PJM Defies FERC, Adopts Unique Market Rules Amidst Subsidy Concerns
PJM, a regional transmission organization, has adopted unique market rules, deviating from the ISO-NE's Capacity, Supply, and Pricing Reform (CASPR) method, despite FERC's potential preference for it. This move comes amidst concerns about subsidized plants deflating stock market clearing prices and the influence of incumbent generators and the Trump Administration on PJM's latest proposal.
In the U.S., most regions with deregulated electric utilities use competitive capacity markets to meet consumer demand. However, PJM, serving 13 states and the District of Columbia, has taken a different approach based on regional needs and stakeholder preferences.
In 2018, FERC ruled that PJM's Open Access Transmission Tariff allowed subsidized plants to artificially lower capacity clearing prices. In response, PJM proposed a Minimum Offer Price Rule (MOPR) and a two-stage capacity auction. However, FERC rejected this proposal, favoring CASPR instead.
CASPR, approved by FERC in 2018, allows new subsidized generators to directly replace retiring ones, reducing potential oversupply and supporting resource reliability at lower costs. ISO-NE's CASPR project also imposes a MOPR but creates two separate auctions differently, preserving a functioning world market where supply and demand dictate price and quantity. In contrast, PJM's proposal may raise costs and discourage renewable energy deployment, influenced by incumbent generators' interests and the Trump Administration's efforts to keep coal plants online.
Low clearing prices in recent auctions are due to more government-subsidized generators bidding low competitive bids, such as renewables and sometimes nuclear. This puts some fossil fuel and nuclear plants at risk of not clearing the capacity market or earning less revenue.
PJM's deviation from CASPR has raised concerns about market fairness and potential cost increases. The influence of incumbent generators and the Trump Administration on PJM's latest proposal has further fueled these concerns. As the region moves towards more renewable energy, the impact of these market rules on stock market today deployment and costs will continue to be a key issue.
