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FERC Rejects PJM Proposals to Handle Coal, Nuclear Subsidies

FERC late Friday narrowly rejected two proposals by PJM Interconnection to help the grid operator address state subsidies for uneconomic coal and nuclear power plants. 

The Federal Energy Regulatory Commission acknowledged that the wholesale electricity market overseen by PJM has “become untenably threatened” by the subsidies provided or required by some states for certain generation resources. “What started as limited support primarily for relatively small renewable resources has evolved into support for thousands of megawatts of resources ranging from small solar and wind facilities to large nuclear plants.”

FERC’s decision came after a leaked memo showed that the Department of Energy (DOE) is considering using its authority under two federal laws to compel the nation's grid operators to purchase electricity or power generation capacity from faltering coal and nuclear plants at the expense of other resources, including natural gas.

Merchant generators have faced stiff competition in the open market, but it has intensified with an increasingly diversified resource mix. In recent years, renewable sources have 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. The subsidies have also suppressed auction clearing prices.

PJM put forward two proposals earlier this year. 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 have extended PJM’s Minimum Offer Price Rule (MOPR), which currently only applies to new generation sources, by requiring a subsidized generation resource to remove the effect of the subsidy from its offer into the capacity market.  This method, PJM noted, could result in subsidized units failing to receive a capacity commitment.

While the Commission rejected both proposals, it consolidated PJM’s docket with a complaint filed by Calpine Corp. against the grid operator’s existing MOPR, which Calpine argued is “unjust and unreasonable” because it does not address the impact of subsidized existing resources. The Commission has set the consolidated proceeding for an expedited hearing in which stakeholders  will consider applying the rule to all new and existing resources that receive out-of-market payments, or subsidies. 

FERC, which expects to have a decision on the consolidated proceeding by January,  advocated for the elimination of existing exemptions for resources supported by renewable portfolio standards, federal tax support and the Zero Emissions Credit programs that have passed state legislatures to support nuclear power.

PJM welcomed the next steps and said it would begin work to engage stakeholders within the timetable laid out by the Commission. “The order appears to be a positive step to change competitive electric market design while recognizing the important role states play in influencing the resource mix through retail energy policies.”

However, Richard Glick and Cheryl LaFleur, the two Democrats on the five-member Commission, dissented. Glick suggested that the order undermines state authority over the power markets. “The Commission’s role is not, and should not be, to exercise its authority over wholesale rates in a manner that aims to mitigate, frustrate, or otherwise limit the states’ exercise of their exclusive authority over electric generation facilities.”

In more pointed comments on social media, Glick said the Commission should not use its power to limit state efforts to address climate change.

LaFleur, meanwhile, said she would have rather seen the Commission better use PJM’s proposals as a blueprint to be further refined and built upon by stakeholders. She also suggested that an expedited hearing is ill-advised considering the magnitude of the changes being considered and how it might affect the capacity market. 

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.

Clearview Energy Partners LLC said the Commission’s plans could foreshadow how it might address the impact of potential contracts if the DOE moves forward with a bailout for coal and nuclear plants.

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