By Rory D. Sweeney
An appellate court ruling remanding back to FERC its 2013 order on PJM’s minimum offer price rule (MOPR) has created disagreement among stakeholders about how to move forward.
PJM requested in October that FERC approve its initial 2012 filing on the issue (ER13-535). The RTO had submitted a “hard-fought compromise package” that included two new categorical exemptions to the rule and eliminated a unit-specific one. FERC rejected the initial proposal but said it would approve it if PJM retained the unit-specific exemption and reduced a proposed three-year imposition of the MOPR on affected units to the existing one-year mitigation.
FERC approved PJM’s amended filing, but several stakeholders challenged the action and the D.C. Circuit Court of Appeals ruled in July that FERC overstepped its legal authority in telling the RTO what it would accept. (See PJM MOPR Order Reversed; FERC Overstepped, Court Says.)
PJM asked FERC to, on remand, “simply accept PJM’s original Section 205 proposal, unchanged, as just and reasonable.”
The commission’s requirements on the unit-specific exemption and mitigation period “have had no practical impact … on the auction results in the five annual auctions conducted since the commission’s initial order in this case,” PJM said in its Oct. 23 request.
FERC’s concern was “to catch possible future competitive offers that might fall through the cracks theoretically left by the two categorical exemptions,” PJM said, but five Base Residual Auctions and nine Incremental Auctions have occurred since then with no unit-specific offers submitted.
“We now know that those cracks, if they exist at all, are quite narrow,” PJM said. The commission can conclude that its “concern” about competitive offers slipping through “was overstated.”
Stakeholders were split on their opinions of PJM’s request. The Independent Market Monitor, NRG Energy and Public Service Enterprise Group argued that FERC had already rejected the RTO’s 2012 filing. Several generators said the filing should be approved but with a requirement that PJM address deficiencies in its MOPR within 90 days.
American Municipal Power and Old Dominion Electric Cooperative supported PJM’s plan, with ODEC arguing that the new self-supply and competitive-entry exemptions “must be maintained.”
“Otherwise, [load-serving entities] like ODEC face the unreasonable prospect of their loads paying twice for capacity, once through the investment in resources (owned or purchased bilaterally outside of the [Reliability Pricing Model] construct), and then a second time when those resources do not clear in the RPM auctions because they are unreasonably subject to the MOPR,” ODEC said.
FERC “upset the balance that had been struck by conditioning acceptance” on retaining the unit-specific exemption, it said.
“The commission’s authority to issue an order in the form PJM recommends is not in question,” AMP said. “That PJM’s stakeholders overwhelmingly supported the competitive-entry exemption and the self-supply exemption should weigh heavily in the commission’s consideration of how to proceed on remand.”
The PJM Power Providers Group (P3) said it supported the RTO’s request “in the interest of market certainty” and noted that other dockets exist or likely will come before FERC on the topic “to address broader issues.”
Several P3 members, including Calpine, Congentrix Energy Power Management, Dynegy and Eastern Generation, agreed with the group’s comments but voiced concern about “deficiencies with [PJM’s] MOPR process” and argued that FERC should give the RTO 90 days to address them.
“Recognizing that threats may exist to the efficient operation of PJM’s wholesale markets is an understatement, to say the least,” the generators said, noting the zero-emission credits for nuclear generation in Illinois and proposals for similar subsidies in Ohio, Pennsylvania and New Jersey.
“PJM must have in place an effective MOPR, applicable to both new and existing resources, to combat the very real threat of these state actions. It is incumbent on the commission to take decisive action on the issue of state-subsidized existing units by extending the MOPR to those units. Continued failure to do so is an abdication of the commission’s duties and responsibilities.”
PJM had acknowledged in its filing that its finding about unit-specific exemptions “does not rule out the possibility of future low-price competitive offers that do not qualify for the categorical exemptions” and that “that the nature of the potential threats to the efficient operation of its wholesale markets may have evolved since 2012, and accordingly, prospective changes to its MOPR, or its Tariff more generally, may be warranted — but not in this proceeding. PJM has an ongoing stakeholder senior task force considering such issues.”
The Monitor argued that FERC was correct to deny PJM’s original filing and that the court’s order didn’t vacate that decision.
“The commission’s determination that the MOPR was not just and reasonable without an exception for unit-specific cost review was logical,” the Monitor said. “The motion should be denied for the same reasons that the commission denied it initially.”
NRG and PSEG agreed that the court decision required PJM to return to its original MOPR rule, but split on what other mitigations are necessary. NRG said PJM should just move on with the original rule without retroactively examining the auctions since it was replaced. PSEG suggested a method to recreate the auctions and compensate affected participants.
PJM had argued that because all resources that sought a MOPR exemption pursued categorical exemptions rather than unit-specific ones, the auctions had not been impacted.
“NRG sees something very different: clear evidence that PJM’s proposed MOPR is toothless and does nothing to prevent uneconomic entry,” NRG said in its filing. “New entrants are making an already over-supplied market even more over-supplied — and are being totally exempted from any review to ensure that their low bids are economically justified. … In order to have a meaningful MOPR that protects the market from artificially low prices, there simply cannot be categorical exemptions so broad that any new generator could drive a truck through them.”
PSEG argued the issue is whether the categorical exemptions impacted auction prices differently than how the pre-existing unit-specific one alone would have. PJM should recreate the auctions using commission-approved proxy values for units “inappropriately granted one of the two categorical exemptions to establish the ‘but for’ auction price,” PSEG said.
Any “underpayments” that result would be payable to affected generators by zone; “however, the new entrants that relied upon the no-longer-available MOPR exemptions for a particular auction year would not be eligible for any additional amounts.”
