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Apr 22, 2020

FERC Denies Rehearing of and Clarifies Its Orders on PJM Capacity Market MOPR

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FERC DENIES REHEARING OF AND CLARIFIES ITS ORDERS ON PJM CAPACITY MARKET MOPR

At an April 16 “virtual” open meeting conducted via an audio-only conference call due to the COVID-19 national emergency, the Federal Energy Regulatory Commission (FERC) largely denied rehearing its two orders addressing PJM’s capacity market Minimum Offer Price Rule (MOPR).

First, FERC denied rehearing and granted clarification of its June 29, 2018, order[1], in which it found that PJM’s existing MOPR rules were unjust and unreasonable as they result in inefficient market outcomes due to certain generating resources receiving out-of-market support from States.[2] Among other things, FERC rejected arguments that, in the June 29 Order, it improperly intruded into the states’ traditional jurisdiction over generation, violating principles of cooperative federalism. FERC recognized that the Federal Power Act (FPA) reserves to the states decisions concerning generation, but asserted that “the FPA provides [FERC] with the jurisdiction and authority to regulate rates for wholesale sales by those generation resources and we are obligated to ensure that such rates are just and reasonable and not unduly discriminatory.” FERC argued that it does not improperly intrude on the states’ prerogatives to determine their energy resource mix and the development of new generation “merely because” wholesale market rules “affect matters within the states’ jurisdiction.”[3]

Second, FERC denied in part and granted in part rehearing of its December 19, 2019, order,[4] in which it directed PJM to expand application of its MOPR to any new or existing resource that receives, or is entitled to receive, a state subsidy, unless an exemption applies.[5] Among other things, FERC rejected arguments that the December 2019 Order improperly intrudes on matters within the states’ jurisdiction, asserting that it “has jurisdiction to regulate [PJM’s] procurement of capacity.”[6] FERC also found that record evidence supports its conclusion that “a replacement rate that retains PJM’s current review of new natural gas-fired resources under the MOPR and expands the MOPR to include both new and existing resources, internal and external, that receive or are entitled to receive State Subsidies, is a just and reasonable and not unduly discriminatory or preferential solution to address the price-distorting effect of State-Subsidized Resources.”[7]

FERC also affirmed its decision to use Net Cost of New Entry (“Net CONE”) as the default offer price floor for new resources receiving a State Subsidy, while using Net Avoidable Cost Rate (“Net ACR”) as the default offer price floor for existing resources receiving a State Subsidy. FERC asserted that “using Net CONE as the default offer price floor for new resources will ensure that the expanded MOPR achieves its goal and prevents uneconomic new entry from clearing the capacity market as a result of State Subsidies.”[8] FERC rejected arguments that the default offer price floor will prevent new renewable resources from clearing the market, arguing that “[t]he MOPR does not prevent resources from clearing the capacity market,” and that “[i]f a State-Subsidized Resource is not able to clear, it is because the resource was not economic absent its State Subsidy.”[9]

Among several clarifications of the December 19 Order, FERC said that purely voluntary transactions for Renewable Energy Credits (RECs) are not considered State Subsidies and do not trigger application of the MOPR,[10] and that the Regional Greenhouse Gas Initiative (RGGI) is not considered a State Subsidy because RGGI does not provide payments, concessions, rebates or other financial benefits to resources.[11]

FERC also clarified that the December 2019 Order did not require any changes to PJM’s existing natural-gas MOPR and that PJM’s compliance filing should not contain any substantive changes to that section unrelated to the replacement rate.[12]

FERC further clarified that if a market participant already has received a unit-specific exception for a resource under PJM’s current Tariff and MOPR for the BRA for delivery years 2022/2023, it is not necessary to reapply.[13]

FERC ordered PJM to make a new compliance filing consistent with the December 19 Order Rehearing Order within 45 days.[14]

Commissioner Richard Glick dissented from both orders, which he characterized as “illegal, illogical, and truly bad public policy.”[15] Among other things, Commissioner Glick argued that “[t]he record in this proceeding makes unmistakably clear that the purpose and effect of the new MOPR is to interfere with state regulation of generation facilities,”[16] and that the admitted goal of the December 19 Order was to “establish a set of price signals to determine resource entry and exit in the capacity market for the explicit purpose of superseding state resource decision-making and to better reflect [FERC’s] preferences for merchant generators that do not rely on compensation they receive for addressing externalities.”[17]

Aggrieved parties to the FERC proceeding have 60 days from April 16 to seek judicial review of FERC’s orders.

PJM’s March 18 filing in compliance with the December 19 Order is pending before FERC.[18] In the March 18 Compliance Filing, PJM proposed, among other things, to post the specific schedule for the 2022/2023 BRA and subsequent auctions by the later of June 15, 2020, or 14 days after FERC’s order accepting the March 18 Compliance Filing.
For additional information on PJM’s March 18 filing, see “PJM Makes MOPR Compliance Filing and Proposes Timing for Delayed RPM Auction.”

FERC has established a due date of May 15 for interventions, comments and protests to be filed in response to PJM’s March 18 Compliance Filing.[19]

Footnotes

[1]  Calpine Corp. v. PJM Interconnection, L.L.C., 163 FERC ¶ 61,236 (2018) (June 29 Order), order on reh’g and clarification, 171 FERC ¶61,034 (Apr. 16, 2020) (June 29 Order Rehearing Order).
[2]  Following issuance of the June 29 Order, FERC directed PJM to delay the 2019 Base Residual Auction (BRA) for the 2022/23 Delivery Year until FERC established a replacement rate.  Calpine Corp. v. PJM Interconnection, L.L.C., Order on Motion for Supplemental Clarification, 168 FERC ¶ 61,051 (Jul. 25, 2019).
[3]  June 29 Order Rehearing Order at P 66.
[4]  Calpine Corp. v. PJM Interconnection, L.L.C., 169 FERC ¶61,239 (2019) (December 19 Order), order on reh’g and clarification, 171 FERC ¶ 61,035 (Apr. 16, 2019) (December 19 Order Rehearing Order).

[5]  In the December 19 Order, FERC outlined four exemptions from the expanded MOPR: (1) existing renewable resources that are participating in state renewable portfolio programs; (2) existing demand response, energy efficiency and storage resources; (3) existing self-supply resources; and (4) competitive resources that do not receive state subsidies.

[6]  December 19 Order Rehearing Order at P 15.

[7]  December 19 Order Rehearing Order at P 35.

[8]  December 19 Order Rehearing Order at PP 157-159.

[9]  December 19 Order Rehearing Order at P 160.

[10]  December 19 Order Rehearing Order at P 381.

[11]  December 19 Order Rehearing Order at P 390.

[12]  December 19 Order Rehearing Order at P 397.

[13]  December 19 Order Rehearing Order at P 292.

[14]  December 19 Order Rehearing Order at Ordering Paragraph (C).

[15]  Commissioner Glick Dissent at P 1.

[16]  Commissioner Glick Dissent at P 8.

[17]  Commissioner Glick Dissent at P 11 (emphasis original).

[18]  See Compliance Filing Concerning the Minimum Offer Price Rule, Request for Waiver of RPM Auction Deadlines, and Request for an Extended Comment Period of at Least 35 Days, filed in Docket No. ER18-1314-003 (Mar. 18, 2020) (March 18 Compliance Filing).

[19]  PJM Interconnection, L.L.C., Notice of Extension of Time, Docket Nos. ER18-1314-003 and ER18-1314-004 (Mar. 31, 2020).

Authors and Contributors

Donna J. Bobbish

Counsel

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Robert Freedman

Partner

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