PJM members presented a broad range of perspectives on the Federal Energy Regulatory Commission’s (FERC’s) recent capacity market order during the Jan. 8 Market Implementation Committee meeting.
FERC’s order, directing PJM to expand its Minimum Offer Price Rule (MOPR) as it applies to the capacity market, will impact most new, and certain existing, subsidized resources.
PJM began the meeting by sharing its understanding of the order, including definitions of new and existing resources as well as FERC-defined exemptions, and providing education on a pre-auction activities timeline.
The capacity market, also known as the Reliability Pricing Model, ensures that there is enough generation committed to serve the needs of electricity consumers three years down the road. Because no Base Residual Auction was held in 2019, the next auction will address the 2022/23 Delivery Year.
With pre-auction activities requiring six to eight months of lead time, “We’re going to be catching up for several years,” said Paul Scheidecker, Senior Lead Engineer for Capacity Market Operations.
In its Dec. 19 order, FERC directed PJM to submit a compliance filing by March 18 and provide a timeline for the next capacity market auctions.
Depending on the timing of FERC’s response going forward, it is possible that an auction could be held in 2020, he said.
Discussion and Next Steps
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. Federal subsidies do not trigger the MOPR.
Adam Keech, Vice President of Market Operations, stressed that PJM wants to receive stakeholder feedback to inform PJM’s filings. General questions from stakeholders should be sent to RPM_Hotline@pjm.com. PJM also is planning to schedule more discussions with members, with a session to be scheduled for Jan. 28.
Rehearing requests are due Jan. 21, he said, noting that PJM plans to ask FERC to rehear or clarify some aspects of its ruling.
Keech said PJM will be recalculating MOPR floor prices, including some resources for which a floor price has never before been calculated. No Base Residual Auction will be held until these are approved by FERC, Keech said.
For new resources, that price will be calculated according to the net cost of new entry; for existing resources, it will be the avoidable cost rate.
Members Talk Timing, Subsidies
The subject of timing was common among the 15 member presentations – though not everyone agreed. Some, representing transmission and generation, favored waiting at least a year to hold an auction to give states time to accommodate the new landscape.
Others, including merchant generation, public power and states’ interests, strongly advised PJM to hold an auction as soon as possible, and to proceed with pre-auction activities while awaiting FERC guidance. Forward price signals are critical to investment and for ensuring that customers aren’t overcharged due to uncertainty, they said.
The potential impact of the order on all resources, including renewables and non-traditional resources such as demand response and energy efficiency, will depend on the price floors that are set. For instance, the question was asked, how do you calculate the cost of new entry for demand response? Demand response is a resource that shrinks electricity demand by paying customers to reduce energy usage during peak demand times.
Members also sought clarity on the definition of subsidies – in particular, regarding renewable energy certificates and participation in the Regional Greenhouse Gas Initiative – and the parameters surrounding the unit-specific exemption allowed by FERC. Specific units will be allowed to offer below the MOPR floor if they can show that their costs are below that level as set by PJM.
The FRR Alternative
Pat Bruno, Senior Engineer for Capacity Market Operations, provided education on the Fixed Resource Requirement (FRR) available to investor-owned utilities, public power entities and electric cooperatives. This is an alternative to participating in the capacity market for load serving entities that are able to provide sufficient capacity resources for the load in their service area. (See Securing Resources Through the Fixed Resource Requirement.)