Maryland taking a ‘serious look’ at exiting PJM capacity market through FRR, says PSC Chair

Source: By Catherine Morehouse, Utility Dive • Posted: Wednesday, April 29, 2020

  • Maryland is “taking a serious look” at whether or not to exit the PJM Interconnection’s wholesale market through a Fixed Resource Requirement (FRR) alternative, Public Service Commission Chair Jason Stanek said Wednesday during a virtual roundtable hosted by Raab Associates.
  • The state is one of several in the wholesale market that has been vocal in its opposition to the Federal Energy Regulatory Commission’s (FERC) Dec. 19 order, which effectively raises the floor price for new resources that receive state subsidies. Maryland, along with New Jersey, Illinois and a broad array of stakeholders, asked the D.C. Circuit Court of Appeals this week to review the commission’s April decision to uphold that ruling.
  • FERC had proposed in a June 2018 order finding PJM’s capacity market was unjust that states be allowed to adopt an FRR alternative, but withdrew that proposal in December, to the chagrin of states and other stakeholders. “I thought it was rather rich that first we were sort of teased with the idea of a resource-specific FRR, only to have that rug pulled out from under us in the December order,” Stanek said.

Dive Insight:

Maryland, Illinois and New Jersey have all raised the possibility of leaving the wholesale power market over what they see as an affront to state clean energy goals.

“In states like Maryland … we have a number of preferred resources [and] we’re seeing it [be] more and more difficult to work within the confines of the rules imposed by FERC on PJM,” said Stanek.

“FERC’s unlawful actions, and it pains me to refer to them as unlawful, really put in sharp relief, the misalignment that we’re now seeing between federal policies and state policies,” he said.

But analysis from PJM’s independent market monitor finds Maryland’s exit from the wholesale market through the FRR could increase auction costs by anywhere from $53.9 million to $206.6 million.

“We believe that markets will be … the least cost way to proceed,” Joseph Bowring, president of Monitoring Analytics, the market’s independent market monitor said during the roundtable, echoing previous remarks of FERC Chair Neil Chatterjee.

And Maryland does not take lightly the quantitative risks posed by the market monitor, said Stanek. In the several scenarios it has reviewed so far, few have produced signs of reducing costs for customers.

“This is not an easy exit ramp to choose … we’re taking a slower approach,” compared to Illinois and New Jersey, he said, including working with stakeholders and legislators to talk through various options and scenarios. One thing they are eyeing is the results of PJM’s next Base Residual Auction, though most stakeholders and observers do not expect prices to rise in the short term. Modeling from Monitoring Analytics and others have found the PJM Minimum Offer Price Rule (MOPR) is not anticipated to raise market costs in the short term.

But states and others do have considerable concerns about the longer-term costs of this MOPR.

“FERC did not, over the course of hundreds of pages of orders, nearly 1,000 footnotes, never performed any quantitative analysis of what this would cost customers in the long run,” said Stanek. “How could this be just and reasonable without any study performed?”

Another outlying concern is how this MOPR will impact offshore wind’s ability to clear the PJM auction. Because the technology is so new and has heavy upfront capital costs, there’s a chance it won’t be competitive in this market under these rules, a particular concern for East Coast states with a number of projects in the pipeline, including Maryland, panelists acknowledged.

“It’s possible that offshore wind won’t be competitive,” said Bowring, but “it’s still cheaper for the states to retain markets and pay on the side for offshore wind, for example, or some other resources [that are] not competitive, rather than simply giving up on markets and opting for FRR.”

Another option is for further negotiations between concerned parties and generators over how nascent resources like offshore wind could get into the market, said Calpine Senior Vice President of Government Affairs & Managing Counsel Sarah Novosel during the webinar.

“We, Calpine, and I think other generators are open to coming back to the bargaining table,” she said, citing the New England independent system operator’s Competitive Auctions with Sponsored Policy Resources (CASPR) project.

“One way for offshore wind to participate under these rules would be through CASPR,” Novosel​ said. “I know it’s not very different in PJM versus New England, but it still seems to have some appeal, and seems like something that ought to at least be considered in PJM.”

CASPR was developed by the grid operator in response to state’s frustrations that incumbent generators were being favored over new clean energy resources, a move that has thus far failed to quell broader stakeholder concerns.