FERC Acts on State Subsidies in PJM, Fuel Security in ISO-NE

FERC recently issued two orders addressing the broader issue of “out-of-market” payments.  These orders signal a vigorous debate at FERC of several hot button issues that may be subject to significant political pressure as Commissioner Powelson’s replacement is appointed and confirmed.

PJM: On June 29, FERC rejected two alternatives proposed by PJM that aimed to address the impacts of state public policies—including those around generation type—on PJM’s capacity market.  By a 3-2 vote (with Commissioners LaFleur and Glick dissenting, and Commissioner Powelson concurring), the Commission addressed PJM’s alternative proposal, as well as an earlier Federal Power Act (FPA) section 206 complaint filed by generators regarding subsidies to existing resources.  The Commission stated that “it has become necessary to address the price suppressive impact of resources receiving out-of-market support.”  But the Commission did not find any of the proposals before it to be acceptable.  The Commission has set the issue for a paper hearing to consider an approach that would:

(i) modify PJM’s [Minimum Offer Price Rule (MOPR)] such that it would apply to new and existing resources that receive out-of-market payments, regardless of resource type, but would include few to no exemptions; and (ii) in order to accommodate state policy decisions and allow resources that receive out-of-market support to remain online, establish an option in the Tariff that would allow, on a resource-specific basis, resources receiving out-of-market support to choose to be removed from the PJM capacity market, along with a commensurate amount of load, for some period of time.

Commissioner LaFleur dissents, stating that she disagrees with the decision to find PJM’s capacity market unjust and unreasonable and that the Commission’s course forward risks inadequate stakeholder involvement, particularly from states.  Rather, Commissioner LaFleur would have accepted and suspended one of PJM’s proposals (the “MOPR-Ex”) as the forum for pursuing changes, citing ISO New England’s (ISO-NE) recently approved Competitive Auctions with Sponsored Policy Resources proposal as “a prime example of how a region can craft a targeted market reform to address this tension and preserve the benefits of the wholesale markets for customers while also facilitating state policies.”

Commissioner Glick focuses on the federal/state jurisdictional divide in his dissent, arguing that the Commission’s decision “interfer[ed] with state policies that address externalities associated with electric generation, such as greenhouse gas emissions that contribute to the existential threat of climate change.”  Citing federal taxpayer support of drilling, indemnity limits for nuclear power generators, and other financial assistance in the energy sector, he states that the Commission is “picking and choosing which policies to frustrate and which to willfully ignore.”

The next step in these dockets will be for parties to submit initial briefing within 60 days of the order (followed by an opportunity for replies).  Parties may also seek rehearing of this order.

ISO-NE: On July 2, FERC rejected ISO-NE’s request for a waiver of certain provisions of its tariff that would allow it to enter into a cost-of-service agreement for two Exelon natural gas combined cycle units.  ISO-NE’s tariff allows it to enter into such agreements to retain retiring generation resources based on local transmission security issues, but in this case, ISO-NE said the Exelon units were needed for fuel security reasons.  These units—Mystic Units 8 and 9—are served by the Distrigas LNG Terminal (also owned by Exelon).  ISO-NE stated that the retirement of Mystic Units 8 and 9, as the largest customer of the Distrigas Terminal, would put that facility at risk for closure as well, a particular concern given the natural gas pipeline constraints in the region.

FERC unanimously voted to deny the waiver, but the question of what to do about the situation was another 3-2 vote.  Finding that the ISO-NE tariff may be unjust and unreasonable based on the fuel security issues demonstrated in the docket, the Commission instituted a proceeding under FPA section 206.  FERC directed ISO-NE to, within 60 days, either (1) submit interim revisions to allow short-term, cost-of-service agreements based on fuel security concerns (and submit permanent revisions within a year), or (2) show cause as to why the tariff is just and reasonable as it stands.

Commissioners Powelson and Glick both dissented from this approach to the next step, expressing concern that it was “a rush to judgment” (in Commissioner Glick’s words).  Given the actual longer-term nature of the identified problem, each were worried that the section 206 proceeding, framed by the Commission’s order, would not allow full consideration of all alternatives to arrive at the best approach to considering fuel security.

The Commission has laid out the next steps here for ISO-NE, although parties may also seek rehearing of this order.

It remains to be seen what Commissioner Powelson’s departure from FERC in mid-August will mean for these orders.

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