PJM Interconnection, L.L.C (PJM), a regional electricity transmission organization serving 13 states and Washington D.C., recently submitted a proposal to the federal government requesting changes that would “mitigate” the impact of state climate and energy policies on electricity markets.
In our comments to the Federal Energy Regulation Commission (FERC), we argue that PJM’s proposals rest on a faulty premise that state public policies are distorting the economic efficiency of capacity market price signals, which heavily affect how generators enter and exit the market. But, the state policies at issue here—including programs to pay renewable and nuclear generation for the economic value of the air pollution and greenhouse gas emissions that they avoid—are intended to correct a market failure: unpriced environmental and public health externalities. As such, these “externality payment” programs help enhance market efficiency. In contrast, the suggested changes to PJM’s Reliability Pricing Model rules would distort the economically efficient entry and exit signals of generation resources, and so would not be just and reasonable.
FERC should reject PJM’s proposals because public utility rates and charges, as well as the rules that govern them at the federal level, must be just and reasonable and not unduly discriminatory and preferential. In addition to our comments, we submitted our report, Capacity Markets and Externalities, which further explains why the premises underlying recent reforms are flawed.