Co-op, muni, clean energy groups target capacity reforms in FERC letter

Dive Brief:

A coalition of groups representing utilities, renewable energy providers and environmentalists sent a letter to the Federal Energy Regulatory Commission on Monday outlining principles for wholesale electricity market reforms.
The groups outlined five priorities for market reform, saying policies should be technology-neutral, respect state energy policies, allow for bilateral contracts, value reliability and resilience attributes, and minimize uncertainty and barriers to entry. Current constructs, particularly in capacity markets, do not meet these standards, they argued.
The letter comes as concerns mount over ongoing price reforms at FERC and regional grid operators that some observers fear could be used to overrule state clean energy policies or keep uneconomic generators online. The letter will be filed in FERC's ongoing grid resilience and state policy proceedings.

Dive Insight:

As FERC and regional grid operators prepare for a hard look at wholesale market rules in 2018, a broad group of energy interests this week laid out their issues with current capacity market constructs, as well as their priorities for reform.

Today, groups wrote, capacity markets in some electricity markets "include design features that may limit choice, create conflicts with state and local policy objectives, over-procure or unnecessarily retain capacity, and raise costs for customers."

Any reforms to those models must ensure that there is a "clear responsibility for resource adequacy," they wrote, but also prevent "costly over-procurement."

The signatories to the letter include the National Rural Electric Cooperative Association, American Public Power Association, American Wind Energy Association, Solar Energy Industries Association, and Natural Resources Defense Council, as well as groups representing energy consumers and other clean energy associations.

The letter echoes concerns from some market watchers in the Eastern Interconnect, who worry that proposed reforms to capacity markets in ISO-New England and the PJM Interconnection could incentivize the deployment of more generation in already oversupplied markets. ISO-NE currently has a two-part capacity market reform before FERC, while PJM last month said it would submit two competing capacity market proposals and allow the commission to pick.

"The policy call [on capacity repricing] should be made by the regulator, not by us," PJM CEO Andy Ott told Utility Dive in an interview last week.

The capacity market reforms would both separate capacity auctions into two parts — a first auction for all resources and a second one where subsidies are removed. The intent is to prevent subsidized renewables and nuclear from depressing market prices, but some observers worry they will exacerbate oversupply issues.

"The cure to low [wholesale market] revenue is to remedy the extreme oversupply situation in PJM by letting unneeded capacity retire," said Robbie Orvis, director of energy policy design at Energy Innovation, "not to pay all plants more and encourage new entry."