Dive Brief:

• The PJM Interconnection will respond within 60 days to a landmark order from the Federal Energy Regulatory Commission finding its capacity market unjust and suggesting major changes, CEO Andy Ott told Utility Dive.

• FERC last month rejected two proposals from the grid operator to reform its capacity market, instead suggesting changes to its Fixed Resource Requirement (FRR) to mitigate the impact of state power policies. Ott called that a “workable approach."

• PJM must respond to the FERC order within the 60 days requested by the Commission, Ott said, or risk not having changes ready in time for its next capacity market auction in 2019. Familiarity among stakeholders with the FRR concept will help them meet the ambitious deadline, he said.

Dive Insight:

FERC’s June 29 order will reshape the forward capacity market of the nation’s largest regional grid operator in a move that some sector veterans say is unprecedented and runs the risk of unraveling the capacity construct altogether.

The PJM CEO agreed in part, calling the order “a bit unprecedented,” but said that his market participants could make FERC’s recommendations work.

“It’s unique, but unique circumstances call for unique approaches,” Ott told Utility Dive on the sidelines of the summer meeting of the National Association of Regulatory Utility Commissioners. “I saw it as a helpful approach. I think it is a workable approach to get down that path.”

That unique approach is a novel recasting of the PJM FRR, which typically allows utilities to opt out of the capacity market altogether if they can serve power demand with their own generation. Under FERC’s proposed alternative FRR, specific resources like a wind farm or nuclear plant could also opt out on an individual basis, removing them from the capacity market.

The goal is to separate resources not directly subsidized by state policies from those covered by mandates or financial support programs, which unsubsidized generators say depress wholesale market prices.

PJM stakeholders will have to work fast, as FERC directed the grid operator to file its updated market rules by the beginning of September. PJM could ask for an extension, but Ott said that could mean that changes are not in place for its next capacity auction, in May 2019.

“I think we have to do something within that timeframe,” Ott said. “The key is that if the market is found unjust and unreasonable we can’t risk running another [auction] because it would be at risk because the foundation has been found unjust. We can't risk not having an alternative by next year.”

Ott is optimistic that the grid operator can meet that deadline, as the alternative FRR has some similarities with the two proposals PJM submitted to FERC in March. PJM last week sent a memo to stakeholders explaining its interpretation of the FERC order and set two August meetings to craft market changes. 

“There's relationships between all these things,” Ott said. “What they've offered has components that look a lot like having mitigated offers and things like that, so it's not like it's a completely unique [policy], it's just a different way to account for resources that are subsidized.”

Familiarity among PJM stakeholders with aspects of the alternative FRR formulation will assist the grid operator in its mad dash to filing, Ott said.

“We had actually thought of it in the past, this notion that you could have an FRR be a reduced component,” he said. “This was considered in the past and it didn't get legs, so I don't think it's completely unwarranted.”

The idea never caught on in PJM stakeholder discussions, but Ott expressed confidence that market participants would embrace it.

“FRR wasn't used much by anybody, so I think people just glossed over and didn't think about it. Now we're going to come back and think about it very specifically, but it's not a brand new idea so that's also helpful,” he said.  “It's not a complete clean slate. There are some components we can keep and saying 'no' is not an option."