PJM files proposals with FERC to address state generator subsidies

PJM Interconnection filed on Monday two proposals with the Federal Energy Regulatory Commission (FERC) to address state subsidies of electric generators.

One proposal aims to accommodate state policies while maintaining competitive capacity market prices, and the other seeks to mitigate offer prices for subsidized resources.

In February, the PJM Board directed PJM to file both proposals at the FERC.

“Deciding between these policy options requires a balancing of federal and state interests, raising questions of federalism and comity that have already presented themselves before the courts, including the U.S. Supreme Court,” PJM President and CEO Andrew L. Ott said in a letter. “Accordingly, the Board concluded that this question should fall to the Commission as the federal policymaker.”

The PJM-recommended proposal, Capacity Repricing, would “create a two-stage capacity auction process to accommodate state subsidies without distorting market prices.”

The Capacity Repricing proposal would first establish which set of resources would receive a capacity commitment and the clearing price for those research. It would then allow the state-supported resource to clear in the first phase of the capacity auction and receive a capacity commitment from PJM based on its submitted offer. The subsidized offer would then be repriced to remove the impacts of the subsidy.

The other proposal, MOPR-Ex, would effectively extend the existing Minimum Offer Price Rule (MOPR) and require subsidized generation resources to eliminate the impact of subsidies from its offer into the capacity market.

This would involve a screening process for subsidized offers in the annual capacity auction. Offers would generally be altered to adhere to a minimum offer price that reflects the cost of generation without a subsidy. This could potentially result in subsidized units not receiving a capacity commitment.

PJM requested that FERC issue an order by June 29 and establish an effective date for tariff changes in January 2019 so that PJM can implement changes for the May 2019 annual capacity auction. PJM also suggested a settlement judge process for any outstanding issues identified by FERC.