NRECA wants the Federal Energy Regulatory Commission to reconsider a
controversial new order that would increase costs for electric cooperatives in the PJM Interconnection.
The order, which will take effect in April unless FERC decides to rehear it, aims to prevent state subsidies from suppressing prices for new capacity in PJM. It obligates PJM, the nation’s largest wholesale electricity market, to expand its Minimum Offer Price Rule for setting floor prices for sellers in its capacity market auctions within 90 days.
At issue is a section of the order that defines “state subsidy” to include actions by generation and transmission or distribution co-ops to self-supply their capacity needs by owning or contracting for generation assets. It subjects any co-op future power supplies to review and potential exclusion from the PJM capacity market. This could result in co-ops paying for their own generation plus PJM capacity.
“The likely effect of the FERC order will be to increase near-term costs for most co-op consumers in PJM and increase the cost and risk of long-term resource planning by co-ops,” said Randolph Elliott, NRECA regulatory counsel.
“Unless the order is modified, there will be a great risk that a co-op may end up paying twice for capacity—the supply it builds or buys through long-term contracts and then what it must pay PJM for the capacity PJM procures.”
In addition to NRECA, numerous distribution co-ops and G&Ts are expected to urge the commission to sideline its order, which is also likely to attract legal challenges.
“FERC’s idea that co-op self-supplied capacity is state-subsidized is irrational,” said Elliott. “The co-op’s members are the owners and customers—it’s the same pocket. There are no outside, magic sources of revenue for a co-op to finance its own self-supply. It’s not subsidized in any rational sense of the word.”
FERC contends that subsidized market participants can cheapen bids and authorized PJM to deem them uneconomical. A low price in the capacity market reduces profits for independent power producers or merchant generators, which primarily run on fossil fuels.
Commissioner Richard Glick, the lone dissenter, said the order will likely cost consumers $2.4 billion “per year initially, even under conservative assumptions.”
“It is hard for me to imagine a more careless agency action than one that foists a multi-billion-dollar rate hike on customers without even considering, much less justifying, that financial burden,” Glick said in his dissent.
Glick said the “overarching purpose” of the rule was to “slow the transition to a clean energy future.”
“Customers throughout PJM, not to mention several of the PJM states, are increasingly demanding that their electricity come from clean resources,” he said. “Today’s order represents a major obstacle to those goals.”