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FERC Directs PJM to Make Changes to Minimum Price Rules

06 January 2020 IHS Markit Energy Expert

In a move seen as protecting existing power plants that have trouble competing in the PJM Interconnection market, FERC on December 19 directed PJM to expand its current Minimum Offer Price Rule (MOPR) to address state-subsidized electric generation resources, with certain exemptions (Dockets EL16-49 and EL18-178).

Several states in PJM, including Ohio and New Jersey, have moved lately to subsidize existing power plants, particularly endangered nuclear facilities.

The December 19 FERC action reaffirms and builds on a June 29, 2018, FERC order, which found that out-of-market payments provided, or required to be provided, by PJM states to support operation of certain generation resources threaten the competitiveness of PJM's capacity market. That order ruled PJM's open access transmission tariff is unjust and unreasonable because the MOPR failed to address the price-distorting impact of resources receiving out-of-market support.

"FERC is affirming our obligation to safeguard the competitiveness of the PJM capacity market," FERC Chairman Neil Chatterjee said. "I recognize, and wholeheartedly respect and support, states' exclusive authority to make choices about the types of generation they support and that get built to serve their communities. They still can do so under this order."

He added: "But the Commission has a statutory obligation, and exclusive jurisdiction, to ensure the competitiveness of the markets we oversee. An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint."

PJM now has 90 days to comply with the order, and at that time is to provide the Commission with a new timeline for the next auction.

FERC outlined the following exemptions from the expanded MOPR:

  • Existing renewable resources that are participating in state renewable portfolio programs;
  • Existing demand response, energy efficiency, and storage resources;
  • Existing self-supply resources; and
  • Competitive resources that do not receive state subsidies.

FERC provided additional guidance regarding exemptions:

  • A new or existing resource that does not otherwise qualify for an exemption may seek a unit-specific exemption.
  • The expanded MOPR only applies to state-subsidized resources. Resources with federal subsidies will not be subject to the MOPR.

FERC defined subsidies as a direct or indirect payment, concession, rebate, subsidy, non-bypassable consumer charge, or other financial benefit that is:

  • a result of any action, mandated process, or sponsored process of a state government, a political subdivision or agency of a state, or an electric cooperative formed pursuant to state law, and that;
  • is derived from or connected to the procurement of (a) electricity or electric generation capacity sold at wholesale in interstate commerce, or (b) an attribute of the generation process for electricity or electric generation capacity sold at wholesale in interstate commerce, or;
  • will support the construction, development, or operation of a new or existing capacity resource, or;
  • could have the effect of allowing a resource to clear in any PJM capacity auction.

FERC adopted an expanded MOPR rather than PJM's Resource Carve-Out (RCO) and Extended RCO proposals. FERC determined that those proposals would unacceptably distort the markets, inhibiting incentives for competitive investment in the PJM market over the long term. PJM's longstanding Fixed Resource Requirement Alternative remains unchanged in the PJM tariff.

The Sierra Club on December 19 called this "a disastrous new rule" that will essentially exclude new renewable energy resources from the PJM capacity market. The Club said that energy experts predict that it will cost the Midwest, Appalachia, and Mid-Atlantic regions almost $6 billion annually and increase dangerous fossil fuel emissions.

The new rule will require new renewable resources required under ambitious state climate policies to offer into PJM's capacity market at artificially elevated prices, the Club said. "At these prices, renewable energy resources will be unable to displace more expensive aging coal and unnecessary new fracked gas resources from the market," it added. "The MOPR will essentially nullify most state incentives for clean energy resources and require consumers to buy fossil-fuel capacity that they neither want nor need."

In a separate December 19 statement aimed at customers in Illinois of Exelon Corp.'s Commonwealth Edison subsidiary, the Sierra Club said: "The new rule, known as the Minimum Offer Price Rule (MOPR), was approved 2-1 by Trump appointees to FERC. The rule aims to slow the growth of clean energy by requiring new renewable resources from ambitious state climate policies - like Illinois' Future Energy Jobs Act - to offer into PJM's capacity market at artificially elevated prices, while forcing consumers to subsidize aging coal and unnecessary new fracked gas plants. The MOPR would essentially nullify most state incentives for clean energy resources and require consumers to buy fossil-fuel capacity that they neither want nor need."

The Citizens Utility Board, a consumer advocate group in Illinois, said about the FERC order to PJM: "In effect, FERC's ruling would alter the PJM capacity market to bankroll dirty power generators at the expense of states like Illinois, where consumer-friendly, clean-energy investments have led to declining costs for consumers. And in light of President Trump's repeatedly harsh statements about the City of Chicago, the ruling fuels concerns that it represents a politically motivated punishment of area consumers, forcing them to pay for more dirty power they don't need."

Reprinted from PointLogic News. For more natural gas news from IHS Markit, visit the PointLogic website.

Barry Cassell is an Energy Editor at IHS Markit.

Posted 6 January 2020.

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