The Natural Gas Supply Association (NGSA) this week weighed in on PJM Interconnection proposals for how wholesale electricity markets should address state subsidies for faltering coal and nuclear power plants.
In a filing at FERC on Monday, NGSA reiterated that state subsidies conflict with open market principles and “efficient, well-functioning wholesale power markets” [ER18-1314-000]. Merchant generators have long faced stiff competition in the open market, but that has intensified in recent years with an increasing resource mix.
Renewable energy has become more competitive and an abundance of low-cost natural gas has caused electricity prices to plummet, undermining coal and nuclear plants in the process, particularly in the PJM market where dozens of gas-fired power plants are under development. PJM is the nation’s largest grid operator, serving 65 million people in all or parts of 13 states and the District of Columbia, including shale-rich Ohio, Pennsylvania and West Virginia.
In a 500-page filing last month with the Federal Energy Regulatory Commission, PJM put forward two proposals to address the state subsidies that have already been implemented or are under consideration within the system.
The first, Capacity Repricing, would create a two-stage capacity auction. The method allows a state-subsidized resource to clear the first stage of an auction and receive a capacity commitment from PJM based on the offer. The subsidized resource would then be repriced in the second stage to remove the effects of the subsidy, resulting in what PJM called a “competitive price for all resources.”
The other proposal would extend the existing Minimum Offer Price Rule (MOPR) to require a subsidized generation resource to remove the effect of the subsidy from its offer into the capacity market. This method, PJM said, could result in subsidized units failing to receive a capacity commitment.
NGSA disagreed with the Capacity Repricing proposal. It said, among other things, that the option is not fuel-neutral and would create more market subsidies by incentivizing states to subsidize due to the market advantage those kinds of resources would be provided. The association found the MOPR more appealing, saying it was the preferable option even though it needs improvement. NGSA claimed that proposal would inappropriately allow for unit-specific exemptions as well as exemptions for resources that are part of a renewable portfolio standard.
NGSA also joined a broad coalition, representing multiple interests including power, natural gas, renewable energy and efficiency interests, in submitting a legal analysis to the U.S. Department of Energy (DOE) opposing FirstEnergy Corp. subsidiaries’ request for relief under Section 202(c) of the Federal Power Act.
The subsidiaries, which have filed for bankruptcy affecting coal and nuclear facilities in Ohio and Pennsylvania, want DOE Secretary Rick Perry to issue an emergency order directing PJM to secure long-term capacity for nuclear and coal-fired plants that would compensate owners for the baseload power they provide.
The coalition argued that FERC has already denied a similar proposal by DOE and said the orderly retirement of inefficient power plants does not constitute an emergency.