By Rory D. Sweeney

WASHINGTON — If anyone thought FERC dragging state and RTO stakeholders here for a technical conference might jolt everyone on the PJM playground into playing nice with each other, Robert Erwin of the Maryland Public Service Commission quickly disabused the standing-room-only crowd of that notion.

“Maryland does not consider the PJM markets as the sole definer of resource adequacy and reliability. … We’re not relying solely on Dr. Bowring and President Ott,” he said, referring to Joe Bowring, PJM’s Independent Market Monitor, and PJM CEO Andy Ott. “If the lights really do go out, Maryland ratepayers are not going to storm [PJM’s offices in] Valley Forge with pitchforks and torches. They’re going to come to the Maryland commission, and they’re going to say, ‘How did you let that happen?’ And when we talk to that reporter from The Baltimore Sun, we don’t want to be a position saying, ‘Well, Dr. Bowring and President Ott told us it was all going to be fine.’”

Erwin suggested that the RTO might need to rethink its premise of being cost-based and resource-neutral. His perspective was contrasted by other state regulators on the panel, who offered a gradient of opinions on PJM’s adequacy. Richard Mroz, the president of New Jersey’s Board of Public Utilities, said state regulators need help keeping up with industry oversight, while Andrew Place, the vice chairman of Pennsylvania’s Public Utility Commission, said he is “fuel-agnostic” and cautioned against increasing complexity and decreasing transparency and cost efficiency in the market.

Brien Sheahan, chairman of the Illinois Commerce Commission, defended the state’s controversial decision in December to legislate zero-emission credits that ostensibly created subsidies for two Exelon-owned nuclear plants. While the RTO plays “an important role,” and will continue to, he said “markets … exist to serve state purposes.” States that have “legitimate environmental concerns” have the legal authority to require RTOs to “reflect those priorities,” he said.

Place called for a different approach. “I would much rather see an integrated carbon price that’s fuel-agnostic, and I don’t think it will cause reliability issues,” he said.

Mroz reiterated his pride, as he often does, with New Jersey’s generator diversity — the Garden State powers itself mostly with nuclear, gas, coal, solar and wind — but expressed a common concern about fuel security.

“What if there is impingement of resources?” he asked, noting that the removal of integrated resource plans has reduced states’ ability to address such concerns.

The Subsidy Heard Round the World

The second PJM panel in the May 1 conference was made up of  Bowring, Ott and representatives from generators, utilities, state consumer advocates and special-interest groups. (See also Power Markets at Risk from State Actions, Speakers Tell FERC.) Their comments often circled back to the ZECs approved in Illinois and the impacts they have on the market.

“The new war on coal is subsidies,” Dynegy CEO Robert Flexon said. “Coal cannot compete with nuclear subsidies.”

Jennifer Chen of the Natural Resources Defense Council said fossil fuels also receive subsidies. “Subsidies are everywhere, and they’re hidden,” she said.

Bowring said that only some nuclear and coal units in PJM are unable to run economically and reiterated Place’s endorsement of in-market pricing signals over state actions that bypass the market. “Clearly a market-based price on carbon is better than a subsidy,” he said.

Ott asked for FERC’s help in fixing a “fundamental inconsistency” in PJM’s energy market that creates negative prices by valuing some environmental externalities and not others. “We try to move 400 or 500 MW of wind, and we’ve got to send negative prices for a substantial number of hours,” he said. “It’s unsustainable and devalues assets that are inflexible and can’t move.”

However, Mike Cocco of Old Dominion Electric Cooperative saw “cheap gas” and high-efficiency gas-fired units as the main drivers of market stress rather than subsidies.

The Future of RPM

Throughout the day, acting FERC Chair Cheryl LaFleur and Commissioner Colette Honorable pressed speakers to explain what they thought needed to be done.

Asked about the future of PJM’s capacity market, Erwin was frank in his advice. “We would not encourage either you or PJM to continue to tweak the [Reliability Pricing Model] or the [minimum offer price rule]. … Every single year, there have been proposals for changing RPM. We don’t think that continuing to tweak that model is going to be very constructive.

“Do you really want to get rid of all of the nukes because they’re uneconomic? Is that really a good idea?” he asked.

“I’m saying no,” Honorable responded.

“I’m saying no too,” he said, adding that he is skeptical of letting all non-intermittent resources transition to gas.

“The markets don’t value the externalities that the state values, particularly the environmental attributes, but also other valuable attributes of baseload nuclear,” Sheahan said. “This was an urgent conversation three years ago. This is a crisis today.”

Place preferred consistency. “I’m torn. I’d probably come down that I’d rather see tweaking of capacity markets than starting fresh, though it comes with a lot of baggage,” he said.

He said the energy market, which dispatches generation in real time, is better for addressing issues such as the uneconomic nature of nuclear plants rather than trying to manipulate the capacity market to address it.

Collaborate, Don’t Litigate

One thing seemingly every speaker agreed on was that — having been frustrated with the courts’ narrow rulings on state-federal jurisdictional issues — collaboration to resolve the issues at the RTO would be more productive than litigating them. (See Court’s Reticence Frustrates Energy Bar.) The commissioners agreed. “I appreciate the fact that you’ve thought about … how we can do so in a way that allows us all to keep our eyes on the prize and [reduce] additional years of waiting around for a solution,” Honorable said.

Can a market with 13 states and D.C. find agreement?

“I do think that we can value these other attributes,” Mroz said. “The question is whether we all agree about what those valuations are, or what the attributes are.”

Plenty to Go Around

Honorable said the commission took away from the conference that it needs to become more active in coordinating the discussion, such as ordering a deadline for the RTO to determine what externalities it needs to address and how to incorporate them. She asked what the commission can do to further assist the process.

“We need to somehow discipline the output of generation in order to keep the supply/demand balance,” Ott said. “The resources that are needed to serve load should participate in setting price. It’s as simple as that.”

Chen said part of the problem is an overabundance of gas-fired units able to drastically lower auction clearing prices because of cheap fuel.

Bowring challenged that argument, saying the additional supply allows for lower prices and energy benefits. His protest drew a laugh from the crowd and prompted Ott to exclaim, “It’s a bargain!”

Erwin noted that PJM has a 22% reserve margin — well above its 15% requirement — “that potentially isn’t used at all.”

“Maryland does not see an adequacy problem in PJM,” Erwin said, asking FERC to consider consumers who pay the bills. “There’s only one source of revenue for all of this, and that’s your neighbors and my neighbors.”

[Editor’s Note: RTO Insider will have additional coverage of the technical conference in the May 9 newsletter.]

FERC’s agenda said the technical conference “may address matters at issue” in the following pending dockets:

• EL16-49 (See FERC Rescinds AEP, FirstEnergy Affiliate-Sales Waivers.)
• ER15-623, EL15-29-006, and EL15-41-002 PJM Capacity Performance plan (See Clean Energy Advocates Appeal FERC’s Capacity Performance Rulings.)
• ER14-1461, EL14-48, ER17-367 (See PJM Monitor Asks FERC to Act on ‘Paper Capacity’.)