FERC approves limited exemption for self-supply from PJM's minimum offer price rule
Originally published May 6, 2013
The Federal Energy Regulatory Commission approved changes to PJM’s minimum offer price rule (MOPR) for its capacity market that include an exemption—with specific limits—for self-supplied capacity. In a May 2 order, the commission also approved PJM’s proposal to exempt "competitive entry" (units that receive no outside funds or receive such funds through a competitive auction open to all resources, both new and existing) but rejected its proposal to eliminate its unit-specific review process for granting exceptions from the MOPR for resources that don’t otherwise qualify for the exemptions.
Previously under the MOPR, any capacity market bids below minimum price thresholds set by PJM and based on the net cost of new entry (CONE-a new plant) would be allowed only if they passed a unit-specific review by PJM’s market monitor where any "out-of-market" revenues. Bids that failed that review would be "mitigated"—revised upward.
In the May 2 order, the commission reaffirmed its position that a blanket exemption for self-supplied capacity would present unacceptable opportunities to exercise market power, but held that, "as a general matter, providing exemptions for resources properly designated as self-supply when they meet suitable net-short and net-long thresholds is reasonable." PJM’s proposal sets specific net-short and net-long limits for the exemption. FERC directed PJM to review and, if necessary, revise the thresholds on a periodic basis. The self-supply exemption applies to municipal utilities, joint action agencies, cooperatives, single-customer load-serving entities and vertically integrated utilities.
The commission also approved PJM’s proposals to apply the minimum offer price rule to gas-fired combustion turbine, combined-cycle, and integrated gasification combined-cycle (IGCC) units and to broaden its geographical reach from constrained areas to the entire PJM region. FERC also accepted PJM’s proposals to increase its MOPR benchmark values from 90 to 100 percent of the net cost of new entry (CONE), and to exempt incremental capacity increases of less than 20 MW.
The commission rejected PJM's proposal to change the duration of mitigation from one to three years.
Revision of PJM’s net CONE numbers is outside the scope of the exemption proceeding, FERC said, but "accurately estimating Net CONE is critical to an effective application of the MOPR." The commission strongly encouraged PJM "to initiate a stakeholder process that addresses concerns over the lagging nature of energy and ancillary services revenue offset calculations and other potential problems associated with the calculation of net CONE."
The order is available on FERC’s website.
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