Dominion Energy Virginia has abandoned PJM’s capacity market over concerns the minimum offer price rule (MOPR) will undermine its ability to meet Virginia’s ambitious renewable energy targets.

The utility confirmed Wednesday it has chosen the fixed resource requirement (FRR) for capacity year 2022/23 for more than 60 generating units totaling more than 18.1 GW. That represents about 11% of the 163.6 GW that cleared in the 2021/22 BRA in May 2018.

All told, 175 generating units have declared they will choose the FRR for the Base Residual Auction on May 19, the second highest on record and more than double the 85 units that chose the FRR option for 2021/22.

Dominion spokesman Rayhan Daudani told RTO Insider on Wednesday that the utility elected the FRR alternative “recently.”

“Given the minimum offer price rule and the Virginia Clean Economy Act [VCEA] requirements, FRR is a cost-effective choice on behalf of our customers, who will continue to receive the reliable, affordable service they are accustomed to,” he said. “I can also confirm we’ve had discussions with the [Virginia State Corporation Commission] on this topic.”

“This is a company decision that does not require any action by the SCC,” said SCC spokesman Ken Schrad. He added that the prudency of Dominion’s decision could be raised by intervenors during the current financial review of the utility (PUR-2021-00058.)

All of Dominion’s PJM-approved regulated capacity resources, including its Surry and North Anna nuclear plants, are in its FRR plan, Daudani said.

Under the FRR option, load-serving entities such as Dominion can meet PJM’s resource adequacy requirements by committing to acquire adequate capacity to meet the RTO’s forecast of its loads plus a reserve margin for at least five years.

Although PJM’s Reliability Assurance Agreement (RAA) requires utilities to make an election four months before the auction, there is no requirement that such elections be made public, and Dominion had not discussed it publicly until being contacted by RTO Insider. PJM posted the list of FRR units on April 23.

The decision was also not mentioned in Dominion’s first-quarter earnings call Tuesday. (See related story, Dominion Confident in OSW Price Despite Rising Costs.)

Monitor: Transparency Needed

“We think the process should be a lot more transparent,” Independent Market Monitor Joe Bowring told RTO Insider.  “That election, in our view, should be public so that the market can absorb the information.”

The Monitor, which has previously issued reports on the potential impact of the FRR option in Illinois, New Jersey and Ohio, is completing work on a report on the impact on Virginia, Bowring said.

Although the prior reports predicted the FRR option would be more expensive to ratepayers in the three states, Bowring said Dominion is “unique” because it is a vertically integrated utility. “They’ll buy their own capacity and pay cost-of-service” rates, he said.

Dominion told Virginia regulators in its proposed integrated resource plan last May that it was still evaluating the FRR alternative in response to FERC’s December 2019 order expanding the MOPR to new state-subsidized resources.

FERC had previously exempted from MOPR self-supply resources owned by public power entities and vertically integrated utilities subject to traditional bundled rate regulation like Dominion. But in the 2019 order, FERC said new self-supply resources would no longer be exempt, ruling that they suppress capacity prices.

Dominion asked FERC to expand eligibility for the self-supply MOPR exemption to any resource that is planned under a self-supply entity’s IRP. (See Dominion: FERC MOPR Rulings Inconsistent on Self-supply.) FERC rejected Dominion’s request in April 2020.

But new FERC Chair Richard Glick (D) has called for eliminating the MOPR, which he said Republican commissioners were using to undermine state efforts to decarbonize their generation. Last week, PJM proposed making FERC determine which resources are subject to the rule. (See PJM Proposes Shifting MOPR Determinations to FERC.)

Critics say the MOPR increases the costs of meeting state clean energy goals and requires utilities to retain unnecessary legacy fossil fuel generation.

Dominion is planning to build 2.6 GW of offshore wind and is more than halfway through a plan to add 3,000 MW of solar generation. Its proposed IRP for 2021-2045 would quadruple the amount of solar and wind generation in its previous 15-year plan, a response to Gov. Ralph Northam’s executive order on climate change and the VCEA. (See Va. 1st Southern State with 100% Clean Energy Target.)

Integrated Resource Plan

In its discussion of the FRR option in its IRP, Dominion noted that American Electric Power, parent of Appalachian Power in Virginia and West Virginia, is “the only significant utility in PJM” to have adopted FRR.

“Because of its five-year minimum commitment requirement, risks to FRR election should be carefully weighed against the benefits,” Dominion told the SCC. “Risks include future environmental changes, regulatory changes, zonal constraints, and capacity and energy market changes. The potential benefits of FRR election include [a] lower required reserve margin and the absence of MOPR risk to new generation used to meet the load obligation.”

In testimony on behalf of the Sierra Club in the IRP docket, Synapse Energy Economics associate Jason Frost told the SCC it should require Dominion to conduct a full cost-benefit analysis of the FRR alternative versus remaining in the capacity market. He said the commission should open a docket to allow stakeholders an opportunity to file comments and present testimony on the company’s analysis.

The primary benefit of the FRR, Frost said, is protecting consumers from paying excess costs for renewable power. “If the capacity from new renewable resources receiving state incentives is not counted toward PJM’s capacity requirement, then consumers may end up paying twice for capacity: once for unnecessary fossil generation through the [capacity market], and once in the form of higher incentive costs for renewable resources needed to meet state clean energy goals,” he said.

The FRR’s portfolio-level physical compliance option can also reduce risks.

“Under this framework, individual resources are not penalized based on performance during severe grid conditions. Instead, the LSE is required to procure additional resources in the next year if its portfolio of resources does not perform as required,” Frost said. “This can reduce the risk for individual renewable resources participating in the capacity market.”

Until 2023, the impact of the MOPR on Dominion’s resource mix would depend primarily on the ability of solar to clear the auction, he said. Dominion’s plans for offshore wind and battery storage resources coming online in 2026 would be impacted by the MOPR in 2023, given the three-year lead time between BRAs and delivery years.

In February, the SCC said Dominion’s IRP was incomplete, saying the company must provide more information on how it will comply with the VCEA (PUR-2020-00035). The commission said the utility’s 2021 and 2022 updates to the plan must improve the modeling of alternative plans for complying with the law. (See Virginia Grades Dominion IRP Incomplete.)