FERC extends PJM MOPR to state subsidies

Existing RPS Resources Exempt

FERC voted 2-1 Thursday to extend PJM’s minimum offer price rule (MOPR) to all new state-subsidized resources, saying it was needed to combat price suppression in the RTO’s capacity market (EL16-49, EL18-178).

The long-awaited ruling, supported by Chairman Neil Chatterjee and Commissioner Bernard McNamee, both Republicans, provoked howls of protest from renewables advocates and a stinging 28-page dissent from Commissioner Richard Glick. A Democrat, Glick called the order an attack on decarbonization efforts and warned it would increase PJM capacity costs by at least $2.4 billion annually.

The ruling builds on PJM’s “MOPR-Ex” proposal, filed in response to the commission’s June 2018 order finding the RTO’s capacity market rules unjust and unreasonable because they failed to address growing subsidies. The RTO’s existing MOPR covers only new gas-fired resources. (See FERC Orders PJM Capacity Market Revamp.)

The order expands the MOPR to new or existing resources entitled to state subsidies. Exempted would be existing resources participating in state renewable portfolio standard (RPS) programs; existing demand response, energy efficiency and storage resources; and existing self-supply resources. Federal subsidies would not trigger the MOPR.

Resources not eligible for exemptions can seek unit-specific exemptions by demonstrating their individual costs.

The commission said it chose an expanded MOPR rather than PJM’s resource carve-out (RCO) and extended RCO proposals, which it said would distort the markets.

‘Level Playing Field’

In remarks at the commission’s open meeting Thursday, Chatterjee said the order will ensure the capacity market remains competitive “by establishing a level playing field and being resource-neutral.”

“I recognize, respect and support states’ exclusive authority to make choices about the types of generation resources that serve their communities. And nothing in this order prohibits them from exercising their jurisdiction over generation decisions. But there can be no question that those choices affect the wholesale markets that we oversee,” he said.

The order requires PJM to make a compliance filing in 90 days informing the commission of an updated timetable for its 2019 Base Residual Auction — which was postponed while the case was pending — and of the effect of the ruling on the 2020 auction.

In a separate ruling, the commission also denied rehearing of its 2018 order granting a waiver of MOPR deadlines (ER13-535-005). (See FERC Grants PJM Waiver of MOPR Exemption Deadlines.)

Slowing Renewables

Glick said the expanded MOPR ruling shows the Republicans’ preference for existing generation and desire to slow the transition to renewables.

He recalled that in June, he told the House Energy and Commerce Committee’s Subcommittee on Energy that “we need to do something, even if it’s the wrong thing” because the long delay in issuing a ruling was creating uncertainty. (See FERC Probed on RTO Governance, Market Issues.)

Glick then turned to face his colleagues and said, “Well, Mr. Chairman, Commissioner McNamee, you guys have exceeded my wildest expectations. This is definitely the wrong thing.”

He said the order’s definition of state subsidy is overly broad and would include all future self-supply generation and resources in states that participate in the Regional Greenhouse Gas Initiative, which include Maryland and Delaware in PJM. New Jersey is planning to rejoin RGGI and Pennsylvania is considering joining. (See Pennsylvania Governor Signs RGGI Executive Order.)

“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 will be subject to the MOPR,” Glick said. “This blows up the entire business model, as I understand it, of munis and co-ops.”

The order defined subsidies as including direct or indirect payments by states, subdivisions of states and co-ops formed under state law, related to the procurement of energy or capacity or used to support the construction or operation of capacity resources.

Glick said that although the order makes no attempt to quantify the impact of expanding the MOPR, his staff’s “back of the envelope” estimate is that the expansion will initially boost annual capacity costs by at least $2.4 billion, with larger increases in later years. A $2.4 billion increase would represent 25% over the 2018 BRA, which resulted in total procurement of $9.4 billion for the 2021/22 delivery year. The capacity market represented about 20% of wholesale electricity costs in 2018.

Glick said the estimate doesn’t include the impact of states continuing to sponsor resources that won’t clear in the capacity auction, resulting in more excess capacity than PJM — which expects a 15.5% reserve margin in 2020 — has today.

By requiring administratively determined minimum prices, Glick said, the commission is undermining competition and creating “opportunities … for generators to manipulate the prices.”

“If you are not MOPR’d, or if you’re not MOPR’d a lot compared to some of your other competitors, you’re going to increase your bid up to the level of everyone else’s MOPR,” he said. “But there’s nothing in this order that says we’re going to give the Independent Market Monitor or PJM or anybody else additional authority to ensure that you’re not manipulating the market. We’re just making sure we have a price floor and not a price cap.”

Glick said the commission’s rejection of the resource-specific fixed resource requirement (FRR) alternative means the commission is not trying to accommodate state policy preferences.

“It’s pretty clear that there’s a preference for existing generation versus new generation. … It’s a preference to maintain the status quo and stunt the transition to the clean energy future that states are pursuing and that consumers are pursuing.”

He acknowledged PJM’s 5,000 MW of existing renewables will be exempt from the MOPR.

“What they don’t tell you is there are another 38,000 [MW] of new renewable facilities that haven’t been built yet that won’t be exempt,” he said, referring to the amount of generation needed to meet PJM states’ RPS targets and renewable goals.

Won’t ‘Destroy PJM’

McNamee rejected Glick’s dire predictions. “Despite the rhetoric of the dissent, this is not going to destroy PJM,” he said.

He denied the Republicans were trying to protect uneconomic fossil fuel resources, noting that wind and solar power have become increasingly competitive even without state subsidies.

In a press conference after the meeting, Chatterjee said the idea that the order was intended to prop up coal plants was “completely unfair. … This is a market-based approach, not a partisan or a political one.”

Chatterjee also rebutted Glick’s contention that the order could result in states leaving PJM. “For folks who are concerned that this could potentially lead to unraveling the capacity markets, I will tell you this is an attempt on our part to protect and to save the capacity markets. I can almost assure you that had no action been taken, the capacity markets absolutely would have unraveled.

“[Glick] offers criticism to the approach that we have taken, but he has offered no solution other than the status quo, which PJM itself said was unsustainable,” he continued.

“I would love to have the opportunity to write the orders [rather] than them being presented to us as a fait accompli,” Glick responded in his own news conference. “But … I think the first thing you need to do is see if there’s a problem. … The chairman said the commission never even looked at cost: whether this proposal was too costly or whether the existing methodologies are price-suppressive. There’s nothing in the record … to show that there’s a problem.”

Glick also reiterated his concern about states pulling out of the capacity market. “I’d say the chairman maybe needs to spend more time … with state commissioners, because they are extremely worried about this, and they think this is a commission run amok.”

Reaction

PJM General Counsel Christopher O’Hara, who attended the FERC meeting, declined to comment on the ruling, as did Craig Glazer, the RTO’s vice president of federal government policy. The RTO later issued a statement saying it will discuss the order and its impact with stakeholders beginning at the Jan. 8 Market Implementation Committee meeting.

Stakeholders at Thursday’s Markets and Reliability Committee meeting were guarded in their reactions, noting they had not seen the order, which wasn’t released until late in the afternoon.

That didn’t stop others from weighing in, however.

The Electric Power Supply Association applauded the ruling, saying it “bring us closer to building a durable and sustainable market design that meets the needs of the 21st century.”

EPSA CEO Todd Snitchler said that despite complaints about PJM’s capacity market, “centralized procurement has delivered positive results for consumers and shouldn’t be minimized or abandoned.”

Glen Thomas, president of the PJM Power Providers Group (P3), said, “It is imperative that PJM, FERC and the PJM stakeholders work quickly to re-establish PJM’s capacity auctions so that stability and predictability can return to PJM’s markets.

“Regulatory direction related to the impact of state policy decisions on wholesale markets has been sorely missing, and P3 is optimistic that today’s order will provide that direction,” he said.

Coal lobby ACCCE called the order “a significant step in the right direction” but said it doesn’t fix other market flaws that it said were contributing to the loss of coal-fired generation, calling for ways to value “fuel security … and other resilience attributes.”

The American Wind Energy Association said the decision “threatens states’ rights and hinders their ability to bring more clean energy to their communities.”

The Sierra Club called it “disastrous,” saying it will “essentially exclude new renewable energy resources from the PJM capacity market” and increase fossil fuel emissions. It also said it would add almost $6 billion in annual costs, citing a Grid Strategies study. (See MOPR Impact Study Ruffles Feathers Ahead of FERC Ruling.)

“FERC’s decision doesn’t solve any problems; it creates more of them, and will likely lead to an exodus of states from the PJM capacity market for good,” said Mary Anne Hitt, senior director of the Sierra Club’s Beyond Coal campaign.

The American Council on Renewable Energy (ACORE) called the order “an early Christmas gift to the fossil fuel industry.”

“ACORE is reviewing the implications of this order and our available options, but what is clear today is that FERC overstepped its authority with a decision that will ultimately lead to more pollution and higher electricity rates for consumers,” CEO Gregory Wetstone said.

Exelon, which has won state subsidized zero-emission credits for two nuclear plants in Illinois and is seeking similar supports for four other nuclear plants, said the order “completely undermines state clean and renewable energy programs, and will cost thousands of jobs, increase air pollution and unnecessarily raise electricity bills by $2.4 billion annually. Given this stunning decision, it’s critical that PJM now give states enough time to react and protect families and businesses.”

The New Jersey Board of Public Utilities said the order “shows a callous disregard for the health and safety of the residents of New Jersey and the other impacted PJM states.”

“We anticipate it will make it more difficult for the state to affordably address climate change through the competitive markets. The state of New Jersey will not be deterred as we move forward to implement Gov. [Phil] Murphy’s vision for 100% clean energy by 2050 as we strive to do all we can to combat the climate change crisis.”

“FERC issued pretty much the worst-case order,” the Natural Resources Defense Council’s Tom Rutigliano tweeted. “PJM will now have to plan the power grid pretending state-supported renewable and nuclear resources don’t exist. This is the beginning of the end of capacity markets.”

Energy Secretary Dan Brouillette praised FERC for “strong action to support competition in electricity markets so all of America’s abundant energy sources compete on an even playing field.”