Most PJM states oppose capacity repricing proposal

Dive Brief:

Utility regulators from states in the PJM Interconnection this week announced their opposition to the grid operator's plan to reform its capacity market.
The Organization of PJM States, Inc. (OPSI) voted 12-2 on Wednesday to urge the grid operator's board of directors to "take no action" on the capacity repricing proposal and to "re-initiate a more holistic stakeholder process" if it believes changes are still needed. West Virginia and Ohio voted against the resolution.
PJM, however, announced last month it would submit its capacity repricing proposal to their board despite stronger stakeholder support for other policies. The repricing proposal is expected to be central to FERC's high-profile grid resilience proceeding.

Dive Insight

PJM's capacity repricing proposal has garnered attention at FERC and in Congress, but it remains unpopular with a number of major stakeholders in the mid-Atlantic electricity market.

Under the proposal, PJM's capacity auctions would be split in two. The first round would operate largely like today, but a second phase would make adjustments to accommodate resources either subsidized or mandated by government policies. PJM would recalculate prices after the first round by removing offers submitted by sellers with subsidies and replacing them with reference prices, reflecting what the grid operator estimates would be a competitive offer.

The decision on which subsidies require repricing will be "one of judgment," PJM said in a white paper, "guided more by practicality and less by pure principle."

PJM

The proposal is intended to better integrate state electricity policies with PJM's market construct, but most states in the market oppose the plan.

In a letter to the PJM board on Wednesday, OPSI argued that the grid operator's staff had not demonstrated that state policies currently threaten the market, nor that their repricing proposal would "properly respect" state laws and policies.

"OPSI recommends that the PJM Board reject the repricing proposal and re-direct PJM Staff on a course of action that will correct or otherwise address the lack of underlying support, flaws, and unintended consequences inherent in the repricing proposal," the organization wrote. "OPSI suggests a renewed and revised stakeholder process subject to a wider focus than that of the [capacity repricing proposal]."

Utility regulators from Delaware, D.C., Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, Pennsylvania, Virginia, North Carolina and Tennessee supported the OPSI statement. West Virginia and Ohio opposed it.

States are not alone in their opposition to the PJM plan. The grid operator's independent market monitor proposed an alternative that would expand the market's minimum offer price rule (MOPR) to include subsidized resources.

PJM, however, said in a subsequent letter that while more stakeholders supported the alternative, dubbed MOPR-Ex, the grid operator would forge ahead and submit its capacity repricing proposal to it board, which could then submit it to FERC if it grants approval.

"We have been in discussions on the issue with stakeholders for more than a year. There is a clear disagreement among participants," a PJM spokesperson said in an email. "The PJM Board at its meeting [this] week will consider substantive points from all the comments and information provided, including the stakeholder vote, management and IMM recommendations and correspondence, in determining what course of action to follow."

The PJM board is scheduled to meet Wednesday and could vote on the repricing proposal or push the grid operator to make changes.

Regardless of the vote, RTO repricing proposal are likely to be central to a new proceeding on grid resilience, set up by regulators last month when they rejected a proposal from the Trump administration to bail out struggling coal plants. In that decision, FERC referenced the PJM proposal and similar efforts in ISO-New England as it asked grid operators to report back on the resilience of their systems.

Since then, coal and nuclear interests have said they intend to push for swift pricing changes to benefit their large, inflexible plants, potentially setting up a showdown at FERC over pricing changes in RTOs. At a Senate Environment and Public Works hearing on Thursday, the federal policy head for the Edison Electric Institute, a utility trade group, also spotlighted "active discussion in the PJM market about inflexible units and whether they should be compensated better."

"This will be a lively discussion going forward for the foreseeable future," said Phil Moeller, EEI's executive vice president of business operations and regulatory affairs and a former FERC regulator.

This post has been updated to reflect comment from PJM and indicate that the grid operator has submitted its proposal to the PJM board, not to FERC.