Clean energy groups outline principles for PJM capacity market reform

Source: By Gavin Bade, Utility Dive • Posted: Friday, September 21, 2018

  • A coalition of renewable energy, nuclear power and consumer advocacy groups on Wednesday released a set of principles they say should guide the rewrite of capacity market rules for the PJM Interconnection, the nation’s largest wholesale power market.
  • New market rules should protect states’ ability to meet clean energy goals like preserving nuclear plants or deploying more renewable resources, the groups wrote. They should also prevent states from paying for duplicate capacity for renewables and nuclear plants that may not participate in capacity markets under new rules.
  • The document comes as PJM stakeholders prepare to file their proposals for capacity market reform with the Federal Energy Regulatory Commission (FERC) by Oct. 2. The federal agency threw out PJM’s market rules in June, prompting a rush to rewrite them before auctions next year.

The new “shared principles” document shows how a diverse coalition of PJM stakeholders that benefit from state energy policies would like to see new capacity market rules develop in the mid-Atlantic power market.

The document was signed by nuclear generators Exelon and Talen Energy, along with the American Wind Energy Association, Sierra Club, Natural Resources Defense Council and consumer advocates from Illinois and the District of Columbia, among others. Its existence was first reported by RTO Insider.

The document centers on their preferred design for a resource-specific Fixed Resource Requirement (FRR-RS) — a market construction recommended by FERC in June when it threw out PJM’s capacity market rules.

FERC’s concern was based on complaints from fossil fuel generators, who said subsidized renewables and nuclear plants were depressing capacity market prices. To fix that, FERC said the FRR-RS could allow those resources to opt out of the capacity market altogether, along with a commensurate amount of load.

FERC’s order left many of the details of a FRR-RS up to PJM and its market participants, and clean energy groups expressed concern that it could curtail wind and solar growth if the grid operator makes it difficult for state-sponsored resources to opt out of the capacity market.

The new principles document aims to prevent that situation by urging FERC to require the new market construction to allow utilities to “buy capacity from all state-incentivized resources and receive full capacity credit for doing so.”

“The FRR-RS should provide maximum flexibility for the matching of customer load and state-incentivized resources,” they wrote, “and provide a user-friendly mechanism for states to direct their load serving entities to procure capacity from state-incentivized resources.”

To keep renewables and nuclear plants out of the capacity market, FERC encouraged PJM to implement a strict price floor, or Minimum Offer Price Rule (MOPR). The clean energy coalition urged PJM to implement that floor gradually, so it does not lock subsidized resources out of the market before they can sign new contracts in the FRR-RS.

“States must be able to understand the new rules and clarify state law as needed to take full advantage of FRR-RS optionality,” they wrote. “Because implementing FRR-RS effectively will require new regulation and/or legislation in many states, a transition mechanism must be established that allows for these processes to be carried out without forcing customers to pay excess costs in the interim.”

The principles document also includes a number of other recommendations for FRR-RS eligibility, duration, resource compensation and affiliate transactions, among others.

“FERC must make the scope of MOPR and FRR-RS eligibility as clear as possible in its order, such that states are able to legislate with knowledge as to how state rules will be treated by FERC,” they wrote. “For example, the PJM tariff must make clear how a state program calling for capacity or bundled procurement from a chosen resource type will be treated.”

The policy recommendations are likely to be opposed by natural gas and coal generators, who worry an expansive FRR-RS could lead to a gradual decay of the capacity market. Calpine Corp. CEO Thad Hill expressed those worries in comments at FERC, saying the FRR-RS could lead to a “purely residual capacity market” similar to the situation in California, with “very high retail rates, very low wholesale rates and no investment that is not part of a state mandate.”

PJM and its stakeholders have until early October to file their comments at FERC, with reply comments due the following month. In August, FERC allowed PJM to delay its capacity market auction from May to August of next year to give the regulators and grid operator time to work through reforms.