FERC on Thursday approved most of PJM’s compliance filing on its expanded minimum offer price rule (MOPR) while reversing its position on state-directed default service auctions (EL16-49-003, et al.).

The commission said it agreed with PJM and commenters to exclude “independently evaluated, non-discriminatory, fuel-neutral, competitive state-directed default service auctions from application of the expanded MOPR.”

“Based on the record in this proceeding, we find that competitive and non-discriminatory state-directed default service auctions — i.e., those state-directed default service auctions that qualify to be excluded from the definition of state subsidy under PJM’s proposal — do not require mitigation at this time.”

The commission also rejected PJM’s proposed revisions to the market seller offer cap as beyond the scope of the compliance proceeding.

In March, PJM made a 683-page filing proposing Tariff revisions in response to FERC’s December order expanding the MOPR to new and existing state-subsidized resources. The order included exceptions for existing demand response, energy efficiency, self-supply and resources receiving payments under renewable portfolio standards. In June, PJM submitted proposed additional Tariff revisions to comply with the commission’s April 16 order on rehearing.

More than two dozen companies and coalitions had filed responses to PJM’s compliance filing, taking issue with the RTO on auction timing, floor prices, unit-specific rules and self-supply exemptions. (See Commenters Weigh in on PJM MOPR Compliance Filing.)

Glick Dissents

The order was supported by Chairman Neil Chatterjee and Commissioner James Danly, both Republicans, while Democrat Richard Glick issued a six-page dissent.

“At this point, there is not that much left to say,” Glick wrote. “This proceeding has been one of the commission’s all-time worst, both in the baffling decisions it reached and the bumbling way in which it got there. Today’s order only digs the hole deeper.”

Glick said he was relieved that the commission had reversed its treatment of state default service auctions, calling its original position “a harebrained idea.”

“Even parties that have cheered on the commission’s general MOPR zealotry have balked at applying MOPRs to default service auctions,” he noted.

But he said the commission’s limited rehearing may be moot because of its suggestion that New Jersey’s default service auction would constitute a state subsidy based on the possibility that the auction winners would have to comply with the state’s renewable portfolio standard.

“The commission’s discussion of the [New Jersey] auction provides every reason to believe that the grant of rehearing on state default service auctions will end up being almost meaningless. Several other PJM states’ descriptions of their default service auctions also mention renewable portfolio standards or similar programs applying to entities that provide default service. Taken seriously, the commission’s discussion of the [New Jersey] auction would seem to suggest that payments from those other states’ auctions would also trigger the MOPR.”

Glick predicted “the PJM MOPR saga will ultimately be remembered as a model case of egregious commission overreach. The majority has taken MOPRs, already a controversial topic, and thoroughly weaponized them as a tool for increasing prices and stifling state efforts to promote clean energy. The result is an unsustainable construct that will eventually collapse under its own weight. The commission’s contortions on default service auctions and its failure to address the most important questions implicated by today’s order are just the latest indicator of that inevitable result. At this point, the only real question remaining is how much damage the commission’s arrogant approach to the states will do in the meantime.”

Chatterjee Defends Ruling

Chatterjee insisted the ruling was a “market protective reform.”

“I’m proud of the actions the commission has taken to protect the integrity of the PJM capacity market,” Chatterjee said. “Markets are, in my view, simply the best way to pave the way towards our energy future.”

He said that when renewable resources and new technologies are given the chance to compete, they can thrive in the marketplace, but there has to be transparent and efficient markets as a baseline. He said creating a baseline is the “core aim” of the MOPR.

Here is a summary of the commission’s 162-page order.

Resources Subject to the Expanded MOPR

FERC accepted PJM’s proposed Tariff revisions to apply the MOPR to any capacity resource that receives or is entitled to receive a state subsidy.

It accepted PJM’s position that sellers involved in bilateral transactions should be permitted to choose the competitive exemption in cases where the rights and obligations of multiple off-takers are in equal shares. “Consistent with the directives of the December 2019 order, we reiterate that only the portion of the resource receiving a state subsidy will be subject to mitigation,” FERC said.

It also accepted PJM’s proposal regarding resources not subject to the must-offer requirement. “We disagree with the Market Monitor that the entire capacity of such a resource must be offered into each auction, including incremental auctions, to maintain its status as an existing resource, because the rehearing order did not require that,” FERC said.

The commission also rejected the Monitor’s argument regarding fixed resource requirement (FRR) resources, approving PJM’s proposal that resources in FRR capacity plans will not lose their status as cleared capacity resources with state subsidies solely because they participate in such a plan instead of the Base Residual Auction (BRA) for a given auction.

Definition of State Subsidy

FERC accepted PJM’s proposed definition of state subsidy, which incorporated the commission’s definition. The commission rejected the Environmental Defense Fund’s complaint that the definition is vague and does not put market participants on notice of what is considered a state subsidy, calling it “essentially an out-of-time rehearing request of the December 2019 order,” which defined state subsidy.

General Industrial Development and Local Siting Support

The commission accepted PJM’s proposal to exclude generic industrial development and local siting support from what is considered a state subsidy, rejecting a proposal by Dominion Energy. “Dominion incorrectly suggests that any subsidy that is widely available would be exempt, regardless of whether it met the criteria for general industrial development or local siting support subsidies laid out in the December 2019 order,” FERC said. “The December 2019 order, as reiterated in the rehearing order, found that only payments which were designed to provide an incentive or promote general industrial development in an area or siting facilities in one locality over another are exempt.”

Bilateral Contracts with Self-supply

PJM’s proposal to exclude from the MOPR some voluntary bilateral contracts entered into by self-supply entities also won FERC’s approval.

“We agree that, where the otherwise unsubsidized resource contracts with a self-supply entity and the transaction meets the requirements under PJM’s proposal, the unsubsidized seller does not have the ability to enter into a contract below cost, nor would the unsubsidized resource have guaranteed cost recovery if it offered the capacity into the market below cost,” FERC wrote.

The commission rejected a proposal by American Electric Power and the Organization of PJM States Inc. (OPSI) to include an exemption for all bilateral transactions as “unnecessary.”

“The commission expressly found in the December 2019 order that private, voluntary bilateral transactions did not need to be mitigated.”

It also disagreed with the contention by some intervenors that energy-only bilateral sales to self-supply entities cannot convey a state subsidy. “Rather, if an energy-only bilateral contract entered into by a self-supply entity meets the requirements set forth in PJM’s proposal, then that contract is excluded from the definition of state subsidy. Otherwise, as the rehearing order found, the expanded MOPR applies to bilateral contracts entered into by self-supply entities. The record provides no basis for generally distinguishing bilateral contracts for energy from other bilateral contracts entered into by self-supply.”

It also rejected requests to require PJM to allow a competitive exemption for self-supply transactions that are shown to be competitive or that the RTO and the Monitor review self-supply contracts and determine whether the contract conveys a subsidy.

“If a state-subsidized resource is truly competitive, the resource can use the resource-specific exception to offer less than the default offer price floor, thereby permitting resources to show they are truly participating competitively and protect market integrity,” FERC said.

FRR Revenue

FERC approved PJM’s proposal that any revenue for providing capacity as part of an FRR capacity plan or through bilateral transactions with FRR entities will not be considered a state subsidy.

It disagreed with the Monitor’s contention that any FRR revenue should be considered a subsidy even if it does not meet the definition.

Market Seller Offer Cap Provisions

FERC rejected PJM’s proposed revisions to the market seller offer cap, saying the cap has “never been a subject of this [Federal Power Act] Section 206 proceeding.”

“Neither the December 2019 order nor the rehearing order directed changes to the market seller offer cap provisions or found that sellers should be able to offer above the default market seller offer cap without a resource-specific review, as currently required by the Tariff.”

The commission said it understood PJM’s concern that sellers may be left without a valid offer under potentially conflicting Tariff provisions when the default or resource-specific offer price floor for a resource is higher than the cap for such a resource. “In such a circumstance, we find that the resource should submit an offer using the resource-specific review process,” FERC said.

Self-supply Exemption

FERC accepted PJM’s proposal regarding the self-supply exemption. It rejected a request for clarification by Southern Maryland Electric Cooperative, saying “an executed bilateral contract alone is not one of the eligibility criteria for the exemption.”

RPS Exemption

The December order, as modified by the rehearing order, directed PJM to include an exemption for renewable resources receiving support from state-mandated or state-sponsored RPS programs.

PJM’s proposed RPS exemption was accepted in part, with the commission requesting a modification directing the RTO to modify Tariff language related to eligibility for exemptions to state that “a capacity resource may qualify for the exemption if it is the subject of an interconnection service agreement that is executed by the interconnection customer on or before Dec. 19, 2019.”

DR/EE/Storage Exemption

FERC directed PJM in the December order to include a DR, energy efficiency and storage resource exemption that would meet at least one of three criteria to be eligible: have successfully cleared an annual or incremental capacity auction prior to Dec. 19, 2019; have completed registration on or before Dec. 19, 2019; or have a measurement and verification plan approved by PJM for the resource on or before Dec. 19, 2019.

The commission mostly accepted PJM’s proposal, directing further compliance on the RTO’s proposal regarding utility-based residential load curtailment programs. FERC directed PJM to remove a parenthetical statement “(or for utility-based residential load curtailment program, based on the total number of participating customers)” from Attachment DD, section 5.14(h)(7)(a).

“The rehearing order requires aggregators and curtailment service providers (CSPs) to be considered to have previously cleared a capacity auction only if all the individual resources within the offer have cleared a capacity auction either on their own (i.e., individually) or as part of an offer from an aggregator or CSP,” the commission said.

Competitive Exemption

The December order directed PJM to include a competitive exemption for both new and existing resources, other than new gas-fired resources, that certify to the RTO that they will forego any state subsidies. The rehearing order further clarified that the competitive exemption is available to state-subsidized resources “receiving or entitled to receive a state subsidy that certify they will forego the state subsidy,” noting that all resources seeking to use the competitive exemption must certify whether or not they receive, or are entitled to receive, a state subsidy.

FERC ordered PJM to submit an additional compliance filing, directing the RTO to modify its proposal regarding the gaming provisions that dictate “under what circumstances a resource that elects the competitive exemption and then accepts a state subsidy will forfeit its capacity revenue.”

The commission also rejected PJM’s proposal that, going forward, any capacity resource that cleared an auction before it received or became entitled to receive a state subsidy shall be deemed a cleared capacity resource with state subsidy, rather than a new capacity resource with state subsidy.

Default Offer Price Floors

FERC approved PJM’s proposed gross cost of new entry (CONE) values except for the energy efficiency value, which it deferred to a separate proceeding on reserves, in which the commission found the RTO’s methodology for calculating the energy and ancillary services offset (E&AS) unjust and unreasonable (EL19-58). A compliance filing that includes a new proposal for EE gross CONE in that docket is pending before the commission.

FERC accepted PJM’s proposed gross avoidable-cost rate (ACR) values and its proposal to adjust the Tariff-stated gross CONE values for combustion turbine and combined cycle resources annually using the applicable Bureau of Labor Statistics Composite Index.

The commission accepted in part, and rejected in part, PJM’s proposal regarding default offer price floors for generation-backed DR. Specifically, FERC accepted PJM’s proposed gross CONE and ACR values for generation-backed DR diesel resources but rejected the RTO’s proposal to use those values for other types of behind-the-meter generation because it was not consistent with prior orders.

“We have already found that behind-the-meter generators should have the same costs as front-of-meter generators of the same type,” the commission said. “The rehearing order found that behind-the-meter generators should not receive special treatment and that parties failed to present evidence ‘why a specific type of generator should have fundamentally different going-forward or construction costs depending on whether it exists behind or in front of the meter.’”

Resources not Subject to the Must-offer Requirement

FERC directed PJM in the December order to propose default offer price floors for all other types of resources that participate in the capacity market, with the rehearing order clarifying specifically that the RTO should propose default offer price floors for seasonal resources.

The commission approved PJM’s proposal that the offer price floor should be applied regardless of the actual sell offer quantity or the resource’s status as a seasonal Capacity Performance resource, for both the default offer price floors and the resource-specific offer price floors.

“We agree with PJM to base the offer price floor on the capacity resource’s full capacity capability ensures cost recovery, and no more, for each megawatt-day offered and cleared,” the commission said.

The December order directed PJM to maintain the “resource-specific exception,” expanding it to cover existing and new state-subsidized resources of all resource types and to permit “any resource that can justify an offer lower than the default offer price floor to submit such offers for review.”

PJM proposed two options for sellers seeking the resource-specific exception: an offer that considers only costs related to participating in the capacity market and meeting a capacity commitment, and an offer that considers all costs and permissible revenues.

“The first option is not consistent with the rehearing order, which found that behind-the-meter resources should not be treated differently solely because they are behind-the-meter and directed that all resources of a particular technology type should be treated the same,” the commission said, approving the second option.

Certification

PJM proposed that each seller inform the RTO whether its resource is state-subsidized during the pre-auction registration process. It included provisions that the information must be provided no later than 120 days prior to the annual capacity auction for each seller other than DR and EE resources, which would have a 30-day deadline.

The commission accepted PJM’s certification proposal in part, approving the RTO’s proposed deadlines, but created a stipulation that if any changes in a state subsidy status occurs within 30 days of the auction, sellers will have five days to notify the RTO of the change.

Fraud or Material Misrepresentations

PJM proposed that if it or the Monitor suspects “misrepresentation or omission in the relevant certification,” either entity may request additional information to be provided within five business days.

The commission accepted PJM’s proposal and declined to direct the RTO to remove Tariff references describing the Monitor’s role as “advice and input.”

“Contrary to the Market Monitor’s contention, stating that the Market Monitor will provide advice and input to PJM does not mean that the Market Monitor’s role as independent evaluator is diminished or change the fundamental roles between PJM and the Market Monitor related to the capacity market,” the commission said.

Waiver Request and Auction Schedule

The December order directed PJM to provide revised dates and timelines for the BRA associated with delivery year 2022/2023 (2019) and related incremental auctions, along with revised dates and timelines for the BRA associated with delivery year 2023/24 and related incremental auctions, as necessary.

The commission granted PJM’s waiver allowing the pre-auction process to begin two weeks after FERC issued the order, with the next annual capacity auction to be conducted in six and a half months.

Replacement Capacity

The rehearing order clarified that capacity from state-subsidized resources cannot serve as replacement capacity “bilaterally procured to fulfill a capacity commitment for an unsubsidized resource.”

The commission determined that it’s not consistent with prior orders to allow a state-subsidized resource to evade the MOPR through a bilateral transaction, regardless of the term of the transaction. The order acknowledged PJM’s concern that the change “would inhibit the ability for capacity market sellers of jointly owned resources to replace resources within their own portfolios.”

But the order said the modified provision that removed the phrases “short term” and “one year or less” from Attachment DD section 4.6(e) was just and reasonable and followed the Monitor’s position that this provision should extend to replacement capacity within portfolios as well.

“It is not consistent with the prior orders, or just and reasonable, to allow a supplier to game the expanded MOPR by switching the capacity obligations within its portfolio to alternative resources,” the commission said.

The commission accepted only the proposed changes to existing Attachment DD section 5.14(h), which are related to the replacement rate, and accepted PJM’s proposal to change the name of the section to “Minimum Offer Price Rule for Certain New Generation Capacity Resources that are not Capacity Resources with State Subsidy.” All other changes in the section were rejected as being outside of the scope of the filing.

The rehearing order clarified that the December order did not direct any changes to PJM’s pre-existing MOPR and that the RTO’s compliance filing “should not contain any substantive changes to that section unrelated to the replacement rate.” But the rehearing order explained that state-subsidized resources should be subject to the MOPR regardless of their location with respect to the expanded MOPR.