PJM’s narrowed minimum offer price rule (MOPR), which took effect Sept. 29 after a 2-2 FERC deadlock, is likely headed for an appellate court review.

Vistra, Old Dominion Electric Cooperative, the Electric Power Supply Association and regulators from Ohio and Pennsylvania filed rehearing requests challenging PJM’s “focused” MOPR last week, after FERC Commissioner James Danly issued a statement explaining his opposition to it (ER21-2582).

Danly and fellow Republican Mark Christie opposed the RTO’s proposal, with Danly calling it “irredeemably inconsistent” with the just and reasonable requirement under Section 205 of the Federal Power Act.

FERC Chair Richard Glick and Commissioner Allison Clements, both Democrats, supported PJM’s filing, which limited the MOPR to resources connected to the exercise of buyer-side market power or those receiving state subsidies conditioned on clearing PJM’s capacity auction.

PJM had expanded the MOPR in response to a December 2019 FERC ruling saying it should apply to all new state-subsidized resources to combat price suppression (EL16-49, EL18-178). Then-Chair Neil Chatterjee and fellow Republican Bernard McNamee formed the 2-1 majority. Glick, who dissented, asked PJM to undo the rule after he was named chairman by President Biden in January.

If the 2-2 deadlock on the focused MOPR persists, FERC would be unable to order rehearing. But by requesting a second look, the filing parties have preserved their ability to challenge the rule in federal appellate court.

D.C. Public Service Commissioner Willie L. Phillips, who has been nominated for FERC’s vacant fifth seat, is scheduled for a confirmation vote by the Senate  Energy and Natural Resources Committee Nov. 2. But even if Phillips is confirmed in time to vote on the issue, he might be forced to recuse himself because the PSC filed comments supporting PJM’s proposal.

Danly said PJM’s proposal should have been rejected because it eliminated “all mitigation of the price-suppressive effects of state subsidies.” The proposal, filed by the PJM Board of Managers on July 30, became effective “by operation of law” under Section 205 when the commission failed to act on it within 60 days. (See FERC Deadlock Allows Revised PJM MOPR.)

“By allowing this filing to be accepted by operation of law, the commission has abandoned its responsibility to mitigate price suppression by state subsidies, which PJM’s filing characterizes as not involving ‘actual’ market power,” Danly said.

Glick and Clements filed a joint statement on Oct. 19 in support of PJM’s MOPR proposal, saying the commission’s past decision on PJM’s expanded MOPR “created a Byzantine system of administrative pricing — unprecedented in both scope and complexity — that would have imposed on consumers billions of dollars in unjustified costs.” (See ‘Good Riddance’ to Old PJM MOPR, Glick Says.)

Commissioner Mark Christie issued his own statement on the MOPR proposal, saying the expanded MOPR needed “to be replaced or significantly modified” because it was “simply unsustainable” but that the resulting PJM proposal was a “flawed and rushed result of an ‘expedited’ stakeholder process.”

In his comments, Danly said because the scope of the commission’s inquiry is “narrow” when evaluating proposed tariff revisions under Section 205, it is “unnecessary to respond to all of the arguments set forth in my colleagues’ statements.

“My decision not to respond to a particular argument should not be read as acquiescence,” Danly said. “Similarly, litigants seeking rehearing also need not feel compelled to reply to specific arguments presented in the commissioners’ statements. Though required by law, the statements are legally irrelevant. Because there is no commission determination or reasoning in an actual commission order, the arguments that litigants must ‘urge before the commission’ on rehearing to ensure preservation should probably be rooted in first principles, case law, and reference to the contents of PJM’s filing.”

Danly’s Arguments

Danly said he believed the current case was not about whether PJM’s expanded MOPR was just and reasonable, but whether the RTO demonstrated that the focused MOPR was just and reasonable.

Danly also argued that the expanded MOPR was not the “only acceptable means by which to establish the necessary safeguards against the price-suppressive effects of state subsidies that are required to ensure a just and reasonable capacity market.” He said the commission in the past has found various approaches to address price suppression on RTO capacity markets, and the decisions were upheld by the federal courts, citing the 2018 D.C. Circuit Court of Appeals denial of NextEra Energy’s petition to review FERC orders allowing ISO-NE to exempt a limited volume of state-sponsored renewable resources from its MOPR. (See DC Circuit Upholds ISO-NE MOPR Exemption.)

“Those approaches were upheld, in part, because the commission balanced competing interests when evaluating those proposals and determined that the exemptions afforded to state subsidies would not have had a sufficiently significant effect on capacity market prices to require mitigation,” Danly said. “… I am unaware of the commission ever finding it appropriate to grant a blanket exemption to state-supported resources from the buyer-side market power mitigation provisions applied to RTO capacity markets.”

Because PJM’s member states have varying policies regarding their favored generation mix, the focused MOPR “could cause different states to consider leaving PJM,” Danly said.

“The bottom line is this: the focused MOPR will allow state subsidies to suppress capacity prices, depriving needed dispatchable generation of the revenue required to remain in service,” Danly said. “PJM will be unable to discharge its responsibility to ensure resource adequacy as those generators leave the market — reliability will suffer as a result. This cannot be just and reasonable.”

Rehearing Requests

In their joint rehearing request the Pennsylvania Public Utility Commission and the Public Utilities Commission of Ohio said that the “failure” of FERC commissioners to issue “timely statements explaining their positions as to the lawfulness of PJM’s proposal substantially diminishes the rehearing and appeal rights of parties.” The state commissions noted that parties are only given 30 days to file rehearing requests, and any issues not raised in the rehearing requests are waived and cannot be raised on appeal.

The state commissions cited Christie’s statement that the PJM proposal did not create a “market based on the central principle of non-discriminatory competition on a level-playing field,” but instead it created “a rent-seekers’ paradise in which consumers lose” because “the winners and losers are determined by which interest groups’ lobbyists can obtain the biggest subsidies from politicians.”

“Pennsylvania and Ohio do not simply rely on a well-functioning and competitive capacity market in PJM to assist them in meeting their individual resource adequacy obligations — they are entirely dependent on it, having spent the last two decades restructuring the electric industry in their respective states and building a vibrant retail electricity market,” the commissions said.

The Electric Power Supply Association (EPSA) said in its rehearing request that the “one-sided approach taken by PJM” and “embraced” in the joint statement of Glick and Clements was “contrary to law in that it does not reflect the statutorily and constitutionally required ‘balancing of the investor and the consumer interests.’”

EPSA said Glick’s and Clements’ analysis in their comments was “contrary to law” because the Federal Power Act requires the commission to “protect the integrity of the wholesale capacity market and thereby to ensure that this market does not allow subsidizing states to shift the costs of their policy choices onto other states.”

Old Dominion Electric Cooperative argued that PJM’s tariff revisions to accommodate public power in the buyer-side market power provision could be interpreted to cover only some electric cooperatives. ODEC said PJM proposed an accommodation for public power as a self-supply seller, a “new definition” requiring the subject resource be “demonstrated as consistent with or included in the self-supply seller’s long-range resource plan” that is approved by a relevant electric retail regulatory authority (RERRA).

“This provision could be interpreted to exclude certain electric cooperatives, such as those subject to regulation by FERC as opposed to the states,” ODEC said.

Vistra (NYSE:VST) said in its rehearing request that the commission’s acceptance of PJM’s proposal “eliminates any meaningful protections” addressing the exercise of buyer-side market power by the states. Vistra said PJM’s proposal also “fails to provide a minimum degree of clarity” about when the MOPR will be applied to address buyer-side market power.

The commission must act on rehearing to address the fatal infirmities of the revised MOPR,” Vistra said.

The PJM Power Providers Group, which filed a rehearing request on Oct. 5, filed comments last week saying the Glick-Clements statement “is riddled with inaccurate and internally inconsistent claims that fall far short of reasoned decision-making under the Administrative Procedure Act.”