New York — Ten US senators urged federal regulators Thursday not to enact policy limiting participation of state-supported clean energy in PJM Interconnection's capacity market that could exclude 14 GW of renewable energy resources and increase consumer costs by $5.7 billion/year, citing a clean energy consultant's estimate.
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In a letter addressed to Federal Energy Regulatory Commission Chairman Neil Chatterjee, 10 Democratic senators said it is their "understanding" that with the departure of Commissioner Cheryl LaFleur on Friday, FERC's two-to-one Republican majority is considering a Minimum Offer Price Rule that would overrule existing rules allowing "state-supported clean generation to participate freely in the PJM capacity market."
The lawmakers said the cost of this policy change to consumers could be as high as $5.7 billion/year, increasing electricity costs by 60% compared to the current capacity market, according to a study by consultant Grid Strategies.
Grid Strategies Wednesday evening released a paper titled "Consumer Impacts of FERC Interference with State Policies: An Analysis of the PJM Region."
The paper argues that a broad application of the MOPR being considered by FERC, would raise the power capacity bids of resources that are deemed to benefit from state policies, thus increasing prices.
"I hold out some hope that new Commissioner [Bernard] McNamee will realize it is anti-market, anti-consumer, and anti-states rights for FERC to go around mitigating state policies," Rob Gramlich, Grid Strategies' president and co-author of the paper, said in an email Thursday.
"There is certainly nothing 'conservative' about mitigating state policies or administratively imposing jacked up bids in markets," Gramlich said. But he added "most people are betting" McNamee will come down on the other side and that some form of broad MOPR will be approved "in a matter of days."
CAPACITY MARKET IMPACTS
FERC issued an order in June 2018 that found PJM's existing tariff governing its capacity market is unjust and unreasonable, which set off a major rule-adjustment proceeding (EL18-178). FERC said the capacity market pricing model had become "untenably threatened by out-of-market payments provided or required by certain states."
To mitigate the effects of subsidies, FERC asked PJM to expand its MOPR to apply to nearly all existing and new resources in the region. The change would require most subsidized resources, such as nuclear plants receiving state-issued zero-emission credits or energy procured through a state renewable portfolio standard, to bid their capacity into PJM without factoring in the cost savings from their subsidies.
PJM proposed an extended Resource Carve-Out, or RCO that would establish clearing prices based on actual offers, but clear the offers against PJM's total load requirements, including the load associated with the carved out resource.
However, while the RCO could increase capacity prices, other aspects of PJM's proposal would be price suppressive.
"The $5.7 billion estimate references the extended RCO proposal in PJM, but our estimate for the upside to capacity clearing prices that extended RCO could exhibit is in the range of $10-$25/MW-day," Kieran Kemmerer, power market analyst with S&P Global Platts Analytics, said in an email.
The analysis provided by Grid Strategies cites a $95/MW-day increase from PJM independent market monitor report that discusses the impact of extended RCO in a scenario where all generation at high risk of retirement elects the resource carve out option in the same auction, Kemmerer said.
"In addition to the MOPR only being applicable to resources over 20 MW (which would likely limit the amount of renewable resources subject to MOPR, even if there are large quantities of renewable resources added over the coming years), the outlook for PJM's Variable Resource Requirement curve looks increasingly bearish, driven by lower entry costs and expectations for lower load growth, which would mute the impacts of the extended RCO proposal," he said.
"Additionally, FERC may very well select PJM's resource carve out proposal (not extended RCO, which was offered as an alternative) which we estimate will have a bearish impact on capacity clearing prices, in the range of $10-$20/MW-day," Kemmerer said.
PJM said its markets have reduced customer costs overall while providing other benefits.
"PJM's competitive markets, operations and planning have delivered annual savings of $3.2 to $4 billion to consumers," spokeswoman Susan Buehler, said in an email. "They have also led to decreased emissions and a more efficient mix of resources that includes renewables, demand response and energy efficiency."
PJM's markets face a "complex scenario where one state's policy choices are impacting other states that may not have the same policy view," Buehler added. PJM's FERC proposal accommodates state policies while ensuring fair market outcomes and PJM looks forward to FERC "addressing these issues on their merits," she said.
-- Jared Anderson, firstname.lastname@example.org
-- Edited by Richard Rubin, email@example.com