PJM’S NEW ‘FOCUSED’ MOPR GOES INTO EFFECT BY OPERATION OF LAW

PJM Interconnection Inc.’s (PJM) new “Focused” Minimum Offer Price Rule (MOPR) went into effect on September 29, 2021, by operation of Section 205 of the Federal Power Act (FPA), because the Federal Energy Regulatory Commission (FERC) was divided two (Chairman Glick and Commissioner Clements) against two (Commissioners Danly and Christie)^[1] as to the lawfulness of PJM’s proposed tariff change^[2] and, consequently, no order was issued by FERC in response to PJM’s filing.^[3]

In October, the Commissioners issued statements, required under Section 205(g) of the FPA, explaining their views with respect to PJM’s Focused MOPR.^[4]

PJM’s New ‘Focused MOPR’

On July 30, 2021, PJM filed revisions to its Open Access Transmission Tariff (Tariff) to reform the application of its MOPR.^[5] Under PJM’s Tariff filing, starting with the 2023/2024 Delivery Year, PJM will replace the “Expanded MOPR” approved by FERC in 2019,^[6] with a Focused MOPR that applies to all generation resource types, and no longer mitigates all forms of state subsidies, but allows capacity market sellers to reflect all state support in their offers, except for Conditioned State Support. Under the Focused MOPR:

• Only Generation Capacity Resources of Capacity Market Sellers with responsibility for serving load within the PJM region, whether through its own load service obligations, that of an affiliate or through a contractual arrangement with a Load Serving Entity (LSE) (“Load Interest”) could be subject to the MOPR. PJM will not apply the MOPR to Demand Resources or Energy Efficiency Resources.
• Only Sell Offers that would actually be deemed “anti-competitive behavior of a Capacity Market Seller with a Load Interest, or directed by an entity with a Load Interest, to uneconomically lower RPM^[7] Auction Sell Offer(s) in order to suppress RPM Auction clearing prices for the overall benefit of the Capacity Market Seller’s (and/or affiliates of Capacity Market Seller) portfolio of generation and load or that of the directing entity with a Load Interest” (“Exercise of Buyer-Side Market Power”) would be subject to the MOPR.
• PJM will apply the MOPR to Sell Offers based on resources that receive any financial benefit required or incentivized by a state or political subdivision of a state acting in its sovereign capacity, that is provided outside of PJM Markets and in exchange for the sale of a FERC-jurisdictional product conditioned on specific directives as to the level of the offer that must be entered for the relevant Generation Capacity Resource in the RPM Auction or directives that the Generation Capacity Resource is required to clear in any RPM Auction (“Conditioned State Support”).
• Conditioned State Support does not include any legislative, executive or regulatory action that specifically directs a payment outside of PJM Markets to a designated or prospective Generation Capacity Resource and the enactment of such action predates October 1, 2021, regardless of when any implementing governmental action to effectuate the action to direct payment outside of PJM Markets occurs (“Legacy Policy”).
• Only after FERC has determined that a specific policy or program constitutes Conditioned State Support will a resource receiving such state support be subject to the MOPR. Prior to the applicable RPM Auction, PJM will submit to FERC a Section 205 filing proposing that a policy or program be classified as Conditioned State Support. PJM’s Tariff will contain a list of policies FERC has accepted as Conditioned State Support, which would be updated in PJM’s Section 205 filing to add a specific state policy or program as Conditioned State Support.
• PJM’s Tariff includes examples of government policies that do not constitute Conditioned State Support, including but not limited to: policies designed to procure, incent or require environmental attributes, whether bundled or unbundled, such as Renewable Energy Credits and Zero Emission Credits; economic development programs and policies; tax incentives; state retail default service auctions; policies or programs that provide incentives related to fuel supplies; any contract, legally enforceable obligation or rate pursuant to the Public Utility Regulatory Policies Act or any other state-administered federal regulatory program, such as the Cross-State Air Pollution Rule.
• Capacity Market Sellers are required to “self-certify” no later than 150 days prior to the relevant RPM Auction, (1) whether, at the time of certification their Generation Capacity Resource is receiving or expected to receive Conditioned State Support and (2) that the Capacity Market Seller acknowledges and understand that the Exercise of Buyer-Side Market Power is not permitted in RPM Auctions and does not intend to subject a Sell Offer for their Generation Capacity Resource as an Exercise of Buyer-Side Market Power. Failure to timely submit any certification of a Generation Capacity Resource will result in that resource being subject to the MOPR. A Seller may still seek a unit-specific exception to the applicable default MOPR Floor Offer Price no later than 120 days before the RPM Auction.
• If PJM or PJM’s Independent Market Monitor (IMM) has a reasonable basis to initiate an inquiry into whether a Capacity Market Seller may commit an Exercise of Buyer-Side Market Power with respect to a certain resource, PJM or the IMM may initiate a fact-specific review. The fact-specific review will determine, as necessary, whether a Capacity Market Seller has the ability and incentive to submit a Sell Offer for the Generation Capacity Resource that could be an Exercise of Buyer-Side Market Power.
• PJM’s Tariff also includes a non-exhaustive list of circumstances that would preclude an inquiry into or determination regarding an Exercise of Buyer-Side Market Power in the course of a review: the Generation Capacity Resource is a merchant generation supply resources that is not contracted to an entity with a Load Interest; the Generation Capacity Resource is acquired by or under the contractual control of the Capacity Market Seller through a competitive and non-discriminatory procurement process open to new and existing resources; or the Generation Capacity Resource is owned by or bilaterally contracted to a Self-Supply Seller and such resource is demonstrated as consistent with or included in the Self-Supply Seller’s long-range resource plan that is approved or otherwise reviewed and accepted by the Relevant Electric Retail Regulatory Authority, provided that any such plan approval or contracts do not direct the submission of an uneconomic offer to deliberately lower market-clearing prices or for the Capacity Market Seller to otherwise perform an Exercise of Buyer-Side Market Power.

Commissioners’ Statements

While in his statement, Commissioner Christie agreed that PJM’s Expanded MOPR “should be replaced or significantly modified,”^[8] he also said that he would have voted to reject PJM’s proposal because “it fails to meet even the minimum standard required by Section 205.”^[9] Commissioner Christie further stated that he would have initiated a proceeding under Section 206 of the FPA, proposing that PJM formulate a replacement for the current MOPR based on three broad principles: “(1) a state may designate specific or categorical resources as ‘public policy resources’ and such designated resources will be funded through a mechanism chosen by the state outside of the capacity market without forcing the state or its regulated utilities to take full Fixed Resource Requirement status under current rules; (2) load and reserve requirements associated with the capacity of the designated public-policy resources would be removed from the capacity market; and (3) non-sponsoring state consumers would not be forced to pay for another state’s designated public-policy resources.”^[10]

In their lengthy joint Statement, Chairman Glick and Commissioner Clements stated that they would have voted to approve PJM’s Focus MOPR because, in their view, “it is just and reasonable and not unduly discriminatory and preferential, consistent with the requirements of Section 205 of the [FPA].”^[11] They further stated that the Focused MOPR “rights the wrongs created by” the Expanded MOPR as, among other things, it “abandons [FERC’s] deeply misguided campaign to ‘nullify’ the effects of legitimate state policies.”^[12]

In his statement, Commissioner Danly said that he voted to reject PJM’s Focused MOPR provisions because they are “structured so as to ensure that it is virtually certain that the MOPR will never be applied to any generation resource” and, therefore, are “so deliberately ineffectual that their approval violates [FERC’s] statutory duty to ensure that PJM’s capacity market produces just and reasonable rates.”^[13] In Commissioner Danly’s view, “the Focused MOPR will allow state subsidies to suppress capacity prices, depriving need dispatchable generation of the revenue required to remain in service.”^[14]

Requests for Rehearing of the MOPR Notice

Under Section 205(g) of the FPA, the MOPR Notice is considered to be an order issued by FERC accepting PJM’s Tariff change for purposes of seeking rehearing. On October 5, PJM Power Producers Group filed an “Emergency Request for Rehearing” of the MOPR Notice, arguing that it is unlawful under the FPA. Additional requests for rehearing were filed on October 28, 2021, by Vistra Corp. and Dynegy Marketing and Trade, LLC, Old Dominion Electric Cooperative, the Pennsylvania Public Utility Commission and the Public Utilities Commission of Ohio, and the Electric Power Supply Association.

FERC has not yet acted on the requests for rehearing. Under Section 205(g) of the FPA, if FERC fails to act on the merits of a request for rehearing within 30 days of the date of the request for rehearing because the Commissioners are divided two against two, as a result of vacancy, incapacity or recusal, or if FERC lacks a quorum, the person who filed the request for rehearing may seek judicial review.