FERC’s Catch-22

Source: By KELSEY TAMBORRINO, Politico • Posted: Thursday, December 19, 2019

FERC’S CATCH-22: FERC will weigh in on a measure today that could ultimately lead to the destruction of part of the nation’s largest power market. The commissioners will vote on whether to impose a price floor, called the Minimum Offer Price Rule, in PJM Interconnection’s 13-state capacity market at its monthly open meeting today, Pro’s Gavin Bade and Eric Wolff report.

A price floor is used to ensure enough power is on hand to meet future demand by paying electricity producers to make sure their plants will be available in three years. Coal and natural gas power plant owners say that state-level subsidies for renewables and nuclear plants are distorting the market and pushing prices too low. Without a price floor, they argue, the capacity market doesn’t fulfill its function to drive investments in power generation, Gavin and Eric report.

But if FERC does set a floor price, it would effectively block wind, solar and struggling nuclear power plants from the market, likely prompting some states to pull individual power plants or even their entire generating fleets out of the capacity auctions. That could have a cascading effect among PJM’s members that leads to the market’s unraveling.

“FERC is in a bit of a ‘Catch-22’ herebecause if they do something strong like a [price floor], then it has a whole series of potential effects that might cause some of the states to do other things,” said Tony Clark, a former FERC commissioner. “If they do nothing, then the capacity construct begins to fall apart.”

Most observers expect FERC to largely approve PJM’s plan for a MOPR that would require subsidized renewables and nuclear to offer power supplies at well above their costs. If FERC does that, some states will press for a “resource carve-out” that would allow them to pull individual plants out of the market. Without that, Maryland’s head regulator warned earlier this year, it would be the “beginning of the end” for the capacity market, since other states would likely follow.