How FERC can protect customers and respect state energy policy authority in its PJM capacity market proceeding
The following is a viewpoint from Ann McCabe, an energy and environmental consultant and former commissioner at the Illinois Commerce Commission, and Miles Farmer, a staff attorney at the Natural Resources Defense Council.
A recent order by the Federal Energy Regulatory Commission (FERC) tees up two starkly different potential outcomes: one that protects consumers and state authority over energy policy, and one that could unnecessarily add billions of dollars to customers’ utility bills and frustrate the ability of 13 mid-Atlantic states and the District of Columbia to control the power supply mix serving customers within their borders.
We disagree with the premise of the commission’s order, but agree that a workable outcome can be achieved if FERC and the states work together to implement the order in a reasonable manner.
FERC’s June order incorrectly found that state climate policies artificially distort the capacity market for the PJM region serving 65 million customers. To address this perceived distortion, FERC’s order called for PJM to impose a Minimum Offer Price Rule (MOPR) that could block energy resources supported by those policies from selling capacity (which is a future promise to provide power when needed) in PJM’s market.
But along with its decision to impose a MOPR on state-supported capacity resources, mainly renewable and nuclear, FERC also suggested that it may establish an alternate means to ensure that the capacity value of those resources is not ignored.
FERC must follow through on this plan because if it fails to do so, customers could be forced to spend billions on redundant capacity from other resources that aren’t needed to support the reliability of the electric system. Stakeholders need to make their voices heard — loudly and before October 2 — the deadline for comments on FERC’s implementation of its order.
FERC’s order “preliminarily found” that PJM must enable an alternative path for state-supported resources to receive credit for their capacity contributions to the system, even if they are not permitted to sell capacity in PJM’s organized capacity market. FERC terms this alternative path the “resource specific FRR Alternative option,” which we abbreviate as “FRR-RS” for Fixed Resource Requirement – Resource Specific.
Many questions about FRR-RS remain, as FERC’s order gives only a basic outline for how it might operate and only tentatively commits to following through with a solution. States, consumer advocates, utilities and other energy customers must strongly urge FERC to follow through on its FRR-RS plan in a way that allows states and customers to take full advantage of the capacity offered by state-supported resources.
Background on PJM’s capacity market
PJM is the nation’s largest grid operator and accounts for about one-fifth of the nation’s total electricity consumption. FERC- and PJM-related charges generally account for a very significant portion of an end-use customer’s bill.
In addition to operating a market for electric energy, PJM runs a capacity market, which compensates suppliers for being available to provide energy when called upon by the grid operator during times, like hot summer days or winter cold snaps, when the electric grid is under maximum stress.
PJM holds capacity auctions every year, which seek to procure the lowest-cost set of capacity resources to meet a given level of demand forecasted for three years in the future based on sales offers submitted by potential suppliers.
