Grid operator PJM asks feds to address utility subsidy requests for aging coal, nuclear plants

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PJM Interconnection requested the Federal Energy Regulatory Commission to determine how the wholesale electric capacity market should address state subsidies for aging nuclear and coal-fired plants.

PJM, based in Philadelphia, manages the grid in a large area that extends from Chicago to the Mid-Atlantic.

Regional power companies like PSE&G in New Jersey have warned that power plants like the Salem nuclear complex in New Jersey will close if subsidies are not allowed.

In the meantime, PECO plans to shut down the well-known Three Mile Island nuclear plant near Harrisburg, PA. if subsidies are not in the picture PECO is the owner of Delmarva Power but operates the nation’s largest fleet of nuclear plants witha separate subsidiary.

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Meanwhile, Delaware has been in the crosshairs of a plan to improve the stability of power coming out of Salem with a powerline project with a $150 million price tag. Most of the costs would be borne by First State and Maryland ratepayers who would gain few benefits.

A sizable percentage of Delaware’s power supply comes from aging nuclear power plants like Salem

Coal-fired plants are also a part of the picture in the PJM area, with operators retiring sites, rather than adding expensive emissions equipment.

Both forms of generation are squeezed further by low-cost natural gas coming out the Marcellus formation in Pennsylvania. New gas-fired plants meet environmental standards, do not come with multibillion-dollar price tags, can power up or down quickly, and operate with a small number of workers.

Over the past decade, Delaware saw the departure of large power users that included the state’s two auto plants and its only steel mill. In addition, energy conservation efforts from utilities as well as more solar and wind power have added power and perhaps complicated management of the grid.

In February, the PJM Board directed PJM to file both proposals at the FERC. At the time, PJM CEO Andrew L. Ott said in a letter, “Deciding between these policy options requires a balancing of federal and state interests, raising questions of federalism and comity that have already presented themselves before the courts, including the U.S. Supreme Court. Accordingly, the board concluded that this question should fall to the commission as the federal policymaker.”

For more than a year, PJM stakeholders have discussed how to address the issue, according to a release.

“Left unaddressed the subsidies will crowd out efficient, competitive resources and shift to consumers the investment and operational risks of generation,” Ott said. “We seek the appropriate balance that respects state policy while avoiding policy impacts of a state’s subsidies on the market as a whole and on other states.”

The PJM recommended proposal, called Capacity Repricing, creates a two-stage capacity auction process to accommodate state subsidies without distorting market prices:

The other proposal, known as MOPR-Ex, effectively extends the existing Minimum Offer Price Rule (MOPR) to require a subsidized generation resource to remove the effect of the subsidy from its offer into the capacity market.

PJM requested a FERC order by June 29 and an effective date for tariff changes in January 2019, which would allow sufficient time to implement the changes for the May 2019 annual capacity auction. Also, PJM suggested a settlement judge process for any outstanding issues FERC identifies.

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