By Rory D. Sweeney

One year later, the future of PJM’s markets remains as unsettled as ever.

The RTO entered 2017 preoccupied with its capacity construct and how to address the impact of state-subsidized generation. It ended the year without an agreement on capacity rule changes and facing a new threat to its markets: the Department of Energy’s request that FERC order price supports for nuclear and coal plants.

It was concerns that other states might follow Illinois and New York in subsidizing at-risk nuclear plants that led PJM to create the Capacity Construct/Public Policy Senior Task Force (CCPPSTF) in early 2017. The yearlong effort has not gone the RTO’s way. Stakeholders produced nine other proposals with which PJM’s two-stage repricing concept was forced to compete. As the examination wore on, many stakeholders, including state regulators and consumer advocates, became convinced the current construct remains the best option. They are supporting a proposal by the Independent Market Monitor that they see as changing the current construct the least.

The RTO responded to the DOE Notice of Proposed Rulemaking by calling for a change to its method for developing LMPs. At its final stakeholder meeting of the year, PJM won endorsement for a stakeholder task force to examine the energy market rules and provide recommended fixes. (See “PJM Wins Examination of Price Formation,” PJM Markets and Reliability Committee Briefs: Dec. 21, 2017.)

Subsidized generation is one of several major issues PJM will face in 2018. Below are the questions the country’s oldest power pool will likely address in the coming year.

The CCPPSTF endorsed only one proposal: the Monitor’s plan to extend the minimum offer price rule (MOPR) to all units indefinitely, with exemptions for self supply, competitive entry, public power and state renewable portfolio standard programs.

But PJM announced it will not recommend those revisions to its board and instead plans to seek FERC approval for its repricing proposal, which would disconnect the offer price from the probability of clearing the auction.

A vote on the Monitor’s proposal was deferred until the Jan. 21 Markets and Reliability and Members committee meetings, in part to await FERC’s decision on DOE’s request. (See MOPR-Ex Faces Uphill Battle as PJM Declines Recommendation.)

The Monitor has said it will file its proposal with FERC if it receives a “supermajority” of stakeholder support.

Will PJM Maintain Control of its Energy Markets?

In addition to shaking up the capacity discussion, the DOE NOPR also accelerated PJM’s plan for changing its day-ahead and real-time energy markets. The RTO’s current LMP methodology is simplified, effectively prohibiting large, inflexible resources like coal and nuclear generators from setting LMPs in its real-time and day-ahead energy markets. Instead, cheaper, more flexible units that are dispatched ahead of those units set prices, and the inflexible units receive “uplift” payments to cover their operating costs.

PJM argues the inflexible units should be allowed to set LMPs and the more flexible units should be paid extra for their ability to moderate output to help align supply with demand. The RTO will seek to build support for its proposal through the recently approved examination of energy market price formation. (See PJM: Energy Price Formation Addresses DOE NOPR.)

Some observers see the proposal as PJM’s hasty response to states subsidizing their in-state nuclear resources. New York started the trend with its zero-emission credits in 2016, and Illinois soon followed with its own ZEC program. Similar proposals are on the table in Pennsylvania, Ohio and New Jersey, the last of which could enact legislation before Gov. Chris Christie’s lame-duck tenure ends Jan. 19. (See NJ Nuclear Subsidy Bill Moves Swiftly out of Committee.)

The legislation includes caveats that reduce the state’s subsidies if market rule changes improve the plants’ revenues. The issue charge estimates that it could take most of 2018 to finalize the details of the RTO’s plan. But PJM officials intend to move much more quickly. In its response to the DOE NOPR, the RTO told FERC that it should order it and other RTOs to file price formation rule changes within 180 days. (See NOPR Reply Comments Bring More Criticism of PJM Proposal.)

Is Carbon Trading in PJM’s Future?

The two-stage capacity repricing and the energy market price formation proposals are two pieces of PJM’s three-part plan for responding to state public policy initiatives. The third piece, which proposes a regional carbon-trading structure, might also receive additional discussion in 2018. The PJM proposal suggests establishing regional carbon prices that can be reflected in wholesale market prices.

New Jersey Governor-elect Phil Murphy pledged to rejoin the Regional Greenhouse Gas Initiative — which Christie withdrew from — within 100 days of assuming office. The state would rejoin Delaware and Maryland among the PJM states participating in RGGI. (See EBA Panelists Discuss Carbon Policy, Renewables Integration.)

What Becomes of Summer Demand Response?

Another flash point has been PJM’s efforts to develop ways for seasonal resources such as demand response to comply with Capacity Performance rules requiring year-round availability.

In October 2016, PJM asked FERC to approve a package of rule changes despite stakeholders’ concern that the proposal didn’t go far enough. The RTO’s proposal relaxed prohibitions on seasonal resources aggregating across locational deliverability areas, provided additional winter capacity interconnection rights (CIRs) and modified rules for measuring DR performance in the winter.

FERC staff approved the plan in March while the commission lacked a quorum, but it could revisit the issue now that four new commissioners have joined. (See FERC Staff OKs PJM Aggregation, DR Rules; Refunds Possible.)

PJM stakeholders, however, aren’t waiting around. They won approval to examine the situation through a Summer-Only Demand Response Senior Task Force formed in November. The group will look at the additional summer-season resources that don’t get aggregated and seek uses for them. (See Stakeholders Seek Load Discussion in PJM DR Task Force.)

Who Triumphs in the Transmission Battle?

Transmission customers and merchant developers have been pressing incumbent transmission owners on several fronts. For merchant developers, the focus is on getting PJM to consider cost-containment provisions in project proposals. LS Power’s Sharon Segner has been leading this fight and recently won concessions from TOs on allowing construction cost caps. This isn’t enough for Segner, who is seeking approval of cost caps on return on equity and annual revenue requirements. (See “Cost-containment in Proposals,” PJM PC/TEAC Briefs: Dec. 14, 2017.)

American Municipal Power’s Ed Tatum has pushed for additional transparency on transmission projects proposed by TOs and the criteria used to determine when infrastructure has reached the end of its life. AMP released a study in October that showed more than half of the $24.3 billion in transmission projects in PJM since 2012 were supplemental projects unneeded to comply with RTO or federal reliability requirements and were not subject to rigorous review. AMP continued pressing its case for more transparency during a marathon Transmission Expansion Advisory Committee meeting in December. (See AMP Presses AEP, PSE&G on Transmission Projects.)

State representatives are on AMP’s side. Both the Consumer Advocates of the PJM States and the Organization of PJM States Inc. have indicated their support for the efforts.

Can PJM Ensure Gas Generation Without Control of Pipelines?

While the definition of resiliency remains up for debate, PJM staff have brought several plans for stakeholder endorsement under its banner. In addition to price formation, which is intended to preserve fuel diversity, PJM has expressed concern that the loss of a major gas pipeline could idle multiple generation units.

The RTO is seeking to coordinate the natural gas pipeline system’s procedures with grid operators’ needs, a process it calls “operationalizing.” The effort won agreements from gas-fired generators in December on manual changes specifying that PJM “may need to direct” switching to an alternate pipeline or fuel on a pre-contingency basis and that it “will use best operator efforts” to move interruptible users off before firm service users. (See “Fuel-Switch Clarifications Endorsed,” PJM Markets and Reliability Committee Briefs: Dec. 21, 2017.)

NERC also has called for more attention to gas pipeline contingencies in reliability planning. (See NERC: Natural Gas Dependence Alters Reliability Planning.)

How Will PJM Meet Fast-Start Order?

As if PJM didn’t have enough on its plate, FERC on Dec. 21 ordered the RTO (along with SPP and NYISO) to change their tariffs to incorporate fast-start resources into energy and ancillary services pricing (EL18-34). (See FERC Drops Fast-Start NOPR; Orders PJM, SPP, NYISO Changes.)

FERC said PJM has special pricing rules only for block-loaded units — resources whose economic minimum operating limits equal their economic maximums, meaning they have no dispatchable range. The RTO seeks to let them set price by relaxing the economic minimum operating limit of online block-loaded resources by up to 10%. The commission said PJM’s practices may not be just and reasonable because they don’t allow block-loaded resources’ economic minimum to be relaxed by more than 10% and because they limit the relaxation to only block-loaded resources.

The commission gave the RTOs 45 days to file initial briefs in the Section 206 proceedings.