PJM proposal balances interests of states, markets

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By Vince Duane, senior vice president – Law, Compliance and External Relations

Today PJM filed a proposal with the Federal Energy Regulatory Commission to address what FERC has described as a threat to the integrity of the wholesale electricity markets that have successfully served PJM’s customers for 20 years.

In June, FERC declared the PJM capacity market “unjust and unreasonable” as currently designed, because its existing market rules do not fairly account for the effect of subsidies – such as state programs supporting nuclear or renewable energy – on the operation of the competitive markets.

The issue is critical: Free-market competition provides a reliable, affordable electric grid to the 65 million people served by PJM in 13 states and the District of Columbia, producing $2.8 to $3.1 billion in efficiencies and cost savings each year. At the same time, the states within PJM’s footprint have the right to support generation that meets specific environmental, economic or political goals. This point has been reinforced in recent federal appeals court decisions regarding state subsidy actions in Illinois and New York.

FERC’s direction in its order was clear: Submit a proposal that recognizes state authority to shape the makeup of their generation fleet, noting that such a proposal should transparently and carefully ensure the costs associated with state actions are borne by the states taking those actions. Just as important, the proposal must guarantee that price outcomes for generation sellers, including those not benefiting from state support, remain fair and competitive.

We believe the proposal we filed today does just that.

Developed with stakeholder input, the plan strikes a reasonable balance of providing flexible options to companies that are entitled to subsidies defined as “actionable” in the proposal while insulating broader regional markets from any material financial impact from those actions.

It addresses FERC’s particular directives of revamping PJM’s Minimum Offer Price Rule (MOPR) to apply across all fuel and technology types to existing and new resources, while offering an alternative – namely, a unit-specific carve-out option for subsidized resources that do not wish to be limited by MOPR.

The Minimum Offer Price Rule sets a floor price for the PJM capacity auction to prevent generators from artificially depressing the clearing price. Low clearing prices that are not a result of market forces alone will discourage innovation and investment in new, more efficient generation, which is one of the most important and effective functions of the competitive electricity markets.

Finally, the proposal acknowledges there is no reason to disrupt the status quo for states or local utilities that retain responsibility for their full resource adequacy needs (either by way of traditional bundled rate regulation or through PJM’s existing zonal fixed resource requirement option).

Reply filings are due Nov. 6. FERC is expected to rule on PJM’s proposal in January, after which PJM will prepare a compliance filing.

The next base residual auction, for the 2022–23 delivery year, has been delayed from May to Aug. 14, 2019, in order to allow time for FERC to approve and PJM to implement rule changes.

We all share the goal of making the competitive market work successfully, as it has for two decades, and we can figure out the path forward together.