Rather than deciding on a final capacity market design change to address state-subsidized generation, PJM's board has voted to send to FERC two competing alternatives meant to blunt the impact on capacity pricing from such resources, though PJM will express to FERC the Board's view that the Capacity Repricing proposal is, "a more accommodating path forward," than the alternative MOPR-ex (expanded MOPR) proposal that will also be submitted

The Capacity Repricing proposal would institute a two-stage process for the capacity auction. The first stage would procure capacity supply similar to the current auction. However, in the new second stage, PJM would recalculate prices in the auction by:

• Removing offers submitted by Capacity Market Sellers of resources with actionable subsidies from the price formation and settlement process

• Replacing those offers with reference price offers (the Net ACR or Net CONE * Balancing Ratio) reflecting what would be a competitive offer

The MOPR-ex proposal, offered by the IMM, would extend the MOPR to existing resources, instituting cost-based price floors for such resources

"This week the Board took action in response to growing pressure threatening competitive outcomes in PJM’s markets. The Board has directed PJM to file both the Capacity Repricing and MOPR-Ex proposals with the Federal Energy Regulatory Commission under Section 205 of the Federal Power Act. Each approach represents a distinct, just and reasonable policy alternative to address the consequences of state intervention. Deciding between these policy options requires a balancing of federal and state interests, raising questions of federalism and comity that have already presented themselves before the courts, including the U.S. Supreme Court. Accordingly, the Board concluded that this question should fall to the Commission as the federal policymaker not to the PJM Board," PJM President and CEO Andy Ott wrote in a letter to members

"The Board further directed PJM to present the advantages and tradeoffs associated with each policy approach, while communicating that, on balance, PJM believes Capacity Repricing offers PJM’s diverse collective of jurisdictions a more accommodating path forward. That said, there can be more than one just and reasonable approach, and, should the Commission decide instead on a policy of mitigation, PJM believes MOPR-Ex would be effective in preserving competitive outcomes in PJM’s markets," Ott wrote

"Finally, the Board believes certain elements of each proposal would benefit from further stakeholder input. For this reason, PJM’s filing will request that, once the Commission selects a policy direction, it should then direct the respective rule changes (either Capacity Repricing or MOPR-Ex) to a time-bound settlement judge proceeding, with expectation that such a process will bring refinement, compromise and more consensus support for what ultimately will be presented to the Commission later this year as a package of proposed rule changes. The Board acknowledges that stakeholders diverge on whether change to market rules is needed, and, if so, the form such change should take. For reasons PJM will detail in future discussions with stakeholders and in its filing, the Board has decided that reform is necessary. While the Board is obligated to protect the basic market design objectives of its competitive markets, we also respect that stakeholders must have real opportunity to debate policy questions and the associated details of any proposed rule reform. The Board has chosen a path that will definitively move the policy question to FERC while proposing a process that maintains opportunities for active, continuing involvement from stakeholders. As a consequence, the May 2018 Base Residual Auction will proceed under PJM’s current rules. Much, of course, will depend on whether the Commission agrees that action needs to be taken and whether it accepts PJM’s requested approach to finalize a set of rule changes through facilitated discussion led by a settlement judge. All parties will have opportunity to persuade the Commission on these questions in response to PJM’s filing. On behalf of the Board, thank you again for your active and continued engagement in a challenging, but important, discussion for PJM, its members and states," Ott wrote

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PJM   Capacity Markets  

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