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Grid operator rolls out capacity market proposal

The largest grid operator in the U.S. today formally proposed two alternatives for addressing what it sees as problems caused by state policies designed to support certain types of power generation – primarily wind, solar and nuclear.

PJM Interconnection LLC, the regional transmission organization that manages the grid in 13 Eastern states and the District of Columbia, submitted a filing to the Federal Energy Regulatory Commission.

It asked the agency to approve either of two proposed changes to its capacity market, which allows utilities and other electricity suppliers to purchase power to meet demand three years in advance.

The grid operator has argued that state subsidies for clean energy sources are allowing those generators to enter into capacity auctions at prices below their costs, pushing down overall market prices and potentially forcing other plants to shut down.

“The time has come to fill a gap in the PJM Tariff, which currently has no way to address the adverse impacts of certain state subsidies on the PJM capacity market’s ability to promote robust supply competition and send appropriate price signals,” PJM wrote in today’s filing to FERC.

The two proposals would change the ways subsidized resources would take part in PJM’s capacity market auctions, effectively “repricing” their bids.

The first alternative, Option A, would split the auctions into two parts, the latter of which would recalculate prices, replacing subsidized prices with “reference prices.” Option B would expand PJM’s “minimum offer price rule,” which requires some capacity suppliers to meet minimum price bids.

“Left unaddressed the subsidies will crowd out efficient, competitive resources and shift to consumers the investment and operational risks of generation,” PJM President Andrew Ott said in a statement.

“We seek the appropriate balance that respects state policy while avoiding policy impacts of a state’s subsidies on the market as a whole and on other states,” he said.

The proposal includes two options because of disagreement among PJM’s stakeholders, including utility companies and government entities, about the best course of action.

A November 2017 vote by PJM’s capacity task force found 64 percent preferred to keep the capacity market status quo rather than making changes to accommodate state policies.

Other opponents of the proposal, including environmental groups, have seized on those internal disputes, and they have also argued that change would raise rates for consumers and that there is a lack of evidence to support PJM’s claims of a problem.

“Either of PJM’s two competing pricing proposals will drive up the utility bills of 65 million electricity customers in 13 Mid-Atlantic and Midwestern states. That’s a high price to pay for a problem that doesn’t even exist right now,” Jennifer Chen, an attorney at the Natural Resources Defense Council, said in a statement.

“The proposals also ignore the real issue – that PJM’s capacity market commitment to supply electricity in the future forces utilities to purchase a specific amount today, but without the opportunity to choose the kind of energy customers want to power their homes and businesses tomorrow,” Chen said.

PJM’s filing asks FERC to issue an order by June 29, and the Federal Power Act requires the agency to take substantive action on the filing within 60 days.

Typically for this sort of filing, FERC issues a notice granting a public comment period, which is often but not always 21 days. As of this afternoon, FERC had not issued such a notice.