By Christen Smith and Rich Heidorn Jr.

A broad range of stakeholders asked FERC on Tuesday to reconsider its Dec. 19 order requiring PJM to overhaul its capacity market, saying the commission’s directive is unnecessary and oversteps federal jurisdiction (EL16-49, EL18-178).

The commission said PJM must expand its minimum offer price rule (MOPR) to counter increasing state subsidies, primarily for renewables and financially struggling nuclear generation. (See FERC Extends MOPR to State Subsidies.)

The ruling builds on PJM’s “MOPR-Ex” proposal, filed in response to the commission’s June 2018 order finding the RTO’s capacity market rules unjust and unreasonable because they failed to address growing subsidies. The RTO’s existing MOPR covers only new gas-fired resources. (See FERC Orders PJM Capacity Market Revamp.)

But state regulators, utilities and load-serving entities alike argued in their rehearing requests that the order goes too far in attempting to control their generation choices and fails to prove state-subsidized resources suppress capacity market prices.

“The December order imposes an extraordinary cost on states that seek to exercise some control over their generation mix, effectively commandeering states into FERC’s preferred approach to resource planning,” wrote FirstEnergy Solutions, which last year became the chief beneficiary of an Ohio law subsidizing its nuclear and coal plants via ratepayer surcharges.

“The alternatives to submitting to FERC’s regime are grim,” FES wrote. “States will either have to incur significant duplicative costs for capacity — which will only increase as time goes on and emissions-reduction targets escalate — or exit the market altogether.”

Overstepping Boundaries

State commissions in New Jersey, Ohio, Maryland, Pennsylvania and West Virginia complained that the order encroaches on their jurisdiction while inexplicably abandoning the resource-specific fixed resource requirement (FRR) alternative FERC itself suggested in June 2018 to address alleged price suppression from subsidies.

The result, they argue, means the expanded MOPR will distort price signals and force market participants to over-procure capacity and charge ratepayers twice for it.

“In the long run, the expansion of the MOPR to all new and existing resources under the repricing proposal advanced by the commission is likely to harm the energy and capacity markets administered by PJM,” the Pennsylvania Public Utility Commission said. “Imposing administratively adjusted offer prices at prices well above historical competitive market prices will only hasten the demise of truly competitive markets.”

The Maryland Public Service Commission said the order “forcefully treads” on state policies that value a resource’s environmental attributes by denying them capacity payments and “undoing the benefit of state support.”

“By raising barriers to state-sponsored renewable resources and effectively excluding them from participating in wholesale markets, the commission has acted ultra vires to shape generation mix and thwart states from exercising that function,” the Maryland PSC wrote. “The December 2019 order is particularly dangerous in that it severely curtails cooperative federalism in the regulation of generation by acting to stymie state efforts to value resource attributes.”

The New Jersey Board of Public Utilities said the “clunky” MOPR results in a “systemic and calculated” expulsion of new clean energy resources from the market, upsetting FERC’s “decades-long precedent” of leaving environmental regulation “largely to the states.”

“Nowhere does the order adequately explain this sudden antagonism to the cooperative federalism principles that underlie the” Federal Power Act, the BPU said. “Make no mistake: The alternative to granting rehearing is increased consumer harm in the form of higher prices and worse environmental outcomes. If the commission does not reverse course, state clean energy efforts will be frustrated and the PJM market will be at risk for dissolution.”

PJM itself urged the commission to rethink the order’s impact on states, saying that expanding the MOPR in pursuit of economic efficiency “may in fact unintentionally cause economic inefficiencies over the long term.”

“That new approach is over-broad and over-prescriptive and will dramatically curtail new resource options for integrated utilities, including those that meet the previously accepted net short and net long tests, whose offers have not previously been viewed as posing unacceptable risks to efficient price formation,” the RTO wrote. “The new approach also needlessly interferes with state resource policies well beyond what is needed to protect the market against inefficient price formation and achieve rates within a zone of reasonableness.”

[PJM also posted answers Tuesday to stakeholders’ questions on the MOPR ruling. The document will be updated each Friday afternoon, the RTO said.]

The Nuclear Energy Institute took issue with FERC’s refusal to allow a resource-specific FRR, which the commission had invited comment on in its June 2018 order, saying it may be just and reasonable. “However, in the December 2019 order, the commission reversed course and declined to adopt the resource-specific FRR with virtually no discussion of the issue, much less a reasoned justification,” NEI said.

NEI also criticized the commission for failing to address state preferences regarding capacity resources and the risk that an expanded MOPR without the resource-specific FRR option could leave ratepayers paying twice for capacity.

“The commission’s failure to conduct any such analyses [of a resource-specific FRR] and completely disregard legitimate state interests and goals, including failing to provide any kind of transition mechanism to accommodate such state interests and goals, is arbitrary and capricious and does not represent reasoned decision making,” the group said.

The Public Utilities Commission of Ohio asked FERC to consider ordering PJM to hold the delayed 2022/23 capacity auction without applying the expanded MOPR — similar to action taken during the implementation of Capacity Performance — to “get a forward capacity price signal in place, plug the three-year forward hole that currently exits and will likely grow, and provide for a transition period.”

“At a time when the commission has already significantly delayed the reveal of the three-year-forward capacity price, it is the PUCO’s fear that the forces set in motion by the order will promote long-lived uncertainty,” PUCO said. “This will, accordingly, strongly motivate states and market participants to take flight from the consequences attributed to the order.”

The Maryland attorney general’s office also questioned FERC’s decision to mitigate state subsidies while ignoring their federal counterparts and said the order “will have an outsized effect on existing business models for demand response, public power and voluntary renewable energy credits.”

Self-supply Exemption

Self-supply entities, like the Southern Maryland Electric Cooperative and Old Dominion Electric Cooperative, urged rehearing after describing PJM’s existing fixed resource requirement alternative (FRR-A) “unwieldy” and “unworkable” for planning new capacity.

FERC’s decision to abandon previously accepted exemptions for self-supply LSEs puts many resources at risk of being unable to clear the capacity auction, SMECO said. PJM’s existing and narrow FRR-A would require SMECO to carve out its entire load when using the option to accommodate a single new capacity resource subject to the MOPR, the cooperative said.

ODEC argued that eliminating the exemption would “indeed cause disruption of the industry” and fail to preserve existing investments. Further, the cooperative argues, the expanded MOPR will chill future ventures and disregards the entire business model of self-supply.

“As opposed to making investment decisions based on long-term economics and other benefits as ODEC historically has under its traditional business model, investments must now be made based at least in part on whether a resource is likely to clear the single-year, three-year forward capacity auction,” ODEC wrote.

The cooperative said neither the unit-specific exemption nor the FRR-A serve as legitimate substitutions for the self-supply exemption.

“ODEC and others have demonstrated in the past that the FRR may not be a workable alternative for smaller LSEs, given the requirements to opt out of the capacity construct for both purchases and sales, for a five-year period with onerous financial consequences if the ability to do so becomes untenable,” ODEC wrote.

Clean Energy Associations

Advanced Energy Economy, American Council on Renewable Energy, American Wind Energy Association and the Solar Energy Industries Association, filing as “Clean Energy Associations,” said FERC failed to prove PJM’s current market design is unjust and unreasonable, as required under Section 206 of the FPA, or to establish a new just and reasonable rate with its “drastic and unwarranted” expansion of MOPR.

The groups also said FERC overreached its authority under the FPA by effectively nullifying state renewable policies and seeking to mitigate state subsidies that don’t directly affect capacity prices, in violation of the Supreme Court’s 2016 ruling in FERC v. EPSA. (See Supreme Court Upholds FERC Jurisdiction over DR.)

“Based on the commission’s definition of state subsidy, if a town were to offer local permitting support to develop a specific new type of energy resource on a particular plot of land, and such program was not tied solely to ‘generic industrial development and local siting support,’ such program would also appear to be swept into the definition of state subsidy.”

The groups also said the commission failed to support its application of MOPR to state subsidies obtained through competitive processes and that its inclusion of voluntary renewable energy credits is arbitrary. “Further, the order presented no evidence or offered no analysis for subjecting carbon allowances, such as Regional Greenhouse Gas Initiative allowances, to the MOPR.”

EPSA

The Electric Power Supply Association (EPSA) and the PJM Power Providers Group (P3) asked the commission to reconsider its finding that no federal subsidies will be considered in determining whether a resource should be subject to the MOPR, saying the commission underestimated its authority under the FPA. It was EPSA member Calpine that led the complaint that resulted in the MOPR ruling.

“The commission’s refusal to extend the MOPR to offers from resources receiving federal subsidies of any kind was arbitrary and capricious as it cannot be reconciled with the commission recognition that ‘subsidies created by federal law distort competitive outcomes in the PJM capacity market in the same manner as do state subsidies,'” the groups said, quoting from the Dec. 19 order.

“EPSA and P3 do not argue that the commission must expand the MOPR to address all federal subsidies, only that the commission erred in declining to expand it to address any federal subsidies,” the groups said in a press release about their filing. “This request is consistent with EPSA’s past opposition to federal subsidies for uneconomic coal and nuclear resources.”

They also asked FERC to clarify that the definition of state subsidies would not include RGGI or voluntary, bilateral transactions for RECs. And they asked the commission to clarify that its references to the availability of the existing FRR rules “were merely factual statements as to the ongoing effectiveness of the FRR rules and cannot be construed as findings that the FRR rules are just, reasonable and not unduly discriminatory or preferential in light of changes required in the Dec. 19 order or other changes that have occurred since it went into effect.”

They also asked FERC to pressure PJM to hold the next two BRAs before the end of 2020, as the Independent Market Monitor has proposed.

Clarifications

Both PJM and the Monitor asked FERC to clarify that credits received through RGGI and default service procurement programs do not constitute subsidies.

Both Maryland and Delaware use RGGI as a means of reducing carbon emissions, with New Jersey, Virginia and Pennsylvania in line to join the program in the coming years.

“The RGGI cap-and-auction system is not a subsidy, any more than any other environmental limit on a particular plant is a subsidy for any plant that does not have the same emissions or discharges or the same limit,” PJM wrote.

AES likewise requested clarification on whether the MOPR applies to RGGI transactions.

PJM also asked confirmation on its interpretation on what triggers MOPR for resources that receive both state and federal subsidies, the latter of which FERC said aren’t impacted by the order.

The Monitor wants the commission to clarify treatment of the existing MOPR, noting that current rules subject capacity from landfill gas units, cogeneration units and fuel cells to an offer price floor, while exempting coal-fired steam units that are repowered as oil- and gas-fired steam units. Questions also remain about calculations for net revenues and rules for resources that seek must-offer exceptions, the Monitor said.

FirstEnergy Utilities expressed concerns about the unknown timeline for upcoming capacity auctions and worried that they wouldn’t have enough time to evaluate PJM’s FRR-A as an option. They requested clarification that PJM should provide flexible timelines to give utilities leeway in making a near-irreversible decision to use the FRR-A.

The utilities also said the commission should clarify that the self-supply exemption will apply when a self-supply entity purchases an existing generation asset that has previously cleared a capacity auction. Its rehearing request centered on FERC allegedly ignoring their arguments for a holistic market review.