, said.

"We worried we'd be here forever fighting over every single tax code provision ... and I don't think congress wants that or the commission wants that," he said.

However, one stakeholder representing a company that owns nuclear power plants pushed back saying "your regulator" already told you to craft a rule without exceptions, but we already have several.

PJM will hold another special MRC session on capacity market rules on September 11. --Jared Anderson, jared.anderson@spglobal.com

--Edited by Matt Eversman, newsdesk@spglobal.com