Electricity Markets

FERC PJM proposal should not cover public power self-supply: Association

In comments submitted to the Federal Energy Regulatory Commission, the American Public Power Association on Oct. 2 called for public power’s self-supply resources to be excluded — or carved out as an exemption — from any expanded PJM Interconnection minimum offer price rule (MOPR).

The comments were filed in response to an order issued this past summer by FERC. By a vote of 3-2, FERC in late June rejected two alternative approaches filed by PJM to address the impact of state subsidies on PJM’s electric generation capacity market. At the same time, the Commission found that PJM’s existing capacity market rules are unjust and unreasonable under the Federal Power Act and must be modified. 

While rejecting PJM’s proposed changes, FERC made a preliminary finding that certain other changes to the current PJM capacity market rules may result in just and reasonable replacement PJM tariff provisions (Docket No. EL18-178).

FERC proposed that its replacement rate include an expanded MOPR that covers out-of-market support to all new and existing resources, regardless of resource type.

In addition to expanding PJM’s MOPR, the Commission also preliminarily found that it may be just and reasonable to accommodate resources that receive out-of-market support and mitigate or avoid the potential for double payment and over procurement, by implementing a resource-specific Fixed Resource Requirement (FRR) alternative option. 

PJM’s current tariff includes an FRR option, under which a load-serving entity can opt not to participate in RPM if it has adequate capacity and removes all the load in its footprint from the capacity market. FERC’s new proposal would apply the FRR option to individual generating resources.

 The order did not propose that public power self-supply be granted an exemption from the MOPR, nor did it specify that the FRR option would be available to public power self-supply.

The June 29 order established paper hearing proceedings to investigate a replacement rate under FPA section 206.

Association questions expanded MOPR

The Association agrees with FERC that the reliability pricing model provisions of PJM’s tariff are unjust, unreasonable, and discriminatory, and has concluded that the benefits of the RPM are not commensurate with the costs to customers.

But the starting point for reforming RPM “should not be an expanded MOPR that encompasses all new and existing resources, regardless of technology, that receive state ‘out-of-market’ support,” the Association said in its filing.

“Originally justified as a check on market participants with the ability and intent to suppress prices through the exercise of buyer-side market power, the MOPR in PJM now threatens to become an all-purpose restriction on any support for generation outside of revenues obtained through the PJM energy and capacity markets,” the Association argued.

It said that the Commission’s finding under FPA section 206 that PJM’s tariff is unjust and unreasonable because the existing MOPR is too narrow could ultimately raise capacity prices “without achieving any clear benefits, heighten the risk of procuring excess capacity, increase market complexity, and interfere with the pursuit of state policy goals.”

The Association, along with American Municipal Power and the Public Power Association of New Jersey, have requested rehearing of the Commission’s conclusion that PJM’s existing MOPR renders the tariff unjust and unreasonable, and have urged the Commission instead to provide targeted guidance concerning reforms to PJM’s resource adequacy construct that may be pursued by stakeholders, the Oct. 2 filing pointed out.

The Association “believes that, rather than doubling down on a mandatory merchant model capacity construct with a vastly expanded MOPR (even if coupled with a resource specific FRR), the Commission should encourage PJM and its stakeholders to fundamentally modify the resource adequacy construct in the region.”

The Association renewed its call for the Commission to direct market reforms that allow for competitive capacity procurement through bilateral contracts of varying terms, along with a voluntary residual capacity market for the purchase and sale of capacity in the near term; well-functioning and competitive energy markets; and the right to pursue resource ownership and contracts without impediments from market rules.

Public power self-supply should be subject to broad MOPR exemption, Association says

In response to the Commission’s request in the June 29 order that parties address its specific replacement rate proposal, the Association’s submission addresses the concept of an expanded MOPR and the resource-specific FRR Alternative: the “FRR-RS.”

The Association responded, in particular, to the Commission’s request for comments on the appropriate scope of out-of-market support to be mitigated by the expanded MOPR, and whether a MOPR exemption should be included for self-supplied resources used to meet loads of public power entities.

Any expanded MOPR should not apply to self-supply resources used to meet the load of public power and cooperative utilities, the Association told FERC.

“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.

It said that the conclusion that the MOPR should not encompass public power self-supply resources is justified by a number of key points.

First, the rationale offered in the June 29 order for an expanded MOPR does not support including public power self-supply resources, the Association said. FERC focused on the growth of what it characterized as out-of-market payments provided or required by certain states for the purpose of supporting the entry or continued operation of preferred generation resources.

But procurement of capacity by public power entities to serve their customers under their long-standing business model is neither required by a state, nor is public power self-supply growing or expanding in the way the Commission cites in the June 29 order, the Association said.

“Indeed, blanket application of the expanded MOPR to public power self-supply resources based on public power utilities’ vertically integrated structure would be unduly discriminatory,” it said. While reiterating its view “that the Commission should not apply the MOPR in a manner that impedes state resource policies,” the Association maintained that “public power self-supply activities are different from the state programs described by the Commission in the June 29 order, and should not be subject to an expanded MOPR in the event that the Commission implements its preliminary proposal.”

Second, self-supply capacity procured by public power utilities to serve their customers should not be viewed as supported by “out-of-market” payments or subsidies, the Association said. 

Third, in implementing RPM, the Commission “has properly recognized the need to accommodate the resource decisions of those utilities that choose to procure or build capacity under long-standing business models.” FERC should accommodate the public power business model in this proceeding, the public power group said.

Procurement of self-supply resources, therefore, should be deemed entirely outside of the scope of out-of-market support to be mitigated by the expanded MOPR, it said.

The Association also weighed in on the proposed FRR-RS, outlining a number of goals and principles that FERC should adopt if it chooses to pursue the mechanism.