On Feb. 19, RTO Insider held an hourlong webinar with regulators from five of PJM’s biggest states to find out how they plan to respond to FERC’s Dec. 19 order expanding PJM’s minimum offer price rule (MOPR) to new state-subsidized resources (EL16-49, EL18-178).

Illinois Commerce Commission Chair Carrie K. Zalewski; Maryland Public Service Commission Chair Jason Stanek; Pennsylvania Public Utility Commissioner Andrew G. Place; Ohio Public Utilities Commissioner Beth Trombold; and New Jersey Board of Public Utilities President Joseph L. Fiordaliso joined RTO Insider Editor Rich Heidorn Jr. for the conversation.

The regulators were all highly critical of FERC’s ruling — and confident that parts of it will be overturned in the appellate courts — although not all states find it as disruptive as others. (See sidebar: MOPR a Non-Issue for Some PJM States.)

The expansion of the MOPR to existing subsidized nuclear plants is creating major headaches for regulators in New Jersey and Illinois, where nuclear plants are receiving zero-emission credits (ZECs). New Jersey and Maryland, which are planning large offshore wind farms, are upset by the order’s expansion of MOPR to new state-subsidized renewables.

Pennsylvania regulators are concerned that the order will lead to even more over-procurement of capacity. The PUC also said in its rehearing request that the order is arbitrary and capricious because it rejected the competitive exemption to natural gas-fired units not receiving a state subsidy.

The PUC of Ohio said it feared “increasingly complicated MOPR slicing-and-dicing administrative routines” that will disregard the preferences of willing buyers and sellers.

The regulators also expressed a diversity of opinion on how quickly PJM should hold its next Base Residual Auction under the new rules.

The webinar included questions from, and polling of, the audience. It was held the day after FERC issued a tolling order giving it more time to respond to the requests filed last month for rehearing and clarification.

Here’s what we heard. (The transcript has been lightly edited for length and clarity.)

Reaction to Dec. 19 Order

RTO Insider: Let’s go to our first poll question to our audience. We asked what their reaction was to the MOPR order. Were you very happy, very unhappy? Somewhere in the middle?

[Reading results] Not a lot of fans of the order thus far. We’ll let this go just a couple more seconds. At this point, it looks like, the majority of people are on the unhappy side of the coin. And I suspect that may also be the case here amongst our panelists, but let me open it up. So, Chair Zalewsky, tell us about your initial reaction to the order, and did anything in it surprise you?

Carrie K. Zalewski, Illinois Commerce Commission: I’m probably falling on the pretty unhappy spectrum. I don’t want to call the order [a] disaster. … But I think our surprise and disappointment is off the heels of the June 2018 order [in which FERC declared PJM’s existing MOPR unjust and unreasonable but offered a resource-specific fixed resource requirement as a possible option for subsidized resources].

We saw a little bit of hope and some chance in the 2018 order. As you recall, it says it does not take lightly the concerns that states might need to pay twice [for capacity]. This 2018 order [acknowledged] that that was a possibility [and] acknowledged states’ rights to propose valid policy. I think what was most surprising to the Illinois Commerce Commission is that [FERC] noted that it may be reasonable to allow for the resource specific FRR [in the June 2018 order]. And we find out on Dec. 19, that’s no longer the case.

RTO Insider: Who wants to jump in next? Joe?

Joseph L. Fiordaliso, New Jersey Board of Public Utilities: I’d be happy to. And I agree with the chairwoman in her remarks. [My] initial reaction, after they got me off the floor, was devastating. And I’m not going to be as polite as the chairwoman. I’m not going to insult anybody but, wow, were they [FERC] off track. And off track as far as New Jersey is concerned with our initiatives in the renewable energy area can be devastating.

Illinois has same problem as far as ZECs are concerned that we have, but we’re [also] going to have offshore wind pretty soon and this can be expensive; more expensive than we had anticipated if this is not rectified. And New Jersey is willing to go the [extra] mile to try to get some justice here, because it’s that important to our ratepayers.

I think the FERC commissioners who voted for it, as I said, were totally off track. And they did not take into consideration the impact on ratepayers. They did not take into consideration states’ rights. And we have to stand up, I believe, as a region, as an RTO, to get them to reconsider. And I’ve said this before, we’re ready for full frontal assault here against them.

RTO Insider: Thank you, Joe. Chairman Stanek?

Jason Stanek, Maryland Public Service Commission: Similar to both chairs, we were surprised and not in a good way. That decision obviously retreated from its earlier position, where we thought we were all working towards some alternative carve-out mechanism in the FRR market. So, we invested a lot of time and resources only to be surprised with an order that had a very expansive determination in terms of making that [MOPR] floor go as wide as possible with little to [no] exemptions. So, we’ve obviously filed for rehearing; we made note of the fact that FERC failed to consider our alternative proposal called the competitive carve-out auction. We made that a point in our rehearing request, but similar to the other chairs, we’re looking at all of our options right now. We have a work group in the state capitol, taking a look at how we would implement an FRR if we elect to go that route. But we also need time. This is very complicated. We’re working closely with the Market Monitor [in] PJM and our fellow PJM states to figure out what to do next.

RTO Insider: OK, thanks. Commissioner Trombold?

Beth Trombold, Public Utilities Commission of Ohio: Thanks. Ohio has some similar [reactions] to what was just spoken. I guess we never anticipated that FERC would take such a broad action to displace the state’s decisions made through what we believe were lawful exercises of power, or that FERC would fail to demonstrate that the current [capacity] market at PJM … was unjust or unreasonable. So, the order kind of sets in motion this period of uncertainty, which is very concerning to us, and the auctions that we hold here in Ohio [to set default retail generation rates]. And I don’t see how the order improves reliability in the interim or the future necessarily. So those are some of our concerns.

RTO Insider: And Commissioner Place?

Andrew G. Place, Pennsylvania Public Utility Commission: I wholeheartedly agree with what has been said so far. Particularly the breadth of what was defined as a subsidy got our attention. The rejection of the resource carve-out was a significant surprise. The bright line between state and federal jurisdiction authority really to us is eye-catching — that obviating or neglecting the ability of states to make their own choices. And then the disparate treatment between new and existing [resources]. I see no rational basis for the bright line that they drew between new and existing [resources].

Supreme Court or Bust

RTO Insider: Thank you. Chairman Stanek, you said that you’ve got a working group in the capital examining the FRR option. I wanted to ask the rest of you: If this is not overturned on appeal, or scaled back on rehearing, what are the alternatives that you are looking at? Are you considering the FRR option or even something more drastic than that?

Fiordaliso: I agree with Jason: This is a very complicated issue, and one that we are examining very, very closely. And it is one that is going to take us some time, along with our fellow states within the PJM footprint. And I might add, you know, the Organization of PJM States [Inc.] [OPSI] has also settled solidly behind this. And so, I think you have a lot of states and organizations [working to ensure] that something is done to alleviate this injustice, whether that is going to an FRR, whether that’s seeking … the legal avenue. I mean, we’re dealing here with not only the effect on the ratepayers, but we’re also dealing with a states’ rights issue. And the Supreme Court of the United States always likes to get involved in states’ rights issues. So, I wouldn’t be surprised to see this entire order go up to the Supreme Court for final determination. … FERC has stepped over the line, and somebody’s got to bring them back to the other side of that line. And as states, if we can continue to agree, we do have the ability, I believe, to bring [the commission] back to the other side of the line.

RTO Insider: Commissioner Place, let me ask you to follow up with that. And also give us some sense of the timeline. Are you guys willing to wait for the legal process to play out? It could be years before the D.C. Circuit [Court of Appeals], let alone the Supreme Court, rules on this.

Timeline

Place: Yeah, from our perspective, we would rather see the [Base Residual] Auction take place sooner rather than later. We have implications in our own state for DSP [default service plan] filings that we will see immediate impact on. So, we clearly opined for reconsideration as well as clarification. But in the interim, we say the best course to minimize the damage is to have the auction sooner rather than later. I suspect we are somewhat divergent from our neighboring states on that issue, but it’s the short-term impact that’s got our attention in Pennsylvania. We are well along with compliance with the Alternative Energy Portfolio Standard. So, the impacts for us are on the out years, and they’re significant. So, I’m not minimizing that the rule is deeply flawed. But we have to judge what’s the bigger near-term impact. And for us, the near-term impact is largely if we delay the auction any further than necessary, and 2020 would be ideal for us. [Pennsylvania’s Alternative Energy Portfolio Standard requires that by 2021, 8% of electricity come from Tier I energy sources — including solar, wind, low-impact hydro, geothermal, biomass, coal-mine methane and fuel cells — and 10% from Tier II energy sources, including waste coal, distributed generation, demand-side management, large-scale hydro, municipal solid waste, wood pulping byproducts and integrated gasification combined cycle coal.]

RTO Insider: Just to follow up, commissioner, when you say the out years, is there a threshold? Is it three years, five years?

Place: There is no good, bright line. It’s this continuum, the drip, drip, drip, that will see continuing oversupply, which will damage particularly energy market prices. So, the damage [is] to generators, [who are] going to be dropping out because, for example, the nuclear units get much of their revenue from [the capacity market]. They will start to be bitten more and more. And you’ll get this greater and greater overhang of capacity that’s being built outside of the market. So, it’s a continuum. I’m not sure whether there is an inflection point out there. It’ll just worse year to year. So, it’s difficult to answer, but I’m thinking five years out, and certainly no more than 10 years out, you will see substantial damage from this rule if it if it remains in place. Although I agree with President Fiordaliso [about] the certainty that this will go through the courts.

RTO Insider: Thank you, commissioner. Commissioner Trombold, I’m sorry, you were trying to get in there.

Trombold: I just wanted to piggyback on Commissioner Place’s comment about the auctions occurring sooner rather than later. We were the only two OPSI states that both agreed to have the auction sooner rather than later. And in terms of the FRR in Ohio, no decisions have been made on that yet. But the companies would be the ones to elect the FRR in Ohio. So that’s just something I wanted to point out.

RTO Insider: You raise a very good point. When we talk about states [potentially] pulling out of the capacity auction, that does oversimplify it. If you wanted to direct your utilities to either go that route or not, what kind of control do you have to be able to do that?

Trombold: I’d have to double check with our legal eagles. But I believe that we do not have specific control over the FRR election. I don’t think that would be something that commission has powers to order.

RTO Insider: Thank you. Chair Zalewski, want to weigh in on this one?

Zalewski: Yeah, sure. In Illinois, we’re in our spring legislative session, which started in January and ends May 31. There have been bills previously filed that are circulating that do speak to FRR. This was before the order came down. It was in anticipation. So, these were, bills that were filed in previous spring sessions. Our governor did say in his State of the State [address] that his energy bill is at the top of his list. Now whether that includes an FRR is to be determined. He’s not taken an official stance on that. And I think he’s wise because his office as well as our office is waiting for some of these [MOPR] values to come down to really have an understanding of the impact. And obviously we’re hoping for more clarity. In our request for rehearing we asked for clarity, which I’m sure everyone — all other chairs and commissioners did as well. So hopefully that will shed light on it. With regard to the timing, we matched up with the letter that was filed on behalf of OPSI, which was a kind of a balanced approach where [the auction would be held] at least 12 months from the PJM compliance filing order, but not more than May 31, 2021. The idea being that’s enough time for the states to react — and maybe that’s not enough time, but some time for the states to react, whether that be a change in the renewable portfolio standard and how we address that or we go a different route — but not too much time. And I think this point was raised as well. These [generating] plants need to have an understanding of their revenue stream. So, the closer the auction is to the delivery year, I think it gets more and more complicated for them to make business decisions. So that’s how we landed on that timeline. It’s not perfect, but we had to pick something.

Impact on Renewables

RTO Insider: Thank you for those answers. I should update you. This morning the Market Implementation Committee had a special session on the MOPR ruling and much of the discussion was on potentially compressing the auction schedule from nine months to six months. There are three deliverables that happen in the nine-month time frame that they’re discussing compressing into six months, and that generally seemed to be fairly well received [by stakeholders]. I can say that the suggestion by Maryland that the auction not be held until [May] 2021 was deemed, quote, “crazy” by one generator, who said, you know, ‘We’re making investment decisions here. We need to move on.’ [See related story, PJM May Compress BRA Schedule over MOPR.] So, this is certainly an issue that we will be tracking going forward.

I’m going to pause for another poll here. This has to do with the impact of the MOPR on new renewable generation: Assuming it’s not overturned on appeal or rehearing, will it have a big impact, a small impact or medium impact? Of course, I didn’t really qualify over what time frame I was saying. So, some people may be wondering about that. But maybe you all can comment on that once we complete the poll.

[Reading results] OK, about half say it’ll have a big impact. About a third say a medium impact, and about the fifth say a small impact. So, what say you panelists?

Fiordaliso: I would say big impact. … Any renewable [that] comes online is going to face this situation. And we have 7,500 MW of offshore wind scheduled by 2035. We have ZECs that are going to be on the chopping block. Any new renewable that we’re not even thinking about probably today that comes online will be severely affected in my mind. This is the federal government’s way of saying that, ‘You want to do clean energy? Fine, but we really don’t support it. So, we’re going to throw obstacles. We’re going to throw barriers in front of you to make it more challenging.’ Instead of making it less challenging, so that we can proceed in a prudent, logical fashion to mitigate the effects of climate change. We don’t need these roadblocks. What we need is cooperation.

Stanek: I agree with Joe. We know that FERC crossed the line under Section 201 of the Federal Power Act, which delineates the wholesale markets from the retail markets. To your question, I think you picked up on the area where we could have had more clarity. Where are we going to see this [impact]? In the near term? Years further out? If we look back at the last auction that was conducted in May of 2018, only about 1%, a little over 1% of the cleared capacity was renewables. And I suspect that that will continue on for the next couple of years. But this problem will magnify as we go further out, and then perhaps the rate impacts will be several billion dollars. Commissioner [Richard] Glick, I believe he estimated $2.4 billion annually. So, whether it happens next year or 2022, we’re going to see the effects begin to ramp up within the next, I would estimate, two to three years.

Fiordaliso: I would agree with that, Jason. And the major effect on New Jersey will probably be the next year and a half to two years. I would expect the generators to say that Maryland’s stand on this is crazy. However, I don’t think it’s necessarily crazy.

RTO Insider: Joe, let me follow up on something you said. [FERC] Chairman [Neil] Chatterjee has said this is all about protecting the markets. You suggested that this is really a manifestation of the Trump administration’s hostility to clean energy policy. Do you not buy what Chairman Chatterjee is saying? Do you really think this is just a naked political move?

Fiordaliso: Honestly, yes, I do. Why present these kind of challenges if the states are trying to do programs that hopefully will mitigate the effects of climate change? Why throw obstacles in our way? The federal government is doing nothing regarding climate change. It’s up to the states to do it. We’re willing to do it. And we’re willing to prudently move down this path of a carbon-neutral environment by 2050. If the federal government doesn’t want to join us, fine, just get out of our way.

RTO Insider: Commissioner Place, would you like to weigh in on that?

Place: Yeah, happy to. From a parochial perspective, our Alternative Energy Portfolio Standard is essentially flatlined where it is. It’ll hit its peak in 2021. So, our parochial impact for our renewable portfolio is marginal. Plus, we have [an] overbuild, except perhaps in some in-state solar, to meet the requirements through 2021. … But the question was PJM-wide and very clearly, I would agree that this would have draconian impact on states’ desires to build renewable power. And I think the problem I have with the ruling is that it, it doesn’t tackle the problem. As I noted earlier, you’re going to see states are going to build regardless. New Jersey is going to build offshore wind; Maryland’s going to build offshore wind. Those are going to happen. So, you’re going to have more states potentially doing FRR. You’re going to have this great overhang of excess capacity being built outside the market. You’re going to see that deleterious impact on energy market prices, all of which is going to make the current impact from state-supported resources in the market pale in comparison to what you will see five, 10 years from now. It’s a moment where you really do need to go back to square one and think about how this mechanism should be done. If you care about the integrity of the market, you’re just simply not tackling the problem or the issue that you’ve identified. I wholeheartedly agree, the state’s ability to choose their own path forward should be in this way sacrosanct, other than not distorting the market. But you can clearly develop mechanisms that accomplish both the state’s desires to have the portfolio of their choice, but also ensure that capacity markets — or if it’s a totally new construct — [obtain] capacity. Or do we go back to essentially an energy[-only] market formulation? Those solutions are all achievable versus what was put on the table here, which does look like a very pointed, very one-dimensional attack, on renewable choices by states.

Impact on Coal, Gas

RTO Insider: Let me go to a related question that was posed by one of our listeners, Michelle Bloodworth [CEO of coal trade group America’s Power]. She asked: ‘What impact will the MOPR have on the coal fleet?’

Stanek: I would suspect in the near term, this would be a net positive for any of the fossil resources, whether it be gas or coal. So, I suspect that those sectors viewed the December order rather favorably.

Fiordaliso: Yeah, I would concur.

RTO Insider: Commissioner Place, do you have any perspective on that, given the Pennsylvania’s spot in the fossil generation?

Place: I agree. Certainly in the near term, it’s advantageous. But … there are probably greater economic forces driving us away from coal consumption. So, they’ve got substantial headwinds. But this is, in isolation, sort of a short-term net benefit to the coal generators, and as Chairman Stanek pointed out, to all fossil generation.

Carbon Pricing

RTO Insider: A couple weeks ago, PJM appeared on a forum and suggested that really the answer to this dilemma — this constant conflict between state and federal policy over environmental policy and emissions — is a carbon price. (See PJM: Carbon Pricing the Answer to Subsidy Dispute.) And clearly, that is a very complicated and potentially divisive issue. But I wanted to ask you, what do you think your state’s appetite is for a carbon price? Is it a realistic idea? We know that the New England states, while they have RGGI [the Regional Greenhouse Gas Initiative], the bigger states and more aggressive states were unable to persuade some of their smaller more conservative states to up the carbon emission targets as part of their approach to the capacity market. So, do you see this as either feasible or acceptable to your state?

Stanek: Well, as a RGGI state … we see the benefits of having a carbon cap-and-trade program here. I think what was laid bare in the Dec. 19 order was the fact that we don’t have any value on carbon, whether at the federal level or at the PJM level. And if we did, we’d be able to [put a] value on our preferred resources and we’d be out of this mess entirely. But as a RGGI state along with New Jersey … we see some benefits. But we do have issues with leakage regarding some of our neighboring states. And that’s a problem with having voluntary constructs such as RGGI.

Zalewski: Illinois — we’re not a RGGI state — does not have a broad carbon price. However, the state has employed carbon prices for legislation. For example, customers pay on their utility bills for ZECs — they pay $16.50/MWh — and also through a renewable portfolio standard. And so, through policies like this clean energy is given a priority over dirty generation. I’m not aware of any additional legislation as I sit here right now of potentially going to moving towards RGGI. I think everyone right now is reassessing and seeing if it makes sense. It’s not clear obviously how RGGI would be MOPR’d. … I think that there are people thinking through all options. But as I sit here today, that’s going towards a RGGI in Illinois, to my understanding, has not been put on the table for legislation.

Place: And if I may jump in, as most everyone I presume on this call is aware, Pennsylvania, under an order by our governor late last year, will be linking to RGGI. The rule is expected to be before the Environmental Quality Board in July of this year. And so that’s the extent of our conversation within the commonwealth on pricing carbon. We did have the conversation last year — the nuclear debate [over ZEC-type subsidies]. I can’t comment on whether that will resurface and whether that is another piece of this.

RTO Insider: I should mention in Pennsylvania, for context, there was a hearing last week in the legislature, the Republican-controlled legislature, which is not in favor of joining RGGI. And they made sure that not a single pro-RGGI witness apparently testified. (See Critics: Pa. RGGI Hearing Stacked with Detractors.) The legislature believes that the governor does not have the authority to enter RGGI. Does the PUC have an opinion on that at this point?

Place: The PUC does not have an opinion on that. But I would steer it towards the governor’s belief that he has the authority to do so. And when I did watch the legislative hearing last week, [I] agree with you that … there was no balance.

Fiordaliso: New Jersey, Rich, just recently rejoined RGGI after many years of absence. And we’re very happy to be back in RGGI. And generally speaking, I think the concept of carbon pricing is very much in line with our clean energy goals.

RTO Insider: Commissioner Trombold, did you want to weigh in on this, or is this a hot potato?

Trombold: [laughs] Well, yeah, we’ve talked about carbon pricing probably for the last 30 years, and it hasn’t really happened yet. I think there’s many coal states in PJM, and we’d have to get all the PJM states on board in order to do something like this. I think at the end of the day, every state has to do what’s in their best interest. So that’s why the PUCO hasn’t really weighed in on any kind of carbon pricing at this point.

RTO Insider: I do note that the PJM has actually said that they wouldn’t need all of the states to join. But it certainly would be a lot more complicated if you’ve got some states in, some states out, referring to leakages as Chair Stanek mentioned.

Place: I should jump in. The governor’s executive order on RGGI did contemplate leakage and border adjustments. So that that’s yet to be determined on what that might look like — emissions leakage or economic leakage. That’s clearly on the menu here in Pennsylvania.

Economic Impact

RTO Insider: I’ve got another question here from Nancy Bagot, [senior vice president] from EPSA [the Electric Power Supply Association]. She says: ‘Many clean energy resources have become increasingly cost competitive, if not more competitive than existing resources. Therefore, most may clear [the capacity auction] using the unit-specific exemption. How are states making the assessment that this will have a great impact? Also, offshore wind is so expensive comparatively, it could never clear a regional auction. So how is it disadvantaged? As states follow their own paths, how is reliability being ensured on a system that is physically regional?’

I’ll let you guys jump in on to any or all of that.

Fiordaliso: I’d like to jump in, Rich. I think renewables in general, initially are expensive. But I can build a solar installation today for half the price of what it would have cost me back in 2008. I think we’re seeing prices, price per kilowatt-hour, decreasing as renewables become more prevalent. I think the offshore wind is going to follow the same pattern.

And I think one of the things we don’t really put a lot of emphasis on, and we should, [is] the economic impact of renewable energy. As an example, in the state of New Jersey, we have over 7,000 people working just in the solar industry. We expect thousands more to be working in the wind industry. And all of the ancillary businesses that feed into you know, along the East Coast here. States like Maryland and New Jersey can be supply chains for offshore wind throughout the Northeast. So, we rarely look at the economic advantages. All we do is look at the economic disadvantages with offshore wind. I submit the advantages certainly outweigh the disadvantages when we take into consideration not only the supply chains and things of that sort and the ancillary businesses that will grow around wind and solar, etc. But also, can we afford not to spend the money to mitigate what 98% of all scientists tell us can be a catastrophe in years to come?

Zalewski: [In] Illinois, I think the immediate answer is we’re just collecting as much data as we can and trying to keep current with the information coming at us with things like the MOPR [pricing] data. In fact, our General Assembly just called a subject matter hearing this Friday to discuss this, the impacts of the MOPR. And we’re having the Market Monitor coming to speak to our legislators. … The Market Monitor has put out a report, they indicate that … the MOPR may not be so high that some of these resources can’t clear [in the auction]. We also know, capacity revenues for renewables are not as much of an impact on revenues in total as compared to nuclear.

… And I agree with the economic impact. In Illinois, we have a preference for in-state renewables. The legislation we’re under is the Future Energy Jobs Act. The ‘J’ stands for ‘jobs.’ All renewables must be in-state. … I agree, it will be a big hit to the state if we do see renewables taking a backslide.

Stanek: I don’t think the question that was asked is an unreasonable one: Can we use the unit-specific exemption for some of these clean technologies that are more cost competitive? But there is recognition — and I think the questioner was right — offshore wind is terribly expensive. But states such as Maryland have passed laws to provide these subsidies, these RECs [renewable energy credits] to the wind developers. And we recognize that it’s going to cost more than, let’s say, a gas plant or a coal plant to operate. But that’s the state’s decision. And under Section 201 of the Federal Power Act, states determine their resource portfolio, including the type of generation that they want to see in their mix. So, I would I push back gently on Nancy’s question. I think there will be some use of the unit-specific exemption, but I don’t think it’s going to be all that great.

Impact on Demand Response, Energy Efficiency

RTO Insider: Let me move over to another question from the audience. And this is a question that is actually being discussed right now, by the Demand Response Subcommittee at PJM. That is: What is the effect of the order on the EE [energy efficiency] and DR [demand response] programs of your utilities?

Stanek: At this early stage, it seems like EE and DR would not be exempted under the Dec. 19 decision. So, we’re still waiting to see the effects. We haven’t spent as much time on those two areas of generation [as] some of the others, but it’s obviously going to have an impact on both.

Place: That was one of our [requests for] clarification. I wouldn’t bet the house that DR and EE are not going to be caught up in this. So, for our Act 129 [energy efficiency] programs, we are very much looking forward to a clarification and to ensure they are not going to be MOPR’d.

Fiordaliso: All I would say is that it’s too early and there have not been clarifications regarding certain areas. And so, we’re looking at a wide variety of alternatives, us here in New Jersey, and waiting for some of these clarifications — if we ever get them.

Zalewski: We have the same concerns, and we made note of that in our in our request for rehearing and request for clarification. It’s also unclear the distinction between new and existing demand response programs too. So just adding on to the questions waiting for answers from FERC.

Stanek: I think the point that Joe just made is, if and when we ever get [answers]. We still have a rehearing request outstanding from the June 2018 order. Now we have rehearing [requests] from the December 2019 order. And we found out just yesterday that rehearing, not surprisingly, is going to be tolled, but until when? 2021? It could be a while.

FRR Option

RTO Insider: Hopefully, we’ll get some clarity on that from the D.C. Circuit; I believe next month they’ve got oral arguments in a case that deals with the tolling orders in Natural Gas Act proceedings. A lot of people seem to think that will also have some application on FPA cases also. I have a question here from Kyle Vanderhelm [director of fundamental analysis at Tenaska]: ‘Most panelists seem to be have been OK with a resource-specific carve-out FRR. Why is that workable and FRR as it stands not workable? It seems that FRR for an entire region maybe more straightforward than one-off carve-outs.’

Anybody have any insights on that?

Fiordaliso: I don’t have any insights. I would only say that we’re still exploring. It’s early yet. … We’re still exploring: Is that the right way to go? Is it the most efficient way to go? And so, we have not in New Jersey come to that determination.

Stanek: In Maryland, I would say that we’re trying to evaluate the pros and cons right now. And there are cons. We will need some authority to provide some oversight of any FRR, whether it be one utility or all of our utilities in the state. And I have to ask myself the question: Will it be PJM subcontracting? Will the PSC be able to handle that in-house? What do we do with retail supply that’s about a fifth of the book in the state of Maryland? Will [they] be able to contract with their own resources? So, there’s more questions than answers. We’ve been an early advocate of moving the auctions out by a year, and one of the reasons is because the Dec. 19 order made clear that FERC is not likely going to rerun any auctions. So, we’ll have to live with the next auction results. That’s the reason for our [request for] delay, whether it be crazy or not.

Legal Vulnerabilities

RTO Insider: Alright, let me go to our next poll question: ‘How will the MOPR ruling fare in the appellate courts? Very well: It will be upheld in its entirety. So, so: There will be moderate changes to the ruling. Poorly: The court will largely reject FERC’s order.’

Stanek: I would just jump in quickly and say that the courts have consistently recognized state authority over generation matters. And we’ve seen a recent line of cases — whether it be EPSA, ONEOK or Talen v. Hughes, which we, Maryland, did not win, but it provided a precedent that defines the line between the feds and the retail regulators and the sense of cooperative federalism that we did not see into December order. So, I would be rather bullish here and choose option [three] ‘poorly.’

RTO Insider: Alright, well, there aren’t too many people [responding to the poll] who think it’s going to survive unscathed. Did anybody else want to weigh in on that subject?

Fiordaliso: And ultimately, it’s gonna wind up where? The Supreme Court.

Place: Yeah, and, and to me, just looking at it sort of piece by piece, particularly the disparate treatment of new versus existing [resources]. I think there’s chunks in here that I just don’t see doing well [on appeal] and being shown to be just and reasonable.

Zalewski: And there’s another layer: … not only the disparity between new and existing [resources] but the disparity between vertically integrated and deregulated states and how their resources are. And again, that leads back to a state’s decision to be become deregulated. So, we’re just circling back to where we started — the overstepping of the federal government [on] states’ rights. There’s lots of layers to it.

Place: Also, thinking about the disparate treatment between state subsidy and federal subsidy — I don’t see how a court will look at that and think that that’s a rational outcome.

RTO Insider: We have another question here from Rob Gramlich. You may recall a few months ago, Rob made some headlines with a study that found that an expanded MOPR could greatly increase [capacity] costs. He asks: ‘In other regions such as SPP, the Regional State Committee makes the high-level policy calls on resource adequacy, which FERC put in place at its start-up, recognizing the states’ authority. The idea was raised at last fall’s OPSI meeting. What do you think of that as an additional option for states to make sure wholesale markets and state policy fit together?’

Stanek: [laughs] Leave it to Rob Gramlich to come up with a question like that. Let me think about that.

RTO Insider: [pause] OK, I think Rob stumped the panel. I should mention also that on tomorrow’s agenda for FERC there is an order in FERC Narrows NYISO Mitigation Exemptions.]

Let me ask: Illinois in its rehearing request said that state policies are not subsidies but compensation for clean energy resource attributes to address PJM’s failure to account for negative environmental externality. State policy initiatives ‘improve the efficiency and price signaling aspects of PJM’s capacity auction process by accounting for the social cost of carbon.’ Can you elaborate on that Chair Zalewski?

Zalewski: Our first concern is with the term ‘subsidy.’ It’s a pejorative term, suggesting that subsidies move away from economically efficient solutions. However, we talked a little bit about this previously. This is a classic example of market failure when pollution costs are not addressed. FERC and PJM have repeatedly failed to address this market failure. And so, I think that our point is that when these pollution costs are not accounted for, markets don’t produce economically efficient solutions.

RTO Insider: We have a one more question here. Again, Kyle VanderHelm asks: ‘Do you see value in having a competitive capacity market? If so, are you supportive of alternative approaches to avoid price suppression from subsidized capacity?’

Stanek: Absolutely.

Fiordaliso: Yeah.

Place: The challenge I’ve long had is that the capacity price is a contrived mechanism. It’s a construct, versus the energy [price], which is market driven. So, although we’ve seen value in the capacity market, PJM is historically over-procuring, and it is flawed in that it’s an artificial mathematical construct. So yes, there’s some value there. But are there better ways to do it? I would argue yes.

Zalewski: I take umbrage with the second part of that question about market suppression. That was one of our points in our request for rehearing — that there’s no evidence of price suppression. … But yeah, I echo that [there] could be a good alternative.

Trombold: Ohio agrees with what the chair just said. You know, there’s lots of things that cause price suppression in the market, not just some kind of state support. I mean, there’s things like bidding behavior, forced outages, capacity imports. And we put that all into our rehearing requests as well.

Place: And if you look currently, if you go down that track of price suppression, the impacts currently in the market are small. You’re chasing a solution in search of a problem. And yes, you can see over time that the price suppression may become an issue with state resources. But I’m not buying that it’s a house-on-fire problem today or even tomorrow.

And I did also not want to let the Illinois carry the full burden on the points about subsidy versus internalizing big external costs of pollution. I’ve not taken a shot at fossil — I used to work in natural gas business. But clearly, if you’re a resource that’s able to emit without monetizing the cost to society of those emissions, then that is an inverse subsidy. So, I think it’s disingenuous to simply go down this route that says that states are doing something untoward by trying to internalize the price of those emissions.

RTO Insider: Well, thank you. I really want to thank all of you for participating today. This was a really, really good conversation. We’re about out of time. We have one more [poll question]. OK. You guys have already weighed in on this: ‘What is the biggest legal vulnerability in the MOPR ruling? Exempting future resources?’ All of you cited these examples. ‘Exempting future federal subsidies but not future state subsidies? Eliminating the exemption for future supply-side resources and FERC’s jurisdiction over state resource choices?’

[Reading results] The jurisdictional issue is very, very popular. This one’s a landslide.

Well, thank you very much. And I also want to thank the audience for its participation. We had some great questions and some great feedback on these questions. We of course will be following this on a daily basis up at PJM.