Power plant operators, environmental and consumer groups, and states covered by PJM Interconnection are asking the Federal Energy Regulatory Commission to reconsider what may be the biggest change to U.S. energy markets in decades.
They argue that FERC stepped outside its legal authority with its June order demanding that grid operator PJM remake its capacity market, and should throw out its current plan and start over as a result.
In a 3-2 ruling that came as a shock to many in the industry, FERC rejected PJM’s current capacity market as “unjust and unreasonable.” Regulators ordered PJM to come back with a new market construct that would have significant effects on state-subsidized generation resources, such as nuclear power plants with zero emissions credits (ZECs) or wind and solar projects backed by a state renewable portfolio standard (RPS).
Last week’s deadline for filing requests for a rehearing of the order drew a broad range of complaints and critiques from a broad swath of stakeholders in the process, as noted by Ari Peskoe, director of the Electricity Law Initiative at Harvard University.
Many focused on the unprecedented interference into state energy policies that the order represents — the same issue that led FERC Commissioners Cheryl LaFleur and Richard Glick to vote against the order.
Regulators for the states of Illinois and New Jersey, which are proposing ZECs to support nuclear power, expressed their concerns that FERC’s order would pre-empt those policies. Such a move “crosses the clear jurisdictional boundary between the states” and FERC, according to the Illinois Commerce Commission.
Clean Energy Advocates — a group including Earthjustice, Natural Resources Defense Council, Sierra Club, Sustainable FERC Project, and Environmental Defense Fund — agreed with state regulators in its filing. The group noted that the order appears to draw an “arbitrary” line around ZEC and RPS programs, while ignoring the multitude of other state and federal policies affecting the market price of grid resources.
“FERC doesn’t set environmental policies,” NRDC staff attorney Miles Farmer said in an interview. “But what it’s doing here by focusing on the ZECs and RPS policies is saying, 'We don’t know your environmental values, but we’re going to value them at zero — and we’re going to force that at the capacity market.'”
That’s because the FERC order would force these resources to be subjected to a minimum offer price rule (MOPR), a move that could end up barring them from competing in the market.
Others groups complained about the FERC order’s vaguely defined changes, which different parties said could undermine both state-supported resources and, potentially, PJM’s capacity market itself. That’s because FERC’s order would also allow individual power plants and other grid resources to opt out of the market altogether, through something called the fixed resource requirement (FRR) alternative.
Generator owner Calpine, the company that filed the initial complaint at the heart of last month’s FERC order, wrote in comments to FERC that it’s worried that this modified FRR alternative “undermines the benefits of a strong MOPR and will necessarily lead to a purely residual capacity market.”
FERC’s order also left open many of the details of how PJM would apply the MOPR and FRR mandates, leading to confusion among different parties about how their business would be affected. As Peskoe noted in a tweet, struggling utility FirstEnergy “wants to make sure that nothing in FERC's order applies to vertically integrated utilities.” However, he added, “Our comment in this proceeding pointed out that exempting those entities makes no sense.”
Finally, several groups focused on what they described as FERC’s faulty logic and lack of evidence that PJM’s current capacity market was “unjust and unreasonable” enough to throw out in the first place.
The Organization of PJM States Inc., which represents all 13 states in PJM’s 65-million-customer territory, wrote that FERC’s order “accepted complainants’ evidence, based in theory, conjecture and speculation,” that ZEC and RPS policies are undermining the market, rather than meeting the burden of proof under Section 206 of the Federal Power Act.
Clean Energy Advocates agreed, citing an “utter absence of evidence of an impending threat to the market’s ability to meet its core function of ensuring reliability at a just and reasonable cost. Indeed, to the contrary, all objective measures show the opposite trends to what one would expect if the market were under threat: booming investment; high investor confidence; and reserve margins in gross excess.”
FERC’s order identifies a lack of evidence, by demanding that PJM go out and define terms like “meaningful,” “out-of-market support,” and “subsidy” in its plan to replace its current capacity market. But as Peskoe noted, “FERC can't get to that second step of ordering a tariff change before it defines why the change is necessary,” if it’s to meet the legal burden of defining what makes PJM’s current market “unjust and unreasonable” in the first place.
Farmer noted that these requests for rehearing, which ask FERC to reconsider its order, are the first step for opponents, and legal challenges could follow.
As for what FERC should do, withdrawing the order entirely would be “our preferred outcome,” he said. But at a minimum, opponents want FERC to convert this proceeding into an order to “show cause proceeding.” That would allow for parties and FERC representatives to communicate freely and hold workshops, in contrast to the current “paper hearing” status, which sets a strict 90-day schedule that only allows for written comments and responses.
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