By Christen Smith

PJM will spend much of the forthcoming year dealing with the fallout of FERC’s Dec. 19 capacity market ruling and adjusting to a new CEO and chief financial officer following a tumultuous 2019.

The RTO has until mid-March to make a compliance filing in response to last month’s ruling expanding the minimum price offer rule (MOPR) — a move that critics called an overreach of commission authority that will stifle the RTO’s transition away from fossil fuels.

FERC’s Republican commissioners and the generators who stand to benefit from their decision say expanding the MOPR corrects the price suppression resulting from state subsidies for lower-carbon resources (EL16-49). (See FERC Extends PJM MOPR to State Subsidies.)

“States have the right to pursue policy interests in their jurisdictions,” FERC wrote. “Where those state policies allow uneconomic entry into the capacity market, the commission’s jurisdiction applies, and we must ensure that wholesale rates are just and reasonable.”

The idea that states must pay the price for their newly implemented clean energy policies while legacy generators emit carbon without cost is at the center of the debate over how the RTO’s markets can accommodate the decarbonization goals of some of its 13 states and D.C. while excluding others without unintended consequences. (See Carbon Pricing Steers Discussion on PJM’s Future.)

Some stakeholders in PJM’s western territory, encumbered with coal and natural gas plants that provide affordable electricity and bolster their economies, argue carbon pricing is a solution in search of a problem, while others, underwhelmed by PJM’s relatively slow adoption of renewables, want a proactive approach to what they consider an inevitable policy shift. As it does in all stakeholder debates, PJM says it serves as a conduit for negotiation and compromise but doesn’t make the rules or set the prices. (See Enviro Officials Talk Carbon, Consequences at OPSI.)

It’s a position enshrined in the Federal Power Act but seemingly muddled with the MOPR expansion. FERC’s ruling saddles PJM with the responsibility of setting default offer floor prices for all resource types that participate in its capacity auction, as it did with natural gas-fired powered combustion turbine and combined cycle units years earlier. PJM and its Independent Market Monitor must then review the legitimacy of exemption requests from sellers who insist their unit costs fall below the standard.

Marc Gerken, CEO of American Municipal Power, said the order confirms that PJM’s capacity market is “nothing more than an administrative construct” with prices set at its headquarters and “no enduring features of a competitive market.”

Vistra Energy CEO Curt Morgan countered that FERC’s ruling levels the playing field for capacity auctions. The company argues that a national or regional carbon price would better target the climate change concerns underlying state policies and encouraged stakeholders to focus their efforts there instead.

“If a resource is economic without a subsidy, it will be able to bid into and clear the capacity market auction,” the company wrote in a news release Dec. 30. “The unit-specific review process and having PJM and the Independent Market Monitor’s opinion on a subsidized resource’s costs will provide discipline for resource owners who represent to the state that they are uneconomic in order to secure a subsidy.”

New Leadership at Helm

It’s not just the capacity market that’s raised questions about PJM’s future. Alongside a year of uncertainty over FERC’s impending MOPR ruling, the RTO’s leadership exodus left many wondering who would guide it into the new year.

Then in November — five months after CEO Andy Ott retired in the wake of the GreenHat Energy default — PJM announced that a former Direct Energy executive, Manu Asthana, would take over in 2020. (See Battle Over FTR Reform Shaping up in PJM.)

But not everyone found PJM’s choice so promising. Tyson Slocum, director of Public Citizen’s energy program, criticized the Board of Managers for selecting Asthana despite Direct Energy’s track record of regulatory violations against consumers. (See New PJM CEO Defends Direct Energy Stewardship.) Public Citizen isn’t a PJM member but recently joined the Public Interest & Environmental Users Group.

Slocum articulated his position in a Dec. 12 letter to the board listing numerous instances in which Direct Energy was fined by state regulators for deceptive sales practices.

“Your troubling choice for CEO requires in-person explanation to members of PJM’s Public Interest & Environmental Organizations User Group as to how an executive from a company notorious for breaking the rules and ripping off household consumers is fit to serve as PJM’s CEO,” he said.

Board Chairman Ake Almgren defended the board’s choice in a Dec. 18 response, saying that it used an outside firm to conduct a “thoughtful and deliberate search.” An extensive background check, Almgren said, confirmed that Asthana implemented organizational changes and addressed misleading and unfair business practices while serving as president of Direct Energy’s residential division.

“Be assured that the Board of Managers and Mr. Asthana are fully committed to PJM’s Core Values and Code of Conduct,” he said. “Mr. Asthana is a dedicated and conscientious leader, and the board is confident that he will operate in an honest and trustworthy manner.”

It’s uncertain how widespread Slocum’s feelings are among PJM’s nearly 1,100 members, though it’s clear many want a chance to speak with him in person. Interim CEO Sue Riley told the Markets and Reliability Committee on Dec. 19 that while the organization is excited to welcome Asthana aboard in January, stakeholders requesting meetings with the new leader must exercise patience.

“We want him to get to know PJM and understand the complex issues we are dealing with,” she said. “He will go on a listening tour that you will find enormously valuable.”

Asthana won’t be the only new face on PJM’s executive team. With his appointment resolved, the RTO must now focus on replacing the vacancy left behind by its longtime CFO Suzanne Daugherty, who retired in April on the heels of a controversial report that lambasted the RTO’s leadership for not preventing GreenHat’s unprecedented default. (See PJM CFO Retiring in Wake of GreenHat Default and Report: ‘Naive’ PJM Underestimated GreenHat Risks.) PJM denied that Daugherty’s departure was related, however.

In September, Vice President Denise Foster, who had no role in the GreenHat episode, resigned, and Riley announced she was restructuring the State and Member Services Division that Foster had headed. (See Stakeholders, States in Dark over PJM Personnel Moves.)

General Counsel Vince Duane stepped down suddenly in November to “seek other opportunities” after more than 16 years with the organization. (See General Counsel Vince Duane Leaves PJM.)

GreenHat

GreenHat loomed large over PJM in 2019 after FERC told stakeholders in January to unwind five months of settlements that had been negotiated to avoid the complex and expensive task of liquidating the defunct company’s FTR portfolio and rerunning the impacted incremental auctions from 2018. (See FERC Orders PJM to Unwind GreenHat Settlements.)

For months, stakeholders debated the schedule of its upcoming capacity auctions as the growing list of unresolved FERC orders — MOPR and GreenHat included — paralyzed their ability to move forward with any confidence. (See Capacity Market Sellers Anxious over Uncertain PJM Auction Rules.)

Then, in June, FERC issued paper hearing and settlement judge procedures that allowed stakeholders to forge a solution themselves to the GreenHat issue instead of relying upon the commission for guidance. (See FERC: PJM Settle GreenHat Disputes Before Paper Hearing.)

In October, PJM filed a settlement with FERC that paid two trading firms $12.5 million to end the dispute over whether GreenHat’s portfolio should have been liquidated based on existing rules. (See PJM to Pay $12.5 million to Settle GreenHat Dispute.) The agreement cost stakeholders $177.5 million — less than half of what PJM predicted it would cost to rerun the auctions back in February. (See PJM: FERC Order Could Boost GreenHat Default by $300M.) FERC accepted the settlement Dec. 30.

To fill the cracks in credit policies and FTR market design that the default exposed, PJM in April filed a mark-to-auction provision with FERC that gives the RTO leverage to secure collateral for declining portfolios in its FTR market (ER19-945). GreenHat had amassed 890 million MWh of FTRs with less than $600,000 in collateral.

PJM also hired its first chief risk officer, Nigeria Poole Bloczynski, in July after the independent report advised the RTO to bring in a credit risk mitigation expert. (See PJM Names Chief Risk Officer.) Bloczynski is a fixture at meetings of the Financial Risk Mitigation Senior Task Force, another stakeholder-approved panel charged with identifying holes in PJM’s credit policies. The group’s first wave of changes would restructure incremental auctions to give PJM more visibility into portfolio conditions and collect more collateral, if necessary.

Bloczynski told the MRC last month, however, that PJM should assess market participant risk profiles and enhance its collateral practices across all markets — not just FTRs. Tariff and Operating Agreement changes to implement tougher rules will come for a final vote before the committee in January.