PJM prepares new capacity repricing rule in response to FERC order

Dive Brief:

PJM Interconnection released details on Wednesday about its approach to power generation resource subsidies as it considers fixes suggested by the Federal Energy Regulatory Commission (FERC) to its capacity market rules.
The regional transmission organization (RTO) considered a resource specific carve-out, or "ReCO," as an alternative to the minimum offer price rule (MOPR) that had been rejected by FERC. The ReCO option addresses FERC's concern about "paying subsidized resources any clearing price from the [base residual auction]," PJM noted in meeting slides discussing capacity market rules.
PJM released the proposal after asking FERC on Tuesday to allow it to delay its May 2019 capacity market auction if the federal regulators cannot issue a final decision on market rules by early January.

Dive Insight:

With the growth of state-level programs subsidizing renewables or nuclear power plants, coal and gas generators have argued that those benefits suppress the market clearing price for fossil fuel generation. The generators that are receiving state or federal subsidies argue that those policies level the playing field for them to compete in capacity auctions.

FERC's June 29 decision called for new capacity market rules, finding that PJM's were unjust and unresonable because they allowed state policies to lower market prices.

PJM's Markets and Reliability Committee (MRC) held a special session on Wednesday to discuss with stakeholders the proposed market rule changes.

After FERC rejected PJM's two capacity reform options — a two-part capacity auction separating out subsidized resources and a price floor — the RTO was pressed to put a solution in place in time for its May capacity market auction.

FERC had approved a two-part capacity auction proposal from ISO-New England in a split vote. PJM will not be pursuing ISO-NE's approach at this time based on its complexity given the tight timeline to have new rules in place.

PJM instead is considering a MOPR floor price with the option of a repricing element, the ReCo — a name subject to change, depending on stakeholder input — since "FERC did not completely rule out repricing," according to the meeting slides.

FERC had ordered PJM to file its revised plans by Aug. 28 in order to keep to a schedule intended to assure market participants that a final decision would be issued with enough time to plan the auction. If FERC grants an extension deadline, the capacity auction would also be delayed until August 14, 2019.

MRC will convene another meeting on capacity market reforms on Sept. 11.