Monday, February 18, 2019

PJM Urges FERC to Act on ‘Jump Ball’ Despite Criticism

By Rory D. Sweeney

PJM is pressing FERC to make a decision on the RTO’s “jump ball” capacity filing, arguing that the commission is within its authority to do so and pointing out what it considers to be hypocrisy in opponents’ criticism of the filing (ER18-1314).

The RTO’s 38 pages of comments filed May 25 pushed back on widespread condemnation of PJM’s proposal that FERC choose between two plans to isolate subsidized resources within its capacity auction in order to prevent them from suppressing prices. (See PJM Capacity Proposals Widely Panned.)

PJM reiterated its claim that the “status quo is not an option,” arguing that either its own capacity repricing proposal or the MOPR-Ex developed largely by PJM’s Independent Market Monitor would be reasonable. It also addressed concern about asking FERC to choose between the proposals, contending that it could have filed its repricing proposal first and — if rejected — then filed the MOPR-Ex.

pjm ferc jump ball subsidized resources

The Hope Creek and Salem nuclear units on Artificial Island in southern New Jersey | BHI Energy

But PJM neglected to address the question of how it would have prioritized which of the proposals would’ve been filed first. The RTO received significant criticism for filing its own proposal — which would give subsidized units a capacity obligation but remove their influence from the calculation of the clearing price — without stakeholder support. MOPR-Ex, which would extend PJM’s existing minimum offer price rule to bar subsidized resources from receiving a capacity commitment, garnered more stakeholder support but ultimately failed in an endorsement vote.

PJM argued that the decision is within FERC’s authority and represents an important issue for the commission, noting the commission’s recent approval of “MOPR-style rules” in ISO-NE, a reference to its Competitive Auctions with Sponsored Policy Resources (CASPR).

“Ample precedent makes clear that PJM’s 2018 wholesale capacity market rules fall squarely within the commission’s exclusive jurisdiction, leaving no room for argument that changes to the offer price and clearing price rules somehow exceed the commission’s authority or rob states of their authority,” PJM wrote. “Restoring wholesale prices to just and reasonable levels — meaning a price higher than the price that would have resulted had the state program been ignored — is not an intrusion into state prerogatives.”

The RTO’s comments frequently cast the criticisms of its efforts as hypocritical.

“The commission should consider carefully each of these narratives, which in essence amounts to two sides of a single coin,” PJM said. “A curious outcome of all the advocacy around price consequence is discovery that the same parties claiming PJM’s prices are too low, in the next breath, argue for state and federal subsidy programs because such programs will prevent PJM’s prices from rising.”

PJM identified those parties as “several companies owning legacy coal and nuclear generation.” The RTO also disparaged a Brattle Group report on the price impacts from closing nuclear plants in Ohio and Pennsylvania as “so astonishingly incomplete they leave no doubt as to the political calculation behind their preparation.”

PJM noted that clearing prices were higher in its Base Residual Auction for delivery year 2021/22 and that roughly 7,000 MW of nuclear power failed to clear. The higher prices helped the resources that did clear.

“The nearly 20,000 MW of nuclear resources that did clear this year’s auction, along with legacy coal, gas, and renewable resources, all had their future financial picture improve markedly based on weaker units failing to clear and clearing prices responding,” PJM said.

PJM suggested that they could pay “subsidized resources a different price, recognizing their different circumstances … to alleviate the price objections some have leveled against capacity repricing.”

PJM also disputed an Exelon argument that FERC should factor in environmental externalities such as carbon, saying FERC “is not an environmental regulator.”

“Let’s be honest, or at least more direct. The PJM state programs in question are designed to retain particular nuclear resources,” PJM fired back at critics. “If the more generic goal was to reward resources for their carbon free attributes, these programs would compensate all (not just financially challenged) nuclear plants, traditional renewable resources, demand response, and new investment, including new nuclear, that furthered the carbon free goal.”