By Rory D. Sweeney

VALLEY FORGE, Pa. — PJM appears headed toward implementing a capacity construct that would reprice auction results to address the influence of subsidized generation offers.

The RTO’s Capacity Construct/Public Policy Senior Task Force (CCPPSTF) met last week for the sixth time in August to focus on determining what circumstances would trigger auction repricing.

Repricing, which would filter subsidized offers out of auction results to mitigate suppression of the clearing price, is a key mechanism in five of the nine capacity redesign proposals. NRG Energy, LS Power, Exelon, PJM and Old Dominion Electric Cooperative all included it. (See Stakeholders Seek to Trim PJM Capacity Construct Options.)

CCPPSTF attendees have identified 18 components that the repricing trigger should address, including a subsidy’s financial significance in supporting a resource and the scale of a resource’s impact on the market. The discussion has delved into the details of how states could potentially issue subsidies, including through yearly allotments or a one-time lump-sum payment for performance over an expected lifespan.

Sorting the Details

Avangrid’s Kevin Kilgallen suggested that repricing should be triggered only by subsidies provided during an auction’s delivery year. Calpine’s David “Scarp” Scarpignato added that lump-sum subsidies that include the delivery year in their amortization should also be a trigger. The distinction was initially lost on some participants.

“There are two different issues here,” Kilgallen said. “I’m saying only subsidies that may or will be or are expected to be applicable during the delivery year should be considered. … I think [Scarp’s is] a separate issue, whether or not there’s a trigger for a resource that may or may not receive [in that year] a subsidy that it’s eligible for.”

Scarp later suggested that subsidies that incentivize the pricing of carbon emissions should be exempted. EnerNOC’s Katie Guerry questioned the suggestion as ostensibly supporting a controversial tenant of Exelon’s proposal that would effectively exempt nukes that are receiving subsidies from triggering repricing. Scarp clarified that his suggestion was specific to subsidies that would monetize emissions instead of subsidize units that have a related beneficial attribute, such as being emissions-free. His proposal wouldn’t exempt a unit that received a subsidy elsewhere, he said.

Guerry said carbon pricing creates an entirely separate market that’s not involved with the capacity market.

“Carbon pricing is something completely separate, and it’s in and of itself a solution … that would obviate the need to do anything in the capacity market,” she said. “If you have something like carbon pricing, there’s not a question of exempt or not exempt. It’s the solution that we pursued outside of the capacity market.”

Scarp pointed out that subsidies could affect either the capacity or the real-time energy markets, which introduced a new concept for the group as all discussion had previously focused only on subsidies in the capacity market.

“If PJM institutes carbon pricing, you don’t think it will affect your energy [market] revenues? It will,” Scarp said.

State Actions Only

Stakeholders also debated whether a resource that received a subsidy in the past should always be considered subsidized, and whether federal subsidy programs should remain outside the CCPPSTF’s scope.

While the task force’s charter is limited to state programs, Exelon’s Jason Barker asked if PJM’s eventual FERC filing on the issue would also remain limited to state programs. PJM’s Dave Anders, who facilitates the group’s meetings, declined to speculate about the RTO’s plans.

“The problem statement we’ve got is limited strictly to state actions. What happens at FERC, happens at FERC,” he said.

Direct Energy’s Marji Philips argued that federal actions weren’t the issue.

“The difference between a federal action is all states are impacted by it and have to price it in,” she said. “If it’s a state law, it only impacts — or should only impact — the citizens of that state, and that’s what this exercise is. It’s not to tell a state what it can or can’t do. It’s to make sure that other customers from other states don’t pay for what one state wants that another state might not want.”

Exelon’s Sharon Midgley responded that such programs can still impact auction prices. “While a federal program may have the same impact across the entire footprint, it still has the potential to suppress [prices, even if it does so] uniformly,” she said.

Stakeholders are also considering how to write rules that address potential future scenarios in which states decide to offer financial incentives for demand-side resources or certain existing programs expand to other states, such as the Illinois program offering zero-emissions credits to nuclear units.

“I think there are a number of parties who would say, ‘I’m OK with the status quo. My concern is what’s coming down the pike,’” Guerry said. “Preference for the status quo by some might be dictated by what happens or may not happen in the future.”

‘Non-repricing’ Alternatives

While the meeting focused on repricing, stakeholders have also suggested additional redesigns beyond the five repricing proposals. The Independent Market Monitor has proposed extending the existing minimum price offer rule indefinitely to any subsidized unit that doesn’t qualify for several specific exemptions.

Three “non-repricing” proposals would reduce the role of the auction in PJM’s capacity acquisition procedures. John Horstmann at Dayton Power & Light proposed to expand the RTO’s existing fixed resource requirement (FRR) option to allow utilities to meet capacity obligations with any combination of FRR and auction results.

A proposal by the Sustainable FERC Project would reduce the capacity requirement to off-peak season needs and allow seasonal resources to account for the additional demand during the peak season. American Municipal Power (AMP) is still finalizing the details of a proposal that would emphasize the use of long-term bilateral contracts over a single auction.

Polling Controversy

With his company’s proposal unfinished, AMP’s Ed Tatum expressed concern about a planned PJM poll to measure the relative popularity of the proposals. He was particularly displeased with an opening section that asked respondents to opine on how each proposal addressed specific issues.

“Is this something we’re going to do regardless of how people feel about it?” Tatum asked. “It looks like you’ve got 11 good questions. The first one is a bit broad and the categories elusive. … We need to make sure the poll results are meaningful and we’ll get something good and useful out of it.”

“We are trying valiantly to get some additional information out to people to see what people are thinking,” Anders said. “I feel like we’re in full attack mode against this poll before we’ve even seen it.”

Tatum was not alone in his concerns about the poll. Barker noted that the poll doesn’t address repricing triggers, “which is quite possibly the most important part, which is why we’ve registered our concerns.” As part of his instructions to stakeholders at the end of the meeting, Anders later asked those who submitted proposals to attend the next meeting prepared to define the triggers they plan to include in their proposal.

GT Power Group’s Tom Hyzinski requested adding to the first question whether each proposal “insulates other states or other jurisdictions against the actions of a state, because I think there’s only one that actually does that, and that’s the IMM’s proposal. Any of the others, there’s actions that can be taken in one small place that affect the pricing and market signal in every other section of PJM.”

Barker said that Hyzinski was “pretty shrewd” to provide his answer with the question.

“Similarly, we could ask for questions about whether or not the application [of the proposal] is discriminatory, much like the IMM’s proposal, where it proposes to exempt certain resources but not others that may have the same dollar-for-dollar impact,” Barker said.

Anders said that he is anticipating at least one more round of polling and feedback before moving to a recommendation vote. “We’ll just have to see how things mature after [the polling],” he said.

PJM staff planned to distribute the poll to the CCPPSTF task force list last week and differentiate between member and non-member responses. Staff are seeking to receive responses this week in order to prepare results for the next CCPPSTF meeting on Sept. 11.