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POLITICO: FERC Decision Looms Over PJM Capacity Market

Posted by Gavin Bade & Eric Wolff on Dec 18, 2019

POLITICO Pro covered PJM's imminent decision to set a price floor in PJM Interconnection's 13-state capacity market, including AEE's Jeff Dennis perspective. Read excerpts below and the entire POLITICO Pro piece here. (sub. req.)

FERC is set to decide Thursday on a measure to counter states' clean energy and nuclear power subsidies — a ruling that could ultimately lead to the destruction of part of the nation's largest power market. FERC's three commissioners will vote on whether to set a price floor in PJM Interconnection's 13-state capacity market, which is used to ensure enough power is available to meet future demand by paying electricity producers to make their plants available in three years. Those capacity payments are designed to give the power producers long-term price signals that enable them to plan investments in new generating facilities.

Coal and natural gas power plant owners complain that state-level subsidies for wind, solar and struggling nuclear power plants are distorting the market and pushing prices too low, threatening the long-term viability of the fossil fuel plants. Without a floor price, they argue, the capacity market doesn't fulfill its function to drive investments in power generation. But if FERC sets a floor price, it would effectively block renewables and nuclear plants from the market, prompting states, such as nuclear-heavy Illinois or Maryland, to pull their power plants or even their entire power sectors out of the capacity auctions. That could have a cascading effect among PJM's members that leads to the market's unraveling...

FERC will vote on whether to impose a price floor, called the Minimum Offer Price Rule, at its monthly open meeting Thursday that would boost the resulting prices for the plants remaining in the capacity market, as PJM requested. Or FERC could retract its previous decision and declare PJM's market rules fine as they were. Most observers expect the federal regulators to largely approve PJM’s plan for a MOPR that would require subsidized renewables and nuclear to offer power supplies at well above their costs. That would boost revenues for the gas and coal plants that remain in the capacity market, at least for the short term.

“I think the capacity markets as currently designed are not going to be around for the long term,” said Jeff Dennis, general counsel at clean energy trade group Advanced Energy Economy. “The system is changing. The future energy system doesn’t require paying for megawatts of capacity acquired three years in advance .... what’s going to be valuable in the system is flexibility.” Fossil fuel generators, however, argue that excluding subsidized resources is essential so that the market continues to provide accurate price signals to drive investments in new generation, and say the market can continue to function even if they are removed...

Read the entire POLITICO Pro piece here. (sub. req.)


Topics: AEE In The News