FERC order sows confusion: ‘The devil is in the details’

Source: By Peter Behr and Jeremy Dillon, E&E News reporters • Posted: Tuesday, February 11, 2020

There may be only one point of agreement about the turmoil that has followed a federal ruling in December effectively requiring higher prices for new, state-subsidized renewable energy projects that want to offer future power supplies in the nation’s largest power market.

Something has to give. That, at least, was the view of a quartet of experts speaking to members of the National Association of Regulatory Utility Commissioners at a conference in Washington yesterday.

The Dec. 19 order by the Republican majority of the Federal Energy Regulatory Commission directs the PJM Interconnection to set minimum prices on electricity bid into the PJM capacity auction by new generating units and some existing ones that receive state support. The offers are to deliver power three years in the future to ensure enough energy is on hand for PJM, grid operator for a band of states from the Mid-Atlantic to Chicago and the District of Columbia.

Clean energy advocates said FERC’s minimum offer price rule would price new wind and solar projects out of the market. FERC Chairman Neil Chatterjee said the decision was purely made to level the playing field among competing generation sources. FERC Commissioner Richard Glick, a Democrat casting the sole no vote, said it was a bailout to fossil fuel generators (Energywire, Dec. 20, 2019).

Now PJM has until mid-March to produce new pricing rules, and what happens — or should happen — after that found no consensus among the speakers at the NARUC conference and some in their audience.

“I don’t see it contained,” said Exelon Corp.’s Mason Emnett, speaking of the disruption the FERC decision has set off. His Chicago-based company generates and distributes power widely inside the PJM system.

“I see that tension pushing states” to defend their energy programs, he said. “If there’s a misalignment between what the states on behalf of consumers are demanding and what that market is providing, that market does not survive.”

Christy Tezak, managing director of ClearView Energy Partners, said the FERC policy could be overturned in court, or the regulatory debate could continue for many months. Asked what advice her firm was giving clients, she said, “The unfortunate advice is be cautious in how this is going to play out.”

Travis Kavulla, vice president for regulatory affairs at Princeton, N.J.-based energy retailer NRG Energy Inc., said, “It’s time to be clear that these are not so much clean energy policies [in the states] as they are particular bailouts and subsidies for individual facilities that ignore the best principles of markets as they might be applied to clean energy resources.”

Former FERC Commissioner Tony Clark, attending the NARUC conference, said FERC is in the position of the Dutch boy in the children’s story who stuck his finger into a hole in a dike to stop water from pouring through. Except that FERC doesn’t have enough fingers, he added.

“States are creating more and more subsidies and solutions to try to pick the resources they want,” he said. “At some point, if it keeps going on the trajectory it’s on now and FERC is trying to maintain some sort of pricing integrity in the market, eventually you probably reach a point where the capacity construct comes apart.

“I don’t mean that capacity markets will go away altogether, but the [daily] energy market will be where the bulk of the money goes to pay for generation,” he said.

Anthony O’Donnell, member of the Maryland Public Service Commission, told the panel, “States are never going to cede their sovereign authority” to PJM or FERC.

As if to underscore his point, a collection of 21 Capitol Hill lawmakers, mostly Democrats from states under the PJM umbrella, wrote to the grid operator last week urging it to delay the 2021 capacity auction until a more durable consensus emerges.

The letter marks the second such intervention from Democrats upset with the changes to the proposal (Greenwire, Jan. 29).

“Giving states in your network a year to understand how this decision will impact them will help mitigate any disruption to the capacity market,” the lawmakers said. “It will also give FERC time to respond to your recent request that they reconsider parts of their decision.”

The letter was led by Sen. Tammy Duckworth (D-Ill.) and Rep. Cheri Bustos (D-Ill.), both from the state with a zero-emission credit program to boost nuclear that has been cited as a key example of the motivation for FERC to undercut state-backed energy sources.

Collapse coming?

In an analysis made public last week, S&P Global Market Intelligence noted PJM’s capacity market “could see a collapse in pricing if four states with aggressive climate goals choose to leave that market in response to rule changes aimed at countering the impact of state subsidies for clean energy resources.”

PJM’s rules allow states to exit the future market while remaining in the real-time bidding to supply current electricity demand. If they quit the capacity market, states would have to purchase future capacity commitments through contracts with generators, the analysts noted.

The S&P analysts cited a report by ICF International predicting that if no states left the capacity market, prices in PJM for future energy supplies would increase 25% to 30%. But if Maryland, Virginia, Illinois and New Jersey abandoned the capacity market, PJM capacity prices could fall by the same amount, ICF reported.

PJM executive Asim Haque, another panel member, said the organization was churning away to produce the implementation plan for the minimum offer price rule that FERC requires. But defections from the capacity market would not shake the organization, he added.

“We are talking about a portion of a portion of a portion of the overall PJM value proposition,” he said.

Tezak said there is a fix available to Congress. “Ideally, if there was a national price on carbon, that would solve the problem, but we don’t look to be heading in that direction anytime soon,” she told the audience. Instead, among PJM’s 13 member states and the District of Columbia, there are 14 different opinions about what to do.

“The devil is in the details. Pardon me if I don’t hold my breath,” she said.