WASHINGTON, D.C.—Earlier today, the Nuclear Energy Institute submitted a motion to intervene and comments concerning proceedings initiated by PJM Interconnections April 9 section 205 filing containing proposed revisions to the capacity market provisions of the PJM tariff, or capacity filing. The following statement can be attributed to Ellen Ginsberg, vice president, general counsel and secretary of the Nuclear Energy Institute.
“PJM has put forward two proposals to change its capacity market to address state support designed to promote clean energy. However, PJM’s filing hasn’t shown that either proposal would be solving a problem that needs fixing. Therefore, we believe rejecting both proposals is the right and proper course.
“Some states have made a public interest determination that the preservation of nuclear units presents the cheapest way for them to meet their clean energy goals. States are within their rights in acting to ensure clean air for their citizens. Nuclear power clearly is a major tool for doing so; in 2017, nuclear energy accounted for 56 percent of America’s carbon-free generation.
“Wholesale markets do not compensate generators for being clean. This failure leads to market inefficiencies and distortions. When states price externalities, like the cost of pollutants emitted by other generators, they are complementing the wholesale markets by accounting for the benefits that would otherwise go unrecognized. Tariffs and market rules should recognize that state action to reward nuclear generators for providing carbon-free electricity actually corrects market distortions. The Federal Energy Regulatory Commission (FERC) should not undermine state choices.“
Background on Competitive Electric Markets
Under the system now in use at PJM, the 13-state electricity market, utilities that serve electric load must buy two commodities. One is energy, measured in megawatt-hours. Each utility has to purchase energy as their customers consume it. Most of it is bought and sold through a day-ahead auction; some is bought and sold through longer-term or shorter-term arrangements.
The second is capacity. Utilities must pay to ensure that there will be enough power producers available to meet their customers’ peak use. These are one-year arrangements.
An analogy to energy and capacity is the way a business might pay a fee to keep a lawyer on retainer to be sure that when a legal issue comes up they will have someone on hand to represent them. This is akin to the capacity payment. When the lawyer is actively working on a case for the company, the hours they spend will be charged to the client, akin to the energy market.
At issue now is whether to change the system for charging for capacity. The Federal Energy Regulatory Commission, which oversees PJM, could maintain the status quo, or select one of two alternatives.
In PJM’s existing current system, the generators offer their capacity in an auction that PJM operates. PJM ranks the generators in order of the price they are asking per megawatt of capacity. Then PJM figures out how much capacity is needed. It fills that need by accepting the lowest-price offers, and proceeds up the list until it meets demand. The amount asked for that last bit of capacity is called the “clearing price,” and all the generators that bid that price or less are paid that clearing price. Generators that asked more than that did not “clear the auction,” and they receive nothing.
FERC is considering whether PJM should adopt a change that is intended to take account of, among other things, help offered by states within PJM’s borders for non-emitting nuclear plants. The issue is how to address plants that receive zero-emission credits and other state programs designed to promote clean energy.
One alternative, called MOPR-ex would force the units within PJM that receive zero-emission credits(ZEC) to bid into the capacity market at a higher price, a price that reflects the value of these ZECs. This could result in a bid so high that the units would not qualify in the auction and would get nothing, undermining the state’s clean energy policies.
The other proposal is for a two-stage bidding process, called “capacity repricing.” In the first stage, PJM would determine which units qualify, by ranking them by price and then selecting just enough of them, to satisfy demand. That is the way the system works now.
But under capacity repricing, there would be a second stage. In that stage, PJM would increase the nuclear units’ bid, again to reflect the value of the ZECs, and then run the auction to determine the clearing price with those repriced bids. That could mean a higher clearing price. All the units that qualified in the first round, including the nuclear units receiving ZECs, would then receive the higher clearing price.