Actionable subsidies discussed in reshaping capacity market rules

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What defines an actionable subsidy and how should the capacity market treat generation resources that receive them? These questions dominated discussion at an Aug. 15 special meeting of the Markets & Reliability Committee.

The meeting was the second of three scheduled to date to engage stakeholders in developing PJM’s response to the Federal Energy Regulatory Commission’s June 29 order directing the creation of new capacity market rules. (See PJM, stakeholders weigh draft plan to reshape capacity pricing.)

The next meeting is scheduled for Sept. 11, contingent on FERC granting OPSI’s request for extension of the comment and reply deadlines, which PJM supports. PJM also filed a request to extend a series of auction-related deadlines, including a request to delay next year’s capacity auction from May until August 2019. (See PJM files request with FERC to delay 2022/23 capacity auction.)

In its order, FERC indicated that PJM should revamp its Minimum Offer Price Rule (MOPR) to have as few exceptions as possible. FERC also suggested that PJM develop an alternative whereby subsidized generation and corresponding load could be carved out of the capacity auction on a unit-specific basis.

For the time being, PJM is referring to that potential mechanism as a resource-specific carve-out, though it is still looking for a formal name for the construct.

As with the Aug. 2 special session, FERC staff members who will not participate in FERC’s ultimate decision-making were on hand to offer guidance.

Adam Keech, executive director – Market Operations, presented PJM’s working approach to complying with the FERC order.

First, he said, for the purposes of this upcoming filing, PJM does not plan to pursue the CASPR model adopted by ISO-New England, given the abbreviated time frame in which to develop new rules.

That model splits the auction into two stages, dealing with subsidized resources in the second round.

That’s not to say such an approach couldn’t be reviewed in the future, Keech said.

PJM also is considering presenting a “repricing option,” but details were not discussed at the meeting.

A resource with an actionable subsidy is generally defined as one with at least 20 megawatts of unforced capacity that is receiving an out-of-market payment that is greater than 1 percent of actual or anticipated market revenues through a state-sponsored process or from a governmental entity to support the construction, development, operation or clearing of such resource.

Given that the Department of Energy is expected to release its own plan to subsidize certain coal and nuclear plants, PJM has added federal subsidies to its consideration of the definition.

Resources receiving federal subsidies adopted after March 21, 2016 – the date of a previous refund case involving Calpine – would be subject to the MOPR absent a clear statement of congressional intent indicating otherwise written into the law creating the subsidy, Keech said.

Stakeholders raised questions about the choices of generation that may have applied for but not yet received a subsidy at the time of the auction, and whether resources could choose the resource-specific carve-out option themselves.

Another topic of sustained discussion was PJM’s approach to resources returning to the capacity auction at the end of a subsidized period. Any capital investments undertaken while the resource was under a subsidy and carved out would be included in the MOPR floor price, Keech said.

Also at the meeting, Joe Bowring of Monitoring Analytics, the independent market monitor, presented some sensitivity analyses. He invited requests for his office to run further sensitivities possible without compromising confidentiality.

Emma Nicholson, an economist in FERC’s Office of Energy Policy and Innovation, said that FERC is aware of the magnitude of the issues being raised, and she believes they would consider a “transitional mechanism.” Of “paramount importance,” she said, is reliability and a proper economic signal.

If FERC grants OPSI’s request for an extension in the filing deadlines, initial comments in response to the FERC order will be due Oct. 11 instead of Aug. 28. Replies would be due Nov. 28, with a final order of compliance requested by March 15, 2019.