Dive Brief:
- The PJM Interconnection on Monday filed two competing proposals to reform its capacity market at the Federal Energy Regulatory Commission, asking federal regulators to choose how to proceed.
- One proposal from the PJM staff would create a two-stage capacity market to handle the price impacts of subsidized resources. The other, brought by its independent market monitor, would expand the Minimum Offer Price Rule (MOPR) to cover subsidized resources.
- The dueling proposals have divided PJM's stakeholders, leading its CEO to appeal to FERC for a policy decision. FERC last month approved a similar two-part capacity proposal for ISO-New England in a 3-2 vote.
Dive Insight:
PJM's announcement in February that it would file two competing capacity market reforms with FERC was unexpected in the power sector. Only once before had a regional grid operator taken that step — and it was ISO-NE, which has a specific provision in its bylaws authorizing the action.
In an interview, PJM CEO Andy Ott told Utility Dive he made the decision due to consternation over the capacity proposals in his stakeholder group.
“I talked about it with the [PJM Board of Managers], and we made the decision that the policy call should be made by the regulator, not by us,” Ott said. “I know it's a bit odd, a bit surprising, but we thought it was such a crossroads of which way should we go, and then … the third option is to do nothing and we need to make a call on that, too.”
In the split auction approach, the first part would operate like today, but a second phase would make adjustments to resources covered by government subsidies. PJM would recalculate prices after the first round by removing offers from subsidized resources and replacing them with reference prices, reflecting PJM’s estimates of a competitive offer.
The expanded MOPR would be a simpler construct, applying a minimum pricing rule to any subsidized resource in the market. That plan was more popular among PJM member companies in the stakeholder process, but most members indicated they would rather stick with the status quo and see neither enacted.
Meanwhile, some market observers question whether either reform is necessary. PJM prices are low because of a capacity glut and the low cost of natural gas, Energy Innovation's Robbie Orvis argued, and not largely because of subsidized resources.
“The cure to low revenue is to remedy the extreme oversupply situation in PJM by letting unneeded capacity retire, not to pay all plants more and encourage new entry," Orvis, director of policy design at the think tank, emailed.
FERC's recent action on capacity market reforms could hint at how the commissioners will view the PJM case. In their ISO-NE decision, regulators approved a similar two-part capacity market proposal, but also controversially designated the MOPR as the "standard solution" to handle subsidized resources in the absence of other policies.
Liberal watchdog group Public Citizen filed for rehearing on that decision on Monday, arguing the ISO-NE capacity market reform is little more than an excuse to increase payments to fossil fuel generators that would otherwise retire.
