FERC Rule Change Could Trigger New Electricity Costs

Regional grid operator PJM‘s electricity capacity auction has been delayed from this month to August. The reason? The Federal Energy Regulatory Commission (FERC) has ruled PJM’s capacity auction rules to be “not just or reasonable” due to the proliferation of state subsidies for uneconomic power generators.

While PJM attempts to preserve competitive wholesale electricity markets, the FERC order ensures PJM’s capacity construct “will not interfere with the states’ ability to choose the path of re-regulation, whether via a conscious policy decision or a simple failure to take steps to prevent re-regulation as described on an unplanned basis.”

Manufacturers should take note of this development. The $300 million subsidy proposed by Substitute HB 6 — pending in the Ohio House — would trigger FERC’s recommended rule changes at PJM. In doing so, this would create an additional $80 million in increased capacity costs for Ohio’s two nuclear plants, both owned by FirstEnergy Solutions. Moreover, Sub HB 6 could also subsidize uneconomical coal plants and power-purchase agreements for unknown quantities of renewable energy. Each would result in what FERC describes as “unplanned re-regulation.” Unplanned re-regulation is serious — competitive electricity markets save Ohio’s ratepayers $3 billion annually.

See this memo by OMA consultant RunnerStone to learn more and see cost impacts to different sized manufacturers. 5/16/2019