PJM officials have revised some of their proposed rules for applying the minimum offer price rule (MOPR) to state default service procurements in response to stakeholder feedback.

At the Market Implementation Committee meeting Wednesday, PJM attorney Chen Lu outlined a revised definition of an “entity providing default retail service.” The new definition defines the term as any entity “providing default retail service, including but not limited to a load aggregator or power marketer that enters into a contract or similar obligation with an electric distribution company to provide default electric services for retail customers who do not participate in the selection of a competitive retail provider that has been granted the authority.”

Exemption Criteria

Lu also provided a revised “state subsidy definition” exempting “bilateral transactions” used to fulfill default retail service obligations from the MOPR if the state default procurement auction meets certain criteria:

• being subject to independent oversight by a consultant or manager who certifies that the auction was conducted through a nondiscriminatory and competitive bidding process;
• does not impose conditions based on the ownership, location, affiliation or resource type — except for meeting state renewable portfolio standard requirements;
• does not require bilateral transactions to be sourced from any specific resource or resource type to satisfy retail supply obligations; and
• costs can be avoided by retail customers who elect to obtain supply from a competitive retail supplier.

Wednesday’s two-and-a-half hour discussion picked up on talks at the MIC’s special session May 6 over straw proposals attempting to address Paragraph 386 of FERC’s April 16 rehearing order of its Dec. 19 order expanding the MOPR. That paragraph said that state procurement auctions are a form of a state subsidy because they provide a payment or other financial benefit to capacity resources that are part of a state-sponsored or state-mandated process. PJM must make a compliance filing in response to the April order by June 1.

Lu said the RTO reconsidered the definitions based on stakeholders’ opinions that their “potential compliance approach” was “likely too complicated and potentially unworkable.” (See PJM, IMM Present MOPR Rules for State Procurements.)

Jason Barker of Exelon said Wednesday he was “concerned” by the new language and requested PJM consider how the selected wording would impact businesses participating in the provider of last resort (POLR) auctions. He said focusing the exemption on the existence of bilateral contracts could have major implications on most capacity auctions because some POLR auction suppliers also own generation.

“You could have the potential impact of tens of thousands of megawatts of potential supply into those auctions,” Barker said. “We would certainly ask you to sharpen the pencils on that point.”

Lu said the new language was proposed as another alternative after hearing stakeholder concerns at the May 6 special session and that the RTO has not finalized its decision on the issue.

Consultant Roy Shanker said he liked the new wording, calling it a “simple solution” that seemed to address concerns voiced by Sam Randazzo, chairman of the Public Utilities Commission of Ohio, at the May 6 meeting. Shanker said a simple way to look at the new language was that if the auction is asking for more than megawatts or megawatt-hours, then it’s discriminatory.

“This is an efficient way to send the right signal about who you are trying to exempt,” Shanker said.

Gary Greiner, director of market policy for Public Service Enterprise Group, said he was taken aback early on in Wednesday’s discussion as to what constitutes a “bilateral transaction.” In the commercial world, “bilateral” means direct one-to-one transactions between two parties, he said.

The issue, Greiner said, is that a generation-owning entity typically engages in multiple POLR contracts and other supply arrangements, and that anything that happens within a portfolio could be considered a bilateral transaction. He said there’s nothing that doesn’t come through a bilateral transaction that is fulfilling an obligation in a default service program. Theoretically, he said, just about anything could be exempt.

“It’s impossible to paint the megawatts that are being used to fulfill the state retail service obligations,” Greiner said. “It’s just all baked in there.”

Marji Philips, LS Power’s vice president of wholesale market policy, said she viewed the new language as clearer than what PJM initially proposed. Philips said if stakeholders take the FERC order to its literal conclusion, then no generation owner could do any hedging in the PJM market, whether it’s with public power or a load-serving entity.

Philips said what PJM could do as a workaround is having the ability to track capacity obligations for transparency.

“What PJM is proposing is a good solution to what is a financial market that FERC has told them they have some obligation to oversee,” Philips said. “I think it really tries to solve a very difficult conundrum.”

Sticking to the Order

But Philips and David “Scarp” Scarpignato took issue with PJM’s plan to introduce in its June 1 compliance filing a new term, “re-entry capacity resource with state subsidy,” for resources that return to the capacity market after failing to offer into a BRA.

MIC Chair Lisa Morelli said such resources would have a MOPR floor price of net CONE, like new-entry resources. However, PJM is proposing to treat them like existing resources regarding the penalty for accepting a subsidy after electing the competitive exemption. It would require them to forfeit capacity revenues for the delivery year but not subject them to the asset life ban applied to new resources that violate the competitive exemption.

Because FERC was “silent” on this particular issue, Morelli said, PJM decided banning such existing resources from the capacity market for their lifespan “seemed a bit harsh.”

Scarp said the new definition appeared to be an attempt to “improve upon” the order.

“This is kind of pushing the envelope on whether you’re complying with the order or not,” he said. “I’m worried you’re going to unintentionally cause a delay in getting a final order out of FERC. You’re risking FERC coming back and ordering a third compliance filing.”

Morelli said failing to address the issue would be unfair to resources that had accepted subsidies under rules in effect before the December FERC order expanding the MOPR. “We’re not trying to get cute with the language, but it’s a very real issue,” she said.

Philips said PJM’s proposal “so clearly contradicts what the order says.”

“As Scarp noted, we have plenty of time to change the rules. As it is, the auction is on a very tight schedule,” she continued. “I would encourage PJM to stick to the issues and not reinterpret what it thinks is right.”