ISOs act on state subsidies, fuel resilience

Just days after the Federal Energy Regulatory Commission rejected the Trump administration’s assault on competitive, wholesale electric markets, two of those markets announced major steps toward addressing how to improve their approaches to electric capacity.

The timing was coincidental. The PJM Interconnection and ISO-New England unveiled new details of plans they have been working on for many months to address capacity issues. PJM said it would present a two-stage repricing plan to FERC in February to deal with the problem of state and federal subsidies that price nuclear and coal generation out of the competitive capacity market. ISO-NE published a study of its increasing dependence on natural gas in the face of inadequate pipeline capacity to support both residential and industrial customers with firm contracts and intermittent electricity gas use.

PJM is seeking board approval to move forward with its plan, which it describes as a “path of accommodation” to states that are subsidizing renewables and those, specifically New York and Illinois, which are also boosting existing nuclear capacity. The regional transmission organization that is the largest in the U.S. rejected an alternative from its market monitor to expand its “minimum offer price rule” to all generators, rather than the current application to new generation, which it viewed as unnecessarily provocative.

PJM would establish a two-stage capacity auction. According to PJM, “Resources would submit one set of offers into a single stage capacity auction, as they do today. However, the cleared capacity commitments and the clearing prices would be determined in separate stages.” According to PJM, this would “maintain the correct price signal to incent the efficient entry and exit of resources and sustain the competitive resources necessary to achieve long-term resource adequacy,” and “commit the only the quantity of capacity necessary for any given delivery year.”

Robert Murray

The PJM plan has won support from an unexpected source, Murray Energy chief Robert Murray. He’s a major Trump supporter and was the inspiration for the Energy Department’s failed proposal to award coal and nuclear capacity with at least 90-days of fuel supply on site with cost-based rates in wholesale markets. Many experts said the Murray-DOE plan would destroy the wholesale markets and FERC rejected the plan unanimously.

Murray told Bloomberg News that PJM’s plan “certainly sounds like it’s like in the same direction” as the doomed DOE proposal. Murray also called for Trump to fire four of the FERC commissioners who rejected the administration’s plan. But FERC commissioners serve five-year terms and can’t be fired as political retaliation for ruling against an administration initiative.

The New England ISO at the same time as PJM unveiled its latest approach to capacity markets published a report analyzing the region’s natural gas problems. The “Operational Fuel-Security Analysis” is the culmination of a year-long look at the region’s electricity generating situation and the problems that constrained access to natural gas pose in winter months. The ISO has been unable to win state approvals or gas pipeline buy-in for new pipes in the region to serve the electricity market.

When winter cold strikes the region and natural gas flows to home heating and industrial customers with firm supply contracts, the electric system has had to rely on oil-fired capacity to keep the regional grid supplying power. The shortage of gas drives the cost of the fuel up dramatically (although not to the customers with long-term contracts) and electricity prices to customers soar.

ISO-NE CEO Gordon van Welie said that the analysis sheds “a light on the potential reliability consequences of retirements of generators with stored fuels and the significance of liquefied natural gas imports, renewables, and oil inventories at dual-fuel power plants. With this information, we can begin a discussion with regional stakeholders about how to ensure continued power system reliability.”