By Rory D. Sweeney

PJM’s Independent Market Monitor last week filed a complaint with FERC requesting fast-track revocation of the RTO’s decision to exempt a generator from a rule meant to combat market manipulation.

The complaint said PJM was “incorrect” in providing an unnamed generating unit with a competitive-entry exemption from the minimum offer price rule (MOPR).

The RTO developed the MOPR to prevent subsidized units from suppressing market prices by offering bids that are below a unit’s competitive operational costs. The rule creates a price floor at which all new units must offer into the market unless they receive one of three types of exemptions from PJM. The competitive-entry exemption allows a unit to offer in at any bid, provided the generator can prove it receives no direct or indirect subsidies. (See PJM: No Change on MOPR Yet; Remand May Have Little Impact.)

“The stakes in this case are high. This generation is clearly not merchant generation, is clearly not competitive generation and represents exactly the type of subsidized generation that the MOPR was intended to address,” the complaint said.

The complaint asks FERC to rescind the exemption before the generator submits “a noncompetitive offer” into any of PJM’s Reliability Pricing Model auctions. The RTO holds annual Base Residual Auctions for capacity required three years into the future, along with incremental auctions each year leading up to the delivery year.

The Monitor declined to name the exempted generator to avoid disclosing market-sensitive information, but it described it as “a non-regulated company wholly owned by a parent company that wholly owns a regulated, vertically integrated electric utility.” The Monitor told both the generator and PJM that the generator wasn’t eligible for the exemption because it indirectly recovers costs from customers through a non-bypassable charge, according to the complaint.

Because the generator’s construction was financed entirely by the parent, the cost of capital was lower than if the generator’s operating company had sought financing on its own, the Monitor said, and that difference is the cost the generator indirectly recovered from customers through a non-bypassable charge.

However, PJM still granted the exemption.

The Monitor contended that allowing an exemption in this situation “would create a significant loophole” in the MOPR that would render it “ineffective” in similar situations because the unit is not “purely a merchant resource” as the exemption rule requires.

“Competitive market participants who invest in new generating facilities without the backing of a regulated utility or other nonmarket support” receive “essential protection” from the MOPR and would be “inappropriately disadvantaged” by the loophole, the complaint argues.

The issue was amplified by a July 7 decision from the D.C. Circuit Court of Appeals that vacated PJM’s current MOPR provisions and remanded the order back to FERC. Among the topics at issue is one of the three MOPR exemptions, which PJM and its stakeholders had jointly requested that FERC eliminate.

If FERC reverses its position and now decides to approve the request, that would make having an exemption more advantageous and the precedent of an approved loophole more problematic, the IMM said. There would be just two exemption types, and the second — known as the “self-supply exemption” — is very limited.

“This would enhance the need for an effective MOPR and correct application of categorical exemptions to the MOPR,” the complaint argues. “If the requested application of the competitive-entry exemption were approved, it would provide an easy way to avoid the defined limits on the self-supply exemption that applies to regulated utilities and to the utility in this case.”