PJM and NYISO take Steps to Address State Policy Objectives

UPDATED 07.25.2018 FERC rejected PJM’s proposed tariff revisions on June 29, 2018.

PJM and the New York Independent System Operator (NYISO) both recently issued proposals to address the interplay of state policy objectives and wholesale electric market pricing.  PJM presented two alternative proposals to FERC, Docket No. ER18-1314, for authorization to amend PJM’s capacity market rules, and NY-ISO released a Carbon Pricing Straw Proposal.

PJM’s proposed tariff revisions target the capacity market price impact of resources receiving out-of-market state subsidies. The filing states that PJM is proposing these changes because “the PJM Region is seeing increased ‘participation of resources receiving out-of-market state revenues,’ which . . . threaten[] to ‘undermine[] [the first] principles [of capacity markets] in the PJM Region.”  The filing comes on the heels of the Commission’s recent contested order on ISO-New England’s (ISO-NE) Competitive Auction with Sponsored Policy Resources (CASPR) in which the Commission stated that the first principles of capacity markets are that:

[a] capacity market should facilitate robust competition for capacity supply obligations, provide price signals that guide the orderly entry and exit of capacity resources, result in the selection of the least-cost set of resources that possess the attributes sought by the markets, provide price transparency, shift risk as appropriate from customers to private capital, and mitigate market power.

PJM claims that its filing does not address “whether states have the right to act but instead how the wholesale market should respond to such actions.”  PJM presents FERC with two alternative options, neither of which received a large enough sector vote in PJM’s stakeholder process for endorsement:

  • Under Option A, the Capacity Pricing Approach, PJM would “accommodate” state subsidies by running the market twice.  The first run would be used to determine resource commitment. In this run, subsidized offers would bid at their subsidized level.  The second run would then determine the clearing price.  During this run, only those offers that cleared the first run would participate, but subsidized offers would be repriced at a competitive price.  This proposal is preferred by PJM and would replace PJM’s current Minimum Offer Price Rule (MOPR).
  • Under Option B, the MOPR-Ex proposal, PJM would “mitigate” the impacts of state subsidies by repricing subsidized offers before the market is run.  This proposal would apply a revised and expanded form of the current Minimum Offer Price Rule (MOPR-Ex) to both new and existing resources.  This approach is preferred by PJM’s Independent Market Monitor and received a higher portion of the sector-based vote in PJM’s stakeholder process.

Over 55 parties have intervened in this closely watched docket, including trade associations, environmental organizations, industrial customers, public utilities, rural electric cooperatives, independent power producers, and state attorney general, public service commission, and consumer advocate offices.  Responses to the filing are due by May 7, 2018.

NYISO’s Carbon Pricing Straw Proposal proposes to “harmonize” the State of New York’s decarbonization goals with NYISO’s wholesale electricity market prices by incorporating the price of carbon dioxide emissions into the market.  Under the proposal, each energy supplier participating in the market will be assessed a carbon charge for its carbon emissions.  For internal suppliers, the charge will be calculated based on the supplier’s point-of-production carbon emissions multiplied by a carbon price that will depend on whether the supplier is or is not covered by the Regional Greenhouse Gas Initiative.  The proposal states that it expects suppliers to incorporate these charges into their energy offers. Resources that clear the market will receive the full locational based marginal price (LBMP), but the carbon charge will be debited as part of the settlement process.  The proposal states it expects that the carbon charges should cause market prices to rise whenever high emitters are on the margin.  The straw proposal also addresses external transactions stating that to prevent production from shifting to resources outside of New York (which may be costlier and higher-emitting), external resources will be expected to “compete with internal resources on a status quo basis, as if there were no incremental carbon charge applied within the NYISO.”  As such, “NYISO would treat imports and exports similar to today (with imported energy being paid the full LBMP and exports buying energy at the full LBMP), but then apply a carbon charge to imports and a credit to exports.”  Under the proposal, load will be expected to continue to pay the full LBMP including the carbon effect on the market price, but will be credited the carbon charges collected from suppliers based on a cost levelizing allocation.

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