2019 in Review: FERC Filings and Rulings

Activity focused on competitive market, particularly the capacity auction

2583

The competitive wholesale electricity market took center stage in PJM’s main filings with the Federal Energy Regulatory Commission in 2019.

At the forefront was the annual capacity market auction, which secures commitments from generation resources to meet consumer demand for electricity three years down the road. For the first time since the market’s inception in 2007, no Base Residual Auction was held, as PJM awaited Commission guidance.

At issue was how to integrate the participation of an increasing number of subsidized resources, while preserving the integrity of the competitive market. A June 2018 FERC order had ruled PJM’s capacity market pricing to be unjust and unreasonable, saying it did not properly address the price-distorting impact of resources receiving subsidies.

On Dec. 19, FERC issued a ruling directing PJM to expand its Minimum Offer Price Rule.

The Commission directed PJM to submit a compliance filing by March 18 and provide a timeline for the next capacity market auctions.

The order directs all new and existing state-subsidized resources to bid into the capacity market at the level of their unsubsidized cost or be subject to a default minimum offer price. It exempts certain existing energy resources that have met distinct requirements and those resources that elect to forgo accepting any state subsidy.

The Base Residual Auction for the capacity market, formally known as the Reliability Pricing Model, is traditionally held in May. PJM has not yet determined a proposed schedule for the 2022/2023 and 2023/2024 Base Residual Auctions and subsequent incremental auctions.

PJM has designated the Jan. 8 meeting of the Market Implementation Committee as an initial forum for stakeholder education and discussion on the ruling and next steps.

Order 841: Removing Barriers for Energy Storage

On Dec. 3, PJM implemented its plan to comply with FERC Order 841, making it easier for energy storage resources to participate in the markets. (See Energy Storage in PJM: A Perspective.)

Order 841, issued in early 2018, aims to remove barriers to the participation of energy storage resources in the capacity, energy and ancillary services markets of all independent system operators and regional transmission organizations under FERC’s jurisdiction. Doing so, FERC reasoned, will enhance competition and help ensure that those markets produce just and reasonable rates.

FERC accepted PJM’s proposal on Oct. 17, making PJM one of the first grid operators (along with Southwest Power Pool) to have its proposal approved.

In the same order, FERC established a Section 206 proceeding that included a paper hearing to investigate whether PJM’s minimum duration requirements are just and reasonable as applied to capacity storage resources.

PJM has a long history with energy storage, which already had full access to its markets.

Currently, PJM has more than 5,300 MW of energy storage resources on the system, excluding demand response. Of this, 96 percent is from five pumped-storage hydroelectric plants. Batteries, on average, represent more than 80 percent of fast-responding frequency regulation resources.

Awaiting Ruling on Energy Reserve Pricing

PJM awaits a ruling on proposed Tariff changes it submitted in March to revamp its energy reserve pricing rules to fairly value resources that play a vital role in the reliability of the bulk power grid.

These reserves help balance generation and demand during times of unexpected generation loss, increase in electricity use, or variable output of generation resources like wind and solar.

PJM’s current rules do not fully value reserves for their reliability, nor drive consistent response when the resources are called upon. The incomplete price signals also can lead to hefty out-of-market uplift payments – compensation for generators that change their operations at PJM’s instruction to meet electricity demand. At the direction of the Board of Managers, PJM filed its proposal under Section 206 of the Federal Power Act after stakeholders could not reach the needed two-thirds sector consensus on a proposal over the course of a year. (See Members Engage in Uncommon Preview of FERC Filing to Revise Reserve Pricing Rules.)