More than two dozen comments poured in to FERC on Friday regarding PJM’s proposed replacement for the extended minimum offer price rule (MOPR-Ex), with a healthy mix of support and opposition (ER21-2582).

The RTO’s proposal, filed with the commission July 30, received criticism from merchant generators, electric cooperatives and state utility regulators. But some entities in those same groups took the opposite outlook.

Stakeholders approved the proposal in an 87-18 vote at a special Members Committee meeting held June 30. The Board of Managers gave final approval July 7, setting in motion the FERC filing. (See PJM Board Approves MOPR Rollback.) Chair Mark Takahashi had said the board selected PJM’s proposal because it “accommodates state policy and self-supply business models,” addresses “attempted exercises of buyer-side market power (BSMP)” and creates a “sustainable market design” by “keeping clearing prices consistent with supply and demand fundamentals.”

The PJM MOPR proposal calls for “maximiz[ing] transparency and market confidence” through identification of BSMP by the RTO and Monitor and proposes to “further clarify the actions of a state” that may “improperly interfere with bidding in PJM’s capacity market and FERC’s ratemaking authority.”

Market participants would be asked to sign attestations declaring they are not exercising market power or receiving state funds tied to clearing in the auction, while PJM and the Monitor would conduct “fact-specific, case-by-case reviews” if market power is suspected. Referrals would be made to the commission for a final determination.

The new rules would eliminate both the expanded MOPR created by FERC’s December 2019 ruling and PJM’s prior MOPR, which was limited to new natural gas resources. (See FERC Extends PJM MOPR to State Subsidies.)

PJM officials vowed to have the proposed changes incorporated into the 2023/24 delivery year Base Residual Auction scheduled for December pending approval by the commission. (See PJM Proposes Shifting MOPR Determinations to FERC.)

Protests

Calpine and LS Power issued a joint protest, saying the proposal “fails to include critical information” and that the MOPR modifications are “patently unjust, unreasonable, and unduly preferential and discriminatory.”

The merchant generators said the proposal resulted from a “rushed and skewed stakeholder process [after] a directive from the PJM Board of Managers to accommodate state-subsidized resources.” It would permit subsidized resources to “drive down capacity prices, without any consideration of the impact on merchant generators, who have invested billions of dollars in this market, or any concrete plan to ensure that resources required for reliability have an opportunity to recover their investment and a return on that investment.”

The Pennsylvania Public Utility Commission and the Public Utilities Commission of Ohio said the proposal would make “improvements for state policy accommodation by removing capacity resources participating in competitive and nondiscriminatory state default service procurements from being subject to buyer-side market power mitigation and affording the same treatment to competitive new natural gas capacity resources that receive no state support.”

But they said the proposal “fails to provide the necessary checks and balances to ensure that sufficient market power protections exist” through its attempt to accommodate state policies. The “unsupported and experimental accommodations” in the proposal “threaten to destabilize PJM’s capacity market” through “gaming of generally permissive rules” by market participants.

The proposal “unjustly transfers the consequences of a particular state’s policy preference(s) to all states and consumers within the PJM region,” the commissions argued. They recommended that FERC direct PJM to continue studies of the impacts of MOPR policies on competitive markets.

“Generally, we support the accommodation of state policies within the PJM markets where such policies do not lead to an unjust and unreasonable outcome,” they said. “But the state policy choices of one state should not be unreasonably foisted upon or burdensome to other PJM states when those choices result in reliability concerns or the premature displacement of competitive merchant resources.”

The Independent Market Monitor said PJM’s markets would be “better off, more competitive and more efficient with no MOPR” rather than with the RTO’s proposal, saying its solution would “effectively eliminate the MOPR while creating a confusing and inefficient administrative process that effectively makes it both unnecessary and impossible to prove buyer-side market power as PJM has defined it.” It said the commission should initiate a proceeding to establish an “orderly process to produce a balanced and effective rule for PJM.”

Old Dominion Electric Cooperative’s protest said PJM’s proposal could be interpreted to “exclude certain public power entities from accommodation of their longstanding business models while providing such protection for others.” ODEC said the tariff revisions must be clarified to “preserve the outcome and expectations from the stakeholder process and accommodate certain self-supply from electric cooperatives acting under longstanding business models.”

“Absent the assurance that they qualify as self-supply sellers and their resources can qualify for the non-exhaustive list of resources that would not be subject to a buyer-side market power inquiry,” ODEC said, “indicated cooperatives will face the same threat to their longstanding business models that Chairman Richard Glick cautioned against with the expanded MOPR. Therefore, this issue is too critical to leave any ambiguity or lack of clarity in the tariff.”

Vistra said that under the revised MOPR, the only state programs that would trigger the rule would be those that meet PJM’s definition of conditioned state support and that its application toward state programs “turns exclusively on whether PJM and the commission find that the state program at issue meets the criteria” established by the U.S. Supreme Court in Hughes v. Talen, in which the court found state policies “tethered” to federally regulated electricity markets unconstitutional.

“This approach fails because the legal framework set forth in Hughes — which the court explained was unrelated to interference with auction price signals — bears no relationship to whether a seller’s offer reflects an attempt by a state to exercise buyer-side market power,” Vistra said. “In short, PJM’s conditioned state support proposal will not provide any protection against the exercise of buyer-side market power associated with state programs.”

Vistra said the commission should reject the proposal and instruct PJM to “work towards establishing a durable MOPR framework, based on objective, economically sound principles, consistent with the commission’s statutory mandate.”

“This structure inherently invites litigation, both before the commission and in the courts, regarding the validity of state programs,” Vistra said. “A decision by PJM and the commission that a state program meets the criteria for pre-emption set forth in Hughes would lay the groundwork for subsequent court challenges seeking to invalidate the state program or policy at issue. The result would be to create additional investment uncertainty for the renewable and low-carbon resources being developed through these programs.”

Support

Although the Pennsylvania and Ohio commissions opposed the proposal, other state regulators gave their support.

The New Jersey Board of Public Utilities said it welcomed PJM’s recognition that the expanded MOPR “goes far beyond addressing the exercise of buyer-side market power” and inappropriately mitigates “nearly all resources supported by state actions.”

“The proposal provides a clear definition of buyer-side market power that is narrowly and appropriately tailored to conduct that inappropriately impacts capacity clearing prices,” the BPU said. “Regarding state policies, the proposal limits MOPR application to specifically defined conditioned state support.”

In its comments, the Maryland Public Service Commission said PJM’s proposal “rightfully recognizes the legitimate actions states have taken to shape their resource mix and refrains from applying MOPR to resources associated with these actions.”

“PJM’s filing observes that the expanded MOPR ‘ignores that state support for renewable resources has become a well established determinant of supply in the PJM region, and thus ignores the region’s actual supply-demand fundamentals,’” the PSC said. “Reforming the MOPR to account for ‘the reality of state policies’ will remove an ‘overcorrection that … works against just and reasonable rates.”

Exelon (NASDAQ:EXC) and Public Service Enterprise Group (NYSE:PEG) filed joint comments saying the MOPR is an “essential element of PJM’s capacity market design that protects suppliers and consumers from the effects of buyer-side market power.” But they said an “overbroad MOPR ensnares legitimate transactions, with severely detrimental effects for the market.” The companies said it is “critical” for the commission to “strike an appropriate balance” to “capture anticompetitive behavior without impeding legitimate transactions” in a new MOPR decision.

“PJM’s proposal avoids interfering with states’ efforts to account for the significant externalities of fossil fuel generation, which is of increasing importance to states throughout the PJM footprint,” they said. “It therefore allows the capacity market to operate more efficiently by reflecting the actual economic conditions resulting from these state initiatives. At the same time, the revised MOPR will effectively mitigate attempted exercises of buyer-side market power. PJM’s proposal therefore strikes a just and reasonable balance between deterring manipulative behavior and not burdening legitimate activity.”

The Organization of PJM States Inc. (OPSI) said it appreciated PJM’s “expedited efforts” to file tariff changes as soon as possible. It said it’s “looking forward to” the RTO taking up additional discussions on changes to the capacity market that were not addressed in the filing.

“OPSI sees an opportunity here for the commission, when approving the filing without delay, to signal to PJM the importance of continuing to work to more fully accommodate state policies and address remaining, but important, issues … to ensure states can rightfully continue as laboratories of energy innovation,” the organization said.

Additional Comments

Electric Power Supply Association (EPSA) CEO Todd Snitchler said the “weakened” MOPR proposed by PJM “infringes on states’ rights by allowing some states to impose their policy choices on others and shift the cost of subsidized power generation to out-of-state producers and consumers.”

Snitchler said the competitive results from the May capacity auction demonstrated that changes to the MOPR are not necessary right now and that PJM and its stakeholders should spend more time considering alternatives. (See Capacity Prices Drop Sharply in PJM Auction.)

Travis Kavulla, vice president of regulation for NRG Energy, tweeted that the “vestigial MOPR” proposed by PJM would “actually encourage disingenuousness in state policymaking” because one of the revisions would “tie MOPR to ‘intent’ to suppress market prices.” Kavulla said such a policy “rewards obfuscation,” noting the “recent shenanigans” in Ohio and Illinois, referring to scandals involving FirstEnergy and Commonwealth Edison. (See DOJ Orders $230 Million Fine for FirstEnergy and Ex-ComEd CEO, Officials Charged in Ill. Bribery Scheme.)