Members to Study Markets’ Role in State Carbon-Pricing Efforts


Stakeholders are leading an initiative to build a framework enabling jurisdictions to incorporate their carbon-pricing policies into PJM’s markets while mitigating the policies’ impact on surrounding areas not participating in such programs.

The Markets & Reliability Committee on April 25 endorsed a problem statement and issue charge creating a senior task force to study the concept over the next 18 months before presenting its findings. The item received 3.92 support out of a possible 5 in a sector-weighted vote.

As one member who represents industrial power customers put it: Each state can set its own requirement, and PJM can provide a mechanism through which the cost of carbon is refunded to the state, which can decide what to do with the money.

A significant portion of the new group’s education and analysis would address “leakage,” a dynamic that occurs when energy produced by higher-emitting generators located in a region where carbon is not priced is imported into an area where it is, displacing lower-emission resources. Unchecked, leakage can affect generator investment decisions, the goal of reducing emissions and consumer costs in all areas, according to the problem statement.

The item was brought forward by Eastern Generation, Public Service Electric & Gas, CPV Power Holdings, NextEra Energy Marketing and Dayton Power & Light Co.

PJM has been studying the impact of carbon-pricing policies and potential market rules for some time. In 2017, it published a white paper analyzing potential regional and sub-regional frameworks. It concluded that a regional approach is preferred, but recognized that a single perspective on carbon is not shared by states within its footprint.

Among the first education and analysis items listed for the task force is reviewing mechanisms for local jurisdictions to opt in or out of a carbon-pricing construct.

Financial Risk Mitigation Discussed

The Markets & Reliability Committee also endorsed the creation of a Financial Risk Mitigation Senior Task Force by an acclamation vote.

The group will study potential rule changes to mitigate and manage risk in the Financial Transmission Rights Market in the wake of the June 2018 default of trader GreenHat Energy LLC.

The task force is among a suite of reforms PJM is undertaking following an independent review of the default commissioned by the PJM Board of Managers.

Vince Duane, senior vice president and general counsel – Law, Compliance and External Relations, introduced the item, charging the group with examining the review’s findings in time to present detailed recommendations to the Board by year-end.

For example, he said, the review will include looking at the financial instruments PJM offers and considering the rationale, the appropriate scope and tenure of the instruments, and the eligibility and qualification of members seeking to transact such instruments.

PJM President and CEO Andy Ott.

CEO and President Andy Ott followed up on the discussion at the ensuing Members Committee meeting, delivering a progress update highlighting organizational and process changes.

In addition to a chief risk officer position, Ott announced the creation of two new departments: Markets Risk Modeling and Market Analytics and Surveillance.

Underscoring all of the change, he said, will be an increased focus on improving communications and listening throughout the organization.

In related items considered by the Markets & Reliability Committee, members unanimously deferred voting on a proposal by Exelon to adopt the use of surety bonds. Members deferred the vote to no later than two committee meetings after both a new chief financial officer and chief risk officer have started work and PJM has provided a recommendation as to the efficacy of a new surety bond product.

In addition, a proposal to change the FTR Forfeiture Rule failed, garnering just 2.32 approval out of 5 in a sector-weighted vote, far shy of the 3.335 threshold.

Must-Offer Exception Proposals

After rejecting the main motion and Exelon’s alternative proposal regarding changes to the capacity market must-offer exception process, members endorsed a joint proposal by PJM and the independent market monitor, with 3.74 approval out of 5 in a sector-weighted vote.

The endorsed proposal includes a number of clarifying revisions to the capacity market must-offer exception process, as well as a documented process for generation capacity resources to change their status to energy-only. 

Additionally, the proposal requires owners of generation capacity resources that request capacity market must-offer exceptions to submit a plan describing how they intend to make the resource physically capable of meeting Capacity Performance requirements in the future. If no plan exists, the unit’s status would be required to be changed to energy-only. On a separate issue, in a unanimous acclamation vote, members also decided to defer for another 60 days the issue of how some transmission upgrades should be added and removed from the Regional Transmission Expansion Plan.