The Federal Energy Regulatory Commission on Dec. 19 directed the PJM Interconnection to expand its current minimum offer price rule (MOPR) to address state-subsidized electric generation resources, with certain exemptions. This expansion of the MOPR will also apply to new public power and electric cooperative self-supply resources.
FERC said that the action reaffirms and builds on FERC’s June 29, 2018, order, which found that out-of-market payments provided, or required to be provided, by PJM states to support operation of certain generation resources threaten the competitiveness of PJM’s capacity market. That order ruled PJM’s open access transmission tariff is unjust and unreasonable because the MOPR failed to address the price-distorting impact of resources receiving out-of-market support.
In a news release summarizing key points of the order, FERC said that the decision builds on PJM’s April 2018 MOPR-Ex proposal to address the impact of state subsidies on the wholesale capacity market (Docket Nos. EL16-49-000, EL18-178-000). (As of press time, the order had not been posted on FERC’s website).
FERC directs PJM to expand its MOPR to apply to any new or existing resource that receives, or is entitled to receive, a state subsidy, unless an exemption applies. The current PJM MOPR applies only to new natural-gas fired generation.
FERC outlined the following exemptions from the expanded MOPR:
- Existing renewable resources that are participating in state renewable portfolio programs;
- Existing demand response, energy efficiency, and storage resources;
- Existing self-supply resources; and
- Competitive resources that do not receive state subsidies.
At the same time, the Commission said a new or existing resource that does not otherwise qualify for an exemption may seek a unit-specific exemption.
The expanded MOPR only applies to state-subsidized resources. Resources with federal subsidies will not be subject to the MOPR.
FERC defined subsidies as:
A direct or indirect payment, concession, rebate, subsidy, non-bypassable consumer charge, or other financial benefit that is: (1) a result of any action, mandated process, or sponsored process of a state government, a political subdivision or agency of a state, or an electric cooperative formed pursuant to state law, and that (2) is derived from or connected to the procurement of (a) electricity or electric generation capacity sold at wholesale in interstate commerce, or (b) an attribute of the generation process for electricity or electric generation capacity sold at wholesale in interstate commerce, or (3) will support the construction, development, or operation of a new or existing capacity resource, or (4) could have the effect of allowing a resource to clear in any PJM capacity auction
FERC adopted an expanded MOPR rather than PJM’s Resource Carve-Out and extended Resource Carve-Out proposals.
FERC determined that those proposals would unacceptably distort the markets, inhibiting incentives for competitive investment in the PJM market over the long term. PJM’s longstanding fixed resource requirement alternative remains unchanged in the PJM tariff.
Chairman Chatterjee says FERC is not ‘reinventing the wheel’
At the Commission’s monthly open meeting, Chairman Neil Chatterjee said that “our action ensures that competition, rather than out of market actions, determines capacity market outcomes.”
He said, “We’re not reinventing the wheel here. The replacement rate we adopt today – an expanded MOPR – shares some DNA with the MOPR-Ex proposal,” although FERC has made some modifications “based on the record to establish a workable and just and reasonable path forward.”
Chatterjee said that “the choice we have before us is whether or not we allow increasing state subsidies to undermine the competitive capacity market. The majority today says no.”
He said that he recognizes, respects and supports states’ exclusive authority to make choices about the types of generation resources that serve their community “and nothing in this order prohibits them from exercising their jurisdiction over generation decisions. But there can be no question that those choices effect the wholesale markets that we oversee. It’s our responsibility to make sometimes difficult decisions to ensure the PJM capacity market works and that the actions of one state do not negatively impact the competitive wholesale market.”
Commissioner Glick comments on implications for public power
But Commissioner Richard Glick questioned several elements of the order.
For example, he said that the state subsidy definition in the order is extremely broad and he pointed to the potential impact on public power utilities and electric cooperatives.
He noted that public power utilities and co-ops self-supply their generation needs. “Under the Commission’s order, those particular assets are subject to the MOPR,” Glick said. “From now on, every single time a municipal utility or electric co-op in the PJM region decides to build a generating facility that facility would be subject to the MOPR. This blows up the entire business model, as I understand it, of munis and co-ops in the country.”
In comments submitted to FERC in late 2018, the American Public Power Association called for public power’s self-supply resources to be excluded — or carved out as an exemption — from any expanded PJM MOPR. “The support provided to public power self-supply resources through vertical integration and/or other advantages of the public power business model (such as tax-exempt financing) does not constitute ‘out-of-market support’ that should be subject to mitigation by an expanded MOPR. At a minimum, public power self-supply should be subject to a broad MOPR exemption,” the trade group asserted.
Glick was also critical of the order because it does not look at the cost impact on consumers. “I asked my team of advisors to essentially do a conservative estimate, a back of the envelope estimate, based on their understanding – and we’re still trying to figure a lot of the details out…of how much this is going to raise capacity prices,” he said.
“We assume about $2.4 billion per year in increased” consumer capacity costs in the PJM market in the early years, Glick said. “That’s going to increase as time goes on over the years and that doesn’t even take into account the fact that some states are going to continue with their state public policy programs, even though some of their state policy preferred generation might not clear in the capacity market.” So there will be “even more excess capacity than we do today and that’s going to add on to the cost for consumers as well and we’re not counting that in our calculation,” he said.
“So we’re saying at least $2.4 billion extra for consumers for what? What’s the problem in PJM? They already have a lot of excess capacity. They don’t need any more capacity. I’m not sure what we’re trying to achieve here.”
Glick also said that FERC’s order is a “direct attack” on state electric generation resource decision making. “We’re making it very difficult for state preferred generation to clear in the capacity market,” he said.
“What’s interesting here is the order does not subject the MOPR to federal incentives,” he noted. “The reason that the order uses for not assessing the MOPR to federal policies” is that FERC does not have the legal authority to overturn or nullify what Congress is doing in terms of policymaking.
“We’re saying on the one hand, these type of MOPRs, they don’t nullify state policies, but when we’re talking about federal policies, oh yeah, they nullify federal policies. That’s completely hypocritical and inconsistent,” Glick said. “I think if you follow the majority’s reasoning, we are in fact nullifying state policies.”
Moreover, he pointed out that in FERC’s previous PJM order issued in 2018, “we at least tried to at the very least accommodate state policy preferences” by including a Fixed Resource Requirement (FRR).
In its June 29, 2018 order, FERC preliminarily found that it may be just and reasonable to accommodate resources that receive out-of-market support, as has been increasingly provided by states within PJM to procure or retain specific resource types and avoid the potential for double payment and over procurement.
To provide such an accommodation, the Commission recommended a resource-specific FRR alternative option that would allow individual resources and an associated amount of load to opt not to participate in PJM’s Reliability Pricing Model. In the 2018 order, FERC proposed to apply the FRR option to individual generating resources.
But Glick said that FERC’s Dec. 19 decision eliminates the FRR alternative. “So we are not at all attempting to accommodate state policy preferences,” he said at the open meeting.
In his comments on the order, Commissioner Bernard McNamee said that “We are trying to preserve the opportunity for all resources to compete.”
In addition, the Commissioner said that “nothing in what we’re doing impacts the ability of these resources, subsidized or not, to be able to compete in the energy markets or the ancillary markets.”
FERC gave PJM 90 days to comply with the order and PJM will need to provide new capacity auction timelines on compliance.