PJM Offers Plan to Keep Power Plants Afloat

April 11, 2018
PJM Interconnection has proposed that FERC let it change the way generation capacity is sold

(Bloomberg) --The largest U.S. electricity market is asking federal regulators for help in keeping useful power plants from an early retirement.

Beset by complaints from producers that their old-school plants are being undercut by state subsidies for things like nuclear power and renewable energy, PJM Interconnection LLC has proposed that the Federal Energy Regulatory Commission let it change the way generation capacity is sold in its market to make sure that the electricity is there when needed.

“It’s a jump-ball proposal,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC. “It’s yet another effort to raise prices in PJM. The reason for this one is to counteract the impact of state subsidies.”

State subsidies have included payouts to nuclear plants in New York and Illinois. The states have said they are needed to hold down greenhouse-gas emissions from the industry and maintain jobs. New England’s grid operator, which also faces a state-subsidy problem, got permission from FERC in March to to revise its rules to keep the market competitive while encouraging clean-energy developments.

Capacity Auction

At issue is the way that generation capacity is sold. PJM holds an annual auction, which then guarantees revenue to the plants that supplements the payments they get for actually making the power. But some producers have complained that state-subsidized competitors don’t bid their real costs, and that lowers the price for everyone.

Like the New England grid operator, PJM’s preferred solution is to hold the auction in two stages.

In PJM, the first would be open to all generators. Then subsidized plants that win in the first round would have their payments reduced in the second stage, “resulting in a competitive price for all resources,” according to the statement. If that doesn’t fly with federal regulators, PJM proposed setting a minimum auction bid. Subsidized bids would be changed to reflect the unsubsidized cost, and some subsidized plants might lose their capacity payment.

“Left unaddressed, the subsidies will crowd out efficient, competitive resources and shift to consumers the investment and operational risks of generation,” PJM Chief Executive Officer Andrew Ott said Monday in a statement.

PJM asked for a commission decision by June 29, with new rules in place by January so it can prepare for its May 2019 capacity auction. The federal government has oversight because the grid spans several states.

“The big capacity impact is associated with the nuclear subsidies and potentially coal,” Patterson said. “The capacity value is pretty low for wind and solar.”

Jim Polson

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