Washington — The Federal Energy Regulatory Commission on Thursday approved certain aspects of PJM Interconnection's plan to implement sweeping capacity market reforms and reversed its position on whether competitive state default retail service auctions qualify as state subsidies.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
But FERC Chairman Neil Chatterjee and Commissioner Richard Glick, the sole Democrat on the panel, gave disparate interpretations of the order's impact on market participants.
Chatterjee has long argued that the December 2019 order (EL16-49, EL18-178) expanding application of the minimum offer price rule to all new resources in PJM that are eligible to receive state subsidies was necessary to combat the potential price-suppressing effects of subsidized resource participation in the capacity markets.
"When renewables and new technologies are given the chance to compete, they can thrive. But you have to have transparent and efficient markets as the baseline. That is the core aim of our MOPR orders," Chatterjee said at the commission's open meeting Thursday.
The commission's "work to protect capacity markets through mitigation measures is consistent with our strong support for new technologies, carbon pricing initiatives and respect for states' rights," Chatterjee said in responding to criticism from Glick that FERC was simply paying lip service to climate change concerns and frustrations expressed by some states. "Our orders reflect the commission's interest in markets that are transparent and efficient, and thus able to send accurate investment signals for the long term."
Glick countered that Thursday's order on rehearing and compliance did "little, if anything, to clear up the mess this commission's MOPR orders have created for PJM and the various stakeholders in the region." He has held firm that administratively determined price floors imposed across the Eastern regional transmission organizations will "raise capacity market prices and could very well end up blocking state policies designed to facilitate the transition to the clean energy future."
State default service auctions
At the FERC meeting, he homed in on FERC's latest action granting rehearing on the issue of state default service auctions.
States with retail choice use those auctions to contract with suppliers willing to provide energy and related services to retail customers who do not choose their own supplier. At times, those auctions have been used to meet up to 50% of a state's retail load.
"The commission might want you to think that today's order finally fixes that issue, but ... whatever help the commission may have offered to PJM was taken away by the inclusion of a footnote that suggests that the default service programs that take into account state [renewable portfolio standard] targets will indeed be subject to the MOPR, even if it is obvious to everyone that this will be impossible to administer and could subject virtually every generator participating in the PJM capacity market to the MOPR."
Chatterjee, in response to questions from reporters after the meeting, vehemently rejected Glick's characterization. "The big takeaway on that issue is that we ... agree with PJM and stakeholders who supported the proposal that certain state default auctions if they meet PJM criteria for being competitive and fuel neutral, do not meet the definition of state subsidy and thus do not trigger mitigation."
Chatterjee clarified to reporters that the order "does not constitute a ruling that any particular state-directed default service auction actually meets PJM's requirements." Rather, the footnote referenced by Glick "illustrates our thinking on what may or may not qualify as nondiscriminatory or fuel neutral," he said.
PJM had proposed to require that state auction consultants or managers certify that default service auctions are based on a nondiscriminatory and competitive bidding process and therefore should be exempt from the MOPR.
Further compliance filing
Thursday's order also directed PJM to file another compliance filing within 30 days and indicated that action in a separate pending proceeding before FERC was required before certain pre-auction activities could commence and put the grid operator on track to restart the region's capacity auctions.
The commission majority in May voted in favor of an overhaul of PJM's reserve market intended to more accurately value reserves. Under that proceeding (EL19-58), PJM was directed to adopt a forward-looking methodology for calculating the energy and ancillary services offset — a variable PJM uses to help determine the amount and cost of capacity that must be procured in the region. That offset also plays a role in setting the default offer floor price for resources participating in PJM's capacity auctions.
Chatterjee said the agency is working as swiftly as possible to address PJM's proposed methodology but had to reject elements of the MOPR compliance filing tied to energy and ancillary services revenue offsets because those issues remain pending in the reserves proceeding.
PJM has said it would begin its pre-auction process two weeks after FERC ruled on compliance, with the intention of conducting the capacity auction for the 2022-23 commitment period six and a half months after such an order.
Chatterjee suggested to reporters that that clock had started with Thursday's order, while Glick said during the meeting that FERC's approach to regulations left stakeholders still in the dark on when the next auction could occur.
A PJM spokesman said the grid operator would need to review the order before making any determinations on auction timing. As of press time, FERC had not posted the order to its public website.
Financing US Power Conference | October 28, 2020
This event delivers information and insight on deal-making in the US power sector. Network, exchange ideas, find the next best deals, discover who's looking to secure capital, who has the money to lend, and more.Learn more