NEM’s Western Energy Policy Roundtable will be held January 28-30, 2019, at Caesars Palace in Las Vegas, Nevada. You may register here.

An agenda will be available shortly. Sponsorships are available. Please contact headquarters if you are interested in sponsorship.

FERC issued an Order this summer addressing two proposals filed by PJM and a complaint regarding the impact of out of market payments received by resources on the PJM capacity market. "Out-of-market payments, whether made or directed by a state, allow the supported resources to reduce the price of their offers into capacity auctions below the price at which they otherwise would offer absent the payments, causing lower auction clearing prices. As the auction price is suppressed in this market, more generation resources lose needed revenues, increasing pressure on states to provide out-of-market support to yet more generation resources that states prefer, for policy reasons, to enter the market or remain in operation. With each such subsidy, the market becomes less grounded in fundamental principles of supply and demand." FERC found that PJM's tariff was producing unjust and unreasonable results under the circumstances. However, it did not adopt either of PJM's proposed remedies.

FERC proposed a different remedy as follows: "Specifically, this approach would (i) modify PJM’s MOPR such that it would apply to new and existing resources that receive out-of-market payments, regardless of resource type, but would include few to no exemptions; and (ii) in order to accommodate state policy decisions and allow resources that receive out-of-market support to remain online, establish an option in the Tariff that would allow, on a resource-specific basis, resources receiving out-of-market support to choose to be removed from the PJM capacity market, along with a commensurate amount of load, for some period of time. That option, which is similar in concept to the Fixed Resource Requirement (FRR) that currently exists in the Tariff, is referred to in this order as the FRR Alternative. Unlike the existing FRR construct, the FRR Alternative would apply only to resources receiving out-of-market support." FERC set the proposal for a paper hearing, and stakeholder comments and responses were filed this week.

In its filing, "PJM proposes both an expanded MOPR [Minimum Offer Price Rule] and Resource Carve-Out construct. The Resource Carve-Out is designed to realize the concept suggested in the June 29 Order to offer an alternative to MOPR that would permit subsidized resources to obtain a capacity commitment, but do so without having to clear the PJM capacity market. The expanded MOPR, coupled with the Resource Carve-Out as proposed here, offers the Commission a defensible FPA-compliant path to accept and limit the trade-off that comes from recognizing subsidized, and hence uneconomic, resources as PJM capacity.

But additionally, for the Commission’s further consideration under FPA section 206, PJM describes an approach that would combine the Resource Carve-Out with an explicit mechanism to restore prices in the residual capacity market to the theoretically correct competitive level. This approach is described as the “Extended Resource Carve-Out” or “Extended RCO.”

The full text of the PJM Filing is available on the NEM Website.