PJM puts states on notice after FERC order

Source: By Jeffrey Tomich, E&E News reporter • Posted: Sunday, March 15, 2020

Illinois nuclear plant. Photo credit: Exelon Corp.

Byron Generating Station, a nuclear plant in Byron, Ill. Exelon Corp.

The operator of the nation’s largest power market yesterday laid out a timeline for conducting its delayed capacity auction despite pushback from nuclear and clean energy advocates and threats of possible departures from some member states.

PJM Interconnection, which oversees the grid in 13 states in the Mid-Atlantic and eastern Great Lakes region, operates a capacity market that allows utilities and other electricity suppliers to purchase power to meet demand three years in advance.

Its auction was delayed following a controversial decision from the Federal Energy Regulatory Commission last year, which found PJM’s market rules failed to protect competition in the region’s wholesale capacity market from state policies to subsidize renewable resources and nuclear power.

PJM officials yesterday outlined their proposed timeline during a meeting for moving forward. The grid operator faces a Wednesday deadline to respond to FERC’s so-called Minimum Offer Price Rule (MOPR), in which it will formally propose the auction schedule.

The grid operator has faced pressure from state officials, members of Congress, and nuclear and clean energy advocates to delay the auction as long as possible while lawmakers in states such as Illinois, Maryland and New Jersey explored options for withdrawing from the auction.

Last month, the Organization of PJM States wrote a letter to PJM requesting that the next auction be held no sooner than a year after FERC approves the grid operator’s compliance filing — a request that would have likely pushed the next auction until late 2021.

The grid operator was also being pulled in the opposite direction by power plant owners that want to hold the $9-billion-a-year auction as soon as possible. They sought an auction before the end of the year.

Each side said the stakes are huge for consumers and power plant operators depending on when the auction is held.

“We understand and respect both sides of the equation,” Stu Bresler, PJM’s senior vice president of market services, said during a special meeting yesterday. “We have tried very hard to try to strike a balance between these two disparate viewpoints.”

‘Deals that are not getting done’

PJM will formally outline its timeline in its compliance filing with FERC next week.

The grid operator plans to propose conducting its delayed 2022-23 capacity auction about six months after FERC approves the compliance filing.

But PJM said it will ask FERC for flexibility to delay the auction no later than mid-March if a state passes legislation to withdraw from the auction and requests additional time by June 1.

As long as FERC approves the compliance filing by September, PJM will complete its next auction by March 31, 2021, Bresler said.

Glen Thomas, president of the PJM Power Providers Group, a group of merchant generators including Calpine Corp., NRG Energy Inc. and Vistra Energy Corp., said the auction delay has been significant for companies that depend on knowing how much capacity revenue they’ll earn and customers, especially big energy users, that want to know how much they’ll pay in capacity charges.

Power plants can’t get financing or borrow money to invest in upgrades. And it’s not just fossil plant owners that pressed FERC for new capacity auction rules. There are renewable energy developers that can’t complete power purchase agreements because of uncertainty over future capacity revenue.

“There are deals that are not getting done,” Thomas, a former Pennsylvania Public Utilities Commission chairman, said in an interview ahead of PJM proposing its timeline. “When you don’t have that visibility in planning, it has real-world implications.”

Capacity revenue differs by the type of technology and how much revenue it earns from energy market. In general, plants that operate most of the time, like nuclear plants, depend less on capacity revenue than a peaking plant that rarely runs and gets up to 90% of its revenue in capacity payments, Thomas said.

States and clean energy advocates, meanwhile, have pressured PJM to postpone the next auction as long as possible.

There have been discussions in states including Illinois, Virginia, Maryland and New Jersey about taking actions to exit PJM’s capacity market because they see FERC’s order as a threat to its climate goals.

“Any state with serious clean energy goals has to think seriously about leaving [the auction],” said Tom Rutigliano, a senior advocate for the Natural Resources Defense Council’s Sustainable FERC Project. “The only question is can legislatures really do something by the June deadline?”

Focus on Illinois

Already, one state — Illinois — is deep into discussions about legislation that would potentially allow a utility, Chicago-based Commonwealth Edison, to withdraw from the PJM capacity auction. The utility would remain part of PJM’s energy market.

The Illinois Legislature has conducted two hearings on FERC’s MOPR in the past month.

Christie Hicks, a senior attorney for the Environmental Defense Fund, has testified at both hearings in support of a bill that would enable ComEd to withdraw from the PJM auction and give the responsibility for procuring power plant capacity to the Illinois Power Agency (Energywire, Dec. 23, 2019).

In an interview yesterday, Hicks said PJM’s timeline puts the Illinois General Assembly on notice. If the Legislature doesn’t act before the June 1 date, northern Illinois could be locked into PJM capacity auction prices for three more years, through mid-2025, because the grid operator plans to conduct additional auctions every six months until it’s back on schedule.

“Anyone who has been taking a wait-and-see approach, I hope they see — this is the catalyst,” she said.

Other parties in Illinois, including the Chamber of Commerce and large industrial energy users, have cautioned against withdrawing from the PJM capacity market. Meanwhile, the wind and solar industries have urged lawmakers to pass a separate bill that would free up funding for renewable development.

PJM and Joseph Bowring, the market monitor, didn’t take positions on the proposal to exit the capacity auction. But they said fears that MOPR would lead to big increases in capacity prices — a fear expressed by FERC Commissioner Richard Glick — are overblown.

Bowring, in his annual report on the state of the PJM market yesterday, went even further.

“Contrary to some of the hyperbolic quasi-hysterical assertions about high prices, there is absolutely no evidence to support the notion that MOPR will result in higher prices,” he said during a media briefing.

Longer term, he said the cost impact of the rules will be driven by renewable energy costs.

The cost of renewable energy is already low enough to clear the PJM auction in some instances, and those costs are likely to continue to fall, Bowring said.

“Certainty, in three or four years when it becomes more relevant, it will be even lower,” he said.