By Stephen Cunningham and Naureen S. Malik
The unprecedented halt lays bare the gridlock within the federal energy commission as it grapples with hundreds of millions of dollars in out-of-market subsidies that some states are creating to rescue foundering nuclear power plants. While some power generators have warned that these so-called bailouts are skewing the results of auctions, the Trump administration has pressed the commission to aid money-losing reactors and coal units in the name of grid resilience.
Grid manager PJM Interconnection LLC last year proposed changing how its auctions are run to account for states’ nuclear subsidies, but the energy commission rejected that plan and has yet to come up with a fix of its own. “We will not rule prematurely on the issue of any appropriate remedy,” the agency said in its ruling Thursday.
“It’s a remarkable order in that it directs PJM not to conduct the auction, but does not provide specific guidance for when PJM can run the auction,” said Ken Irvin, a partner at Sidley Austin LLP.
PJM spokeswoman Susan Buehler confirmed Thursday that PJM will honor the order and halt the auction that it had planned to run under existing rules. The grid manager said in a statement that it looks forward to getting additional guidance from the commission on the design of its so-called capacity market.
In the upcoming auction, PJM planned to secure enough generating capacity to meet its customers’ needs for the 2022-2023 year. The auction it held last year locked in at least $8 billion in payments for power suppliers.
“This eleventh hour order underscores the difficulty FERC continues to have in regulating the PJM capacity market and coming to terms with its market outcomes,” said Paul Patterson, a utility analyst for Glenrock Associates.
The ruling comes just two days after Ohio became the latest state to clear subsidies for money-losing nuclear and coal plants that are battling to remain competitive as cheap natural gas keeps power prices low. New York, Illinois and New Jersey have also approved aid for reactors. “This was the straw that broke the camel’s back,” said Daniel Grunwald, an analyst at Morningstar.
William Scherman, a partner at Gibson, Dunn & Crutcher LLP in Washington and former general counsel at the energy commission, said the agency “should be applauded for not perpetuating an unjust and unreasonable market.” He said he’s confident that commission Chairman Neil Chatterjee, a Republican, will come up with a “long-term and comprehensive solution.”
The commission’s decision to halt the auction was unanimous. Commissioner Cheryl Lafleur, a Democrat, said she hoped the agency could give PJM some clear guidance soon. “More than a year after the commission upended the PJM capacity market with no clear path to repairing it, we have still not acted to resolve the foreseeable and avoidable uncertainty created by our own actions,” she wrote in a statement.