By Suzanne Herel

FERC declined last week to rehear a 2013 order approving PJM’s revisions to a rule designed to mitigate buyer-side market power in the capacity market.

The ruling addressed the minimum offer price rule (MOPR), which PJM added to its auction protocols in 2006 amid concern that load could have an incentive to suppress market clearing prices by offering supply at less than a competitive level (ER13-535). (See Split Decision on MOPR; FERC Upholds PJM Exemptions, Rejects End to Unit-Specific Review.)

PJM in 2013 proposed narrowing the list of resource types to which MOPR would apply, eliminating the unit-specific review process and establishing categorical exemptions for competitive entry and self-supply resources.

That, PJM said, would create a better defined and transparent process for granting MOPR exceptions, while addressing concerns from market participants about competitiveness in the 2012 capacity market auction.

FERC accepted the exemptions but ordered that PJM retain its unit-specific review process.

The order was challenged by stakeholders including NRG Energy, state consumer advocates, the PJM Power Providers Group (P3), the Illinois Commerce Commission, Calpine and FirstEnergy.

‘Flawed’ Process

Calpine said FERC was mistaken in requiring PJM to retain the unit-specific review because the commission had acknowledged in the 2013 order that it was “flawed.” FERC said it had acknowledged that the process “warranted additional stakeholder review and the consideration of certain enhancements.”

Nevertheless, it said “we cannot conclude, based on the record before us, that review of individual units’ costs and revenues is an unjust and unreasonable method of determining rates. To the contrary, the commission noted in the May 2013 order that, based on PJM’s assessment, the clearing prices in PJM’s capacity auctions held during the period in which the unit-specific review process has been in effect have been just and reasonable.”

Exemption for IGCC Units?

The ICC said FERC erred in allowing PJM to subject integrated gasification combined-cycle generators to the MOPR because they require long development times and thus incur significant sunk costs prior to their participation in capacity auctions, making them unlikely to suppress capacity prices.

The commission responded by citing PJM’s “concerns regarding the ability to eliminate the gasification component of an IGCC plant such that the project originally planned as an IGCC plant could become a combined-cycle plant.”

“Based on these concerns, we continue to find the relevant characteristics of an IGCC resource justify their inclusion in the MOPR, consistent with PJM’s treatment of other natural gas-fired units,” FERC said.

Discrimination Against Competitive States Alleged

The commission also rejected a complaint by consumer advocates that the MOPR is discriminatory because generation in restructured states is not eligible for the self-supply exemption and because the competitive entry exemption qualification requirements are more stringent than those for self-supply in traditionally regulated states.

The commission accepted PJM’s proposal to exempt new entry projects developed through a state-sponsored or mandated procurement process as long as that process was competitive and non-discriminatory. FERC gave no ground in its new order, saying the differences between the eligibility requirements for the competitive entry and self-supply exemptions were not discriminatory.

“Both the competitive entry and self-supply exemptions are tailored to ensure that merchant resources that have no incentive to artificially suppress capacity prices are able to offer into the capacity auction at prices that are not subject to mitigation,” it said.

Self-Supply Concerns

FirstEnergy worried that the self-supply exemption could be gamed. NRG argued that the self-supply exemption “will result in a large number of new power plants being built by vertically integrated utilities and public power entities, the effects of which will suppress market clearing prices.”

“We disagree,” the commission responded. “With properly calibrated [net short and net long] thresholds, PJM’s self-supply exemption will not operate in a manner that encourages uneconomic entry and thus will not artificially suppress market clearing prices.”