On Thursday, the US Federal Energy Regulatory Commission (FERC) issued a long-awaited decision that had been log-jammed until Commissioner Cheryl LaFleur stepped down, breaking a 2-2 tie. The details are complex, and they relate to a part of the electrical system you likely didn’t know existed, but the decision could have the effect of significantly stifling renewables in the mid-Atlantic US.
The story starts with PJM Interconnection, a grid operator responsible for balancing power in a region spanning 13 states, from Illinois to Delaware. PJM runs a capacity market, with annual auctions to secure enough generation to cover peak demand several years into the future. Utilities bid on these contracts based on their cost to provide power.
However, some generators in recent years have complained that they were losing to lower bids from renewables and nuclear in some places, on the basis that those sources can benefit from state subsidies. Renewables only claimed a very small slice of the pie in the last auction, but generators were concerned this would grow.
A mechanism existed in the capacity market design to account for the possibility of artificially low bids—the “minimum offer price rule,” or MOPR. In the case of an artificially low bid, an alternative higher bid would be calculated and used in its stead. The FERC took up the issue of deciding whether all generators subject to a subsidy from states should get the MOPR treatment.
On Thursday, they decided that they will. Many states have set standards for a percentage of electricity they are requiring utilities to provide with renewables (or nuclear), providing incentives or subsidies to help make it happen. That includes systems allowing low-carbon generators to sell clean energy credits to utilities relying on dirtier plants.
FERC’s definition doesn’t include all subsidies or separate revenue sources, though. Federal subsidies, notably, will not count—likely because a federal commission fears stepping on federal programs. And fossil-fuel-burning plants can make money from things other than their electricity—like selling coal ash as a material or steam for heat—but that won’t count as distorting their bids. And certain state subsidies for “generic industrial development and local siting support” will also be ignored under the justification that they aren’t specific to one type of power.
So in practice, this means that many renewable and nuclear plants in PJM’s region will have their bids increased by a to-be-determined amount, making them significantly less competitive in the auction market.
The FERC also rejected a PJM “carve-out” proposal that would have allowed utilities to pull renewable plants out of the market along with an equivalent amount of their demand. In essence, utilities could decide they didn’t want to play anymore, and they would worry about covering this demand without anyone else’s help. This won’t be allowed.
FERC Chairman Neil Chatterjee—formerly the energy policy advisor to Kentucky Senator Mitch McConnell—highlighted some limited exemptions for existing renewable plants, but no new plants will be exempted. “FERC is affirming our obligation to safeguard the competitiveness of the PJM capacity market,” Chatterjee said in a press release.
FERC Commissioner Rich Glick—who has a background working for the renewable industry and Democrats on the Senate energy committee—dissented rather strongly. “FERC’s PJM MOPR is a direct attack on state electric generation resource decision making. The Federal Power Act is clear, FERC does not have this authority. FERC has the responsibility to attempt to accommodate state decisions not overturn them,” he tweeted. “[The rule] is a bailout—costing consumers BILLIONS of dollars every year. Conservatively, $2.4B+ associated w/ higher capacity payments, rising over time per year, & doesn’t even include the costs consumers will pay when states continue to pursue their policy preferences.”
PJM Interconnection now has 90 days to create a new set of auction rules consistent with the new decision. Glick, however, predicted legal challenges that will probably derail that timeline.