[Editor’s Note: This story has been updated to include additional filings posted at FERC after RTO Insider went to press Tuesday morning.]

By Rory D. Sweeney and Rich Heidorn Jr.

If it were a Broadway show, PJM’s “jump ball” proposals for protecting the capacity market from subsidized resources would have closed after one night.

Monday was the deadline for the critics to file their comments on PJM’s proposal and the reviews were largely negative. RTO Insider’s initial review of four dozen filings found almost no commenters wholeheartedly endorsing either PJM staff’s capacity repricing proposal or the Independent Market Monitor’s MOPR-Ex plan to extend the minimum offer price rule to existing resources in addition to new entries (ER18-1314). (See PJM Board Punts Capacity Market Proposals to FERC.)

PJM’s plan would allow state-subsidized generators to bid into capacity auctions but ensure they don’t suppress prices by removing those offers in a second “repricing” stage of the auction.

Numerous commenters said PJM had failed to prove the need for the proposed changes, arguing there was little evidence state subsidies, such as nuclear plants receiving zero-emission credits, were suppressing prices. Several commenters said the proposals would increase prices while failing to address the capacity and energy markets’ fundamental flaw: the failure to capture attributes valued by states, such as carbon-free generation. PJM’s state regulators, led by the Organization of PJM States Inc. (OPSI), were unanimously opposed.

Hedging Their Bets

While few commenters enthusiastically endorsed either proposal, many offered qualified support for MOPR-Ex. Others hedged their positions.

Dominion Energy, Public Service Electric and Gas, American Electric Power and the Nuclear Energy Institute said FERC should reject both options but that if forced to choose, they preferred PJM’s proposal. While “imperfect,” repricing “is a far more balanced a solution” that respects state initiatives and avoids the possibility of load paying twice for capacity, NEI said.

Exelon opposed both options but called the Monitor’s proposal “particularly indefensible.”

Old Dominion Electric Cooperative — seeking to protect its self-supply resources procured outside of the capacity market — said both proposals should be rejected but that it would accept MOPR-Ex if it were amended to include the municipal/cooperative entity exemption from the capacity repricing proposal. “ODEC’s primary position remains that the commission should avoid layering yet another significant design change onto the already complex [Reliability Pricing Model] construct,” it said.

Consumer advocates from D.C., Maryland and New Jersey also said they would accept MOPR-Ex over repricing, subject to a settlement proceeding or stakeholder process “to further refine” it. The Ohio Consumers’ Counsel took a similar position, saying MOPR-Ex proposal is “less detrimental to markets and to consumers because it is more likely to encourage uneconomic generating resources to retire.”

IMM Joe Bowring acknowledged his proposal “is not perfect” but “is the only choice consistent with markets in this proceeding.”

The PJM Industrial Customer Coalition gave the proposal lukewarm support, saying its members “do not object” to it as “a reasonable extension of the existing construct” but are in full opposition to the repricing proposal.

Several commenters questioned why PJM was pushing for swift action on the proposals while it is conducting its quadrennial review of the variable resource requirement curve and launching a fuel security initiative. (See PJM Seeks to Have Market Value Fuel Security.)

“In light of other, overlapping initiatives currently underway, it is unwise and unnecessary for PJM to push forward with either of the proposed capacity market modifications — particularly when both modifications failed to obtain stakeholder consensus,” AEP said.

American Municipal Power said FERC should order PJM to reconvene the Capacity Construct/Public Policy Senior Task Force “without arbitrary deadlines to complete the evaluation of whether and what types of changes are needed to accommodate state actions.”

“The commission should reject the proposal and direct PJM to reconvene the stakeholder process in its administrative resource adequacy construct, as well as the current quadrennial review process and the novel fuel security proposal,” AMP said.

“Rather than seeking multiple arbitrary commission deadlines and guided processes for the additional work needed to resolve issues with PJM’s proposal, the commission should direct PJM to address the issues with the two proposals and create a supportable proposal that achieves the first principles identified by the commission in the [ISO-NE Competitive Auctions with Sponsored Policy Resources] proceeding.” (See Split FERC Approves ISO-NE CASPR Plan.)

Blow It Up and Start Over

Several companies suggested FERC use its Section 206 powers to craft a solution, though they disagreed on how urgent the problem is.

NRG Energy asked FERC to create “its own just and reasonable capacity market design.”

“While NRG agrees that the existing PJM rules are being overwhelmed by subsidized generation, neither of the two PJM proposals will result in a long-term sustainable market structure,” NRG said. “Inaction is not a viable option.”

The PJM Power Providers Group agreed “the threat … is real” and backed developing a different MOPR “that removes many of the exemptions contained in the MOPR-Ex proposal.”

The New Jersey Board of Public Utilities asked FERC to reject the filing and order PJM to “ensure that any future capacity market revisions are complementary to” attributes sought by the states.

“PJM’s proposals do not aid the commission in its longstanding efforts to harmonize state policies with capacity market planning,” the BPU said. “Status quo is the appropriate action for now.”

The American Public Power Association said the proposals are “further evidence of the ongoing unsuitability of mandatory capacity markets to ensure resource adequacy.” It said, “bilateral contracting or ownership should be supported instead of merchant development of generation resources.”

“APPA agrees that such state policy goals should be accommodated, but raising capacity prices for customers without any assured benefit is not the way to do it,” the association said.

Full Rejection

Consumer advocates from Illinois, Delaware, West Virginia, Kentucky and Indiana said FERC doesn’t have the authority to choose one of the two proposals. “Effectively, PJM is asking the commission to conditionally approve a proposal and then oversee a rewrite of that proposal,” they said.

The Illinois Commerce Commission also questioned FERC’s authority to act on either proposal, adding that, despite “PJM’s lip service to states’ rights … PJM reserves to itself the discretion to cherry-pick which resources are worthy of state policy revenue.”

“State laws that do not seek to impermissibly intrude upon the wholesale electricity market or abrogate a commission mandated rate, properly fall within the jurisdiction reserved to the states and do not violate the [Constitution’s] Supremacy Clause,” the ICC wrote.

Rare Endorsements

One full-throated endorsement came from comments filed jointly by Starwood Energy Group and Direct Energy, who argued MOPR-Ex “is narrowly tailored to mitigate artificial price suppression in PJM’s capacity market while retaining core market fundamentals” and “preserves the ability of both customers and investors to bring new capacity resources, and offer existing economic capacity, into the market on a competitive basis.”

The companies opposed PJM’s repricing proposal and repeatedly juxtaposed the two to argue for MOPR-Ex, which it said “does not thrust the capacity repricing costs onto the market generally.”

The American Petroleum Institute also expressed support, arguing that repricing “effectively provid[es] preferential treatment to high-cost, subsidized resources for capacity commitments that continue to inefficiently displace lower-cost resources.”

“Contrasted with capacity repricing, implementation of MOPR-Ex is straightforward and narrow with all subsidized resources subject to mitigation without exception, and nonsubsidized resources would not be subject to mitigation,” API said in a joint filing with private equity Panda Power Funds and J-POWER USA Development, an independent power producer and developer with 2,700 MW of generation operational or under development in PJM.

LS Power Associates also backed MOPR-Ex saying it is “based on the well-established minimum offer price rule that has long been part of PJM’s capacity market,” while the repricing proposal is “fundamentally unfair” and “irredeemably flawed.”

Rockland Capital argued for the MOPR-Ex with settlement discussions to “ensure that the exceptions from mitigation are tailored to preserve wholesale market prices first and accommodate state interests second.”

The Natural Gas Supply Association was less outspoken in its support but nonetheless urged approving and suspending implementation of MOPR-Ex, then directing those involved to engage in settlement discussions to consider “how exemptions are provided and the appropriateness of unit-specific exemptions, including exemptions provided for units subject to a renewable portfolio standard.”

The group pointed to the nuclear subsidies recently passed in New Jersey as evidence “that the time is now to address state subsidies given that the number of subsidies in the market continue to grow.” (See Exelon to Push for Laws, Rules to Boost Profitability.)

Vistra Energy and its Dynegy Marketing and Trade subsidiary took a similar position, saying “an appropriately designed” MOPR is the best way to support competition.

The Electric Power Supply Association said it opposed capacity repricing but agreed “100%” with PJM that changes are needed.

“The commission should summarily reject the ‘capacity repricing’ proposal … which would enable and encourage state interference with the commission-jurisdictional RPM market, and should instead focus on a MOPR approach, consistent with its recent commitment to ‘use the MOPR as [its] standard solution’ where state policies threaten the organized capacity markets.”

EPSA noted that the Monitor’s MOPR-Ex plan received more support among stakeholders than PJM’s alternative. If the commission does not find MOPR-Ex just and reasonable, EPSA said, it should find PJM’s current MOPR rules are not just and reasonable because they don’t cover existing resources.

Exelon, however, said MOPR-Ex “would prevent state-supported clean generators from clearing at all, replacing them with polluting units. Perversely, that will not just force customers to pay higher electricity prices but also will inflict on customers the additional costs of grappling with the pollution [MOPR-Ex] has created.”

‘Externalities’

Exelon said PJM’s premise — that states making payments to recognize the environmental benefits of renewable and nuclear generators states are “distorting” price signals — is incorrect.

“Sound economics understands that when states tax polluting generators, or pay clean generators for their environmental value, they do not ‘distort’ price signals. They reduce distortions and account for true economic costs and benefits. The only distortion comes from treating clean and polluting generators as the same when they are not.”

The Institute for Policy Integrity at New York University School of Law, a nonpartisan think tank that says it is dedicated to improving the quality of government decision-making, also cited the markets’ failure to value environmental externalities.

FirstEnergy, in a joint filing with East Kentucky Power Cooperative, also agreed that the capacity market is failing to account for externalities — but defined those uncompensated attributes as “resilience, fuel diversity and fuel security.”

“The simple facts are, notwithstanding numerous amendments and market design enhancements through the years, PJM’s wholesale capacity market has never worked as intended. States are compelled to address the needs of their constituents. It therefore should be no surprise that states within the PJM footprint are responding to this long-term market failure by implementing policies that are designed to preserve important generation units and their associated attributes, including generation and zero-emissions attributes.”

They said FERC should reject PJM’s proposals and require the RTO to “develop a holistic solution to the fundamental issues facing its markets.”

Resume Negotiations

Several commenters called on PJM to return to stakeholder negotiations.

Dominion said it opposes both proposals because they extend mitigation to existing capacity resources. “Dominion Energy does not agree that existing capacity resources have the same pricing effects as new capacity resources and warrant identical treatment,” it said. FERC should insist the RTO resume stakeholder discussions to develop rule changes “that focus on actual distortive pricing effects stemming from state public policies,” Dominion said.

Talen Energy Marketing and its fleet of generation subsidiaries argued both proposals are “inadequate” and asked FERC to “direct PJM to engage with its stakeholders in a broader price reform effort, including necessary revisions to the energy market, that would seek to appropriately compensate generators for other, non-price attributes that provide measurable value to the grid.”

States Unanimous

In a rare unanimous vote, OPSI urged FERC to reject both proposals and argued that PJM should “respect the resource choices of state policymakers unless there is a legal determination that a state policy impermissibly intrudes” on federal jurisdiction. State subsidies aren’t impacting the market’s ability to attract resources and provide adequate returns, and PJM’s evidence to the contrary is purely “speculative” and anecdotal, OPSI said.

“Data shows that adequate numbers of generation resources are consistently able to recover their costs, while receiving rational price signals, from PJM markets,” OPSI said. “PJM abandons the cost-minimizing principle and instead proposes an exceedingly complex design change that will place more weight on administratively determined artificially inflated prices rather than actual market participant offers.”

It noted that the Monitor’s State of the Market report found the average age of at-risk units is 42 years while a Department of Energy-funded report found that the average lifespan for coal units in the Eastern Interconnection is 40 years.

“Such findings seem less indicative of market failure, than of rational market signals of entry and exit. … Rather than rising, there is significant data that shows capacity prices should be falling,” OPSI said, noting the results of PJM’s recent quadrennial analysis of its demand curve and recommendations to reduce the expected cost for a new unit to enter the market.

OPSI said the CCPPSTF was flawed because its charter limited it to only consider the capacity market.

The Maryland Public Service Commission said PJM’s proposed changes would “obscure resource clearing, increase uncertainty and raise customer prices.”

The Pennsylvania Public Utility Commission noted that neither proposal received a two-thirds majority at the Markets and Reliability Committee and that both “could result in subsidized resources in one state, significantly increasing market prices in another state.” (See “No Consensus on Capacity Revisions,” PJM MRC/MC Briefs: Jan. 25, 2018.)

It said capacity repricing would incent market sellers to underbid in the first stage of the auction “causing further price volatility” while MOPR-Ex could cause states to pay twice for capacity even as it suppresses energy prices.

The Public Utilities Commission of Ohio said FERC should preserve the current rules “until a direct path to addressing state subsidies, if at all, can be determined.”

“The commission, state commissions and other parties have taken significant steps to resolve perceived capacity market design deficiencies that have not been fully implemented. Yet, in less than three years, PJM is again before the commission proposing another significant overhaul of the capacity market under far less certain circumstances,” PUCO said. “While PJM has provided information on the price suppression effect of subsidies, it has not similarly substantiated the level of penetration of state-subsidized resources that would trigger the need to depart from the status quo with another major overhaul of RPM. Furthermore, the PUCO notes that there is no analysis as to the cost impacts of either proposed option on load.”

The New York Public Service Commission, which is working with the NYISO to incorporate a carbon adder into its wholesale market to accommodate state-subsidized nuclear plants, sought assurances that the commission’s ruling on the PJM proposal “will not serve as binding precedent for other control areas.”

“This is critical for other control areas to have the autonomy needed to develop market mechanisms that address their regions’ unique circumstances,” the PSC said in a joint filing with the New York State Energy Research and Development Authority.

Environmental Groups Oppose

A joint filing from the Sustainable FERC Project, Sierra Club, Natural Resources Defense Council and Environmental Defense Fund asserted that “PJM wrongly puts the commission in the position of policing the efficiency of state policies.” The proposals put “wholesale market rules on a collision course with states’ core duty to protect the public.”

The filing included a report from “subsidy expert” Doug Koplow that argued energy subsidies “have long been pervasive at both the federal and state level without attendant impacts on PJM’s wholesale markets that have prevented that market from attracting record levels of investment.”

“Even if one state’s policies were to somehow to harm customers in other states, that would not justify commission intervention to countermand those laws where they are lawfully within the state’s authority,” the filing argued.

The Solar RTO Coalition, a newly formed group of solar developers and capital providers, said it is “challenging” to address supply-side subsidies.

“The sheer scope of some of the issues that are associated with how to best incentivize the ‘proper’ development of generation resources … are part of the reason why PJM’s stakeholders were unable to come to a consensus.”

Both OPSI and the Solar Coalition sought to distinguish PJM’s filing from ISO-NE’s CASPR proposal, which the coalition said “was much narrower in scope.”

Ari Peskoe, of the Harvard Electricity Law Initiative, said, “PJM fails to explain why it equates state support for legacy assets with competitive state programs for environmental attributes, even though it concedes that the latter affect wholesale rates ‘to a lesser degree.’”

“Commission approval would substantially expand RTO authority in a field of shared authority. … States did not sign up to have a regional system operator pick and choose among their generation procurement programs, and any assertion to the contrary is unsupportable,” he said. “If the commission approves one of PJM’s proposals, it should expect a steady stream of [Federal Power Act Section] 206 complaints about laws and regulations ensnared or uncaptured by PJM’s arbitrary rules.”

Self-supply Concerns

Dayton Power and Light said either of the two proposals are improvements over the status quo but that FERC should correct “deficiencies” in the proposals by adopting changes to the fixed resource requirement (FRR) option that allows state regulators and regulated utilities to supply their own load with their own capacity resources outside the RPM.

“With the minor tweak to the FRR rules, Dayton believes that market price outcomes will be preserved and states wishing to subsidize varying attributes of generation can be accommodated,” it said. “The only changes needed is to allow for a partial or overlay FRR within a state as opposed to a full zone as the rule exists today. If a state subsidizes 1000 MW of generation for any reason it deems appropriate, it would remove a corresponding amount of load including reserve requirements from the PJM RPM auction.”

In its own filing, EKPC asked FERC to force PJM to change MOPR-Ex’s “public entity” exemption to recognize that the co-op is the only winter-peaking load-serving entity within PJM’s footprint. The proposal uses LSE’s zonal summer-peak demand forecasts to calculate the LSE’s eligibility for the exemption. The LSE cannot own more than 600 MW of generation above the peak summer load it serves. However, EKPC procures generation to cover its higher winter peak, which would put it beyond the 600-MW cap.

The Illinois Municipal Electric Agency avoided comment on MOPR-Ex and focused on criticizing the repricing proposal, which it said would hurt load in the ComEd zone by reducing capacity transfer rights allocated to load “due to the predictable decreased clearing of lower-priced imported generation under stage one.”

The National Rural Electric Cooperative Association reiterated its opposition to PJM’s mandatory capacity market. “However, recognizing that the commission may not at this time unravel PJM’s mandatory capacity construct, NRECA urges that the commission … mandate that any outcome of this proceeding must contain specific exemptions for self-supply by cooperative utilities and other load-serving entities.”