PJM and its stakeholders continue to jostle over the impact of the proposed replacement for the expanded minimum offer price rule (MOPR) as responses continue to be filed at FERC (ER21-2582).

In a motion filed Tuesday with FERC, PJM argued that the commission should “simply accept” the RTO’s “focused” MOPR proposal, filed in July, instead of responding to the complaints over the expanded MOPR that was in place for the 2022/23 Base Residual Auction, held in May. PJM argued that an action by the commission on the existing rule “could add needless uncertainty regarding capacity commitments for the 2022/23 delivery year.”

It asked that its proposal go into effect starting with the BRA for the 2023/24 delivery year, set for December.

“To resolve the pending appeals upon commission acceptance of the focused MOPR, petitioners could withdraw their petitions, or parties could move to dismiss the case once the expanded MOPR is replaced with the focused MOPR,” PJM said in its motion.

The RTO’s proposal, which would apply the MOPR only to resources connected to the exercise of buyer-side market power or those receiving state subsidies conditioned on clearing the capacity auction, was endorsed over eight other plans in a special Members Committee meeting in June. PJM filed the proposal in late July after winning final approval from its Board of Managers.

PJM adopted the expanded MOPR after FERC’s 2-1 ruling in December 2019 that the rule should apply to all new state-subsidized resources to combat price suppression in the capacity market. Former Chair Neil Chatterjee and fellow Republican Bernard McNamee formed the majority in the decision, while Democrat Richard Glick strongly dissented, calling it an attack on state decarbonization efforts. Glick asked PJM to undo the MOPR rule after he was named FERC chairman by President Biden in January.

Dozens of comments on the extended MOPR started coming into the commission late last month, with PJM stakeholders issuing a mix of support and opposition to the RTO’s filing. (See Mixed Stakeholder Reception to PJM MOPR Replacement.)

PJM Answers

In its motion filed this week, PJM responded to some of the calls by protesters looking to expand or eliminate the MOPR, saying no stakeholder has “rebutted” that its proposal “appropriately protects against exercises of buyer-side market power,” while others have not shown that the existing MOPR is “necessary to ensure just and reasonable rates.”

PJM said some of the protesters alleged that the focused MOPR “removes all meaningful buyer-side market power mitigation.” But the RTO said “none of these allegations undermine the focused MOPR,” saying it was designed to “appropriately protect against buyer-side market power” to “ensure just and reasonable outcomes.”

Some protesters argued that mitigation approaches need to balance the risks of over-mitigation against those of under-mitigation. But PJM contended that its proposal strikes the appropriate balance between the two by “targeting only those resources that pose a threat of being used in an exercise of buyer-side market power.”

The new rule would only be directed at resources that both provide a capacity market seller the ability to exercise buyer-side market power and are offered by sellers with an incentive to exercise buyer-side market power such as a “load-serving responsibility that would benefit from reduced capacity prices.” 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. PJM and the Independent Market Monitor will conduct “fact-specific, case-by-case reviews” if market power is suspected, and referrals will be made to FERC for a final determination.

Several protesters argued that the self-certify provision is “insufficient to prevent the exercise of buyer-side market power” and that existing tariff language does not provide sufficient time for “meaningful review” of the attestations and mitigation before an auction.

PJM said its filing clarified that the self-certification requirement is “not the end of the inquiry with respect to whether an entity can exercise buyer-side market power.” It said proposed tariff language includes the “ability for both PJM and the Market Monitor to initiate a fact-specific review of whether a capacity market seller may commit an exercise of buyer-side market power with respect to a certain resource” and that PJM and the Monitor will “ultimately determine whether to apply the MOPR based on the outcome of the inquiry.”

Additional Support

In a joint motion, Exelon (NASDAQ:EXC) and Public Service Enterprise Group (NYSE:PEG) said the “crux” of many of the arguments against PJM’s proposal is that state subsidies for clean-energy suppliers are “inherently uneconomic” and that “state measures to address environmental externalities distort the wholesale markets.”

But those arguments “fly in the face of basic economics and the law,” the companies said, because the current market construct “protects a $16 billion annual pollution subsidy in PJM to fossil fuel generators by treating that subsidy as a supposedly competitive baseline.”

“States, acting within their reserved authority to regulate generation facilities, can reasonably choose to address this market failure and level the playing field by compensating clean-energy generators for their positive externalities of production,” they said. “Doing so is not anticompetitive and should not result in mitigation.”

Exelon and PSEG said FERC’s responsibility to ensure just and reasonable wholesale rates “does not require insulating federal markets from the effects of state policies aimed at addressing environmental externalities that would otherwise go unaddressed.” Allowing state policies to influence wholesale market outcomes “results in a more efficient set of capacity resources,” while opponents of PJM’s proposal “proceed on the false premise that efficiency is best achieved by pretending that externalities do not exist.”

“This proceeding therefore presents the commission with an important policy question: Is the commission required to insulate the capacity market from the effects of state policies that compensate clean generators for their social benefits in order for market prices to be just and reasonable? Nothing in the Federal Power Act requires that.”

A joint motion from consumer advocates, including the Delaware Division of the Public Advocate, Maryland Office of People’s Counsel, New Jersey Division of Rate Counsel and D.C. Office of the People’s Counsel, noted that several entities complained that PJM’s proposal “violates their ‘rights’ as utilities to earn a fair return on their investment” and that it will “undermine investor confidence.”

Such objections are “unfounded,” the advocates said, and that the proposal “removes unduly discriminatory and protectionist barriers” that limit resources supported through state policies.

“The focused MOPR is pro-competitive because it allows consumers, through state policy, to express qualitative preferences for certain kinds of generation resources, unimpeded by discriminatory and protectionist wholesale capacity rules,” they said. “Merchant generators suffer no cognizable harm from the pro-competitive market changes that PJM proposes in its focused MOPR.”

Objections

The PJM Power Providers Group (P3) said it’s “glaringly apparent” that PJM’s proposal lacks support from three major constituencies, pointing to the Monitor, “companies and member organizations who have and would like to continue to invest merchant capital in the PJM region,” and representatives in Pennsylvania and Ohio. The group said the two states represent about 40% of the population, load and capacity in the PJM footprint.

Members of the Ohio Senate said the proposal will “severely undermine Ohio’s efforts to promote robust and fairly administered competitive electricity markets in our state.” (See Ohio Senate Challenges PJM’s MOPR-Ex Filing.)

P3 said the lack of support of the MOPR-Ex from three key PJM stakeholder groups should “give the commission pause.”

“All three of these considerations should prompt the commission to reject the narrow MOPR proposal and invite PJM to submit a just and reasonable alternative,” it said. “The problem is not finding agreement that the current MOPR could be improved; rather, the problem is that PJM’s proposed solution is a gross overcorrection. The narrow MOPR proposal would destroy the ‘guardrails’ against buyer-side market power that PJM and its supporters’ admit are required by law. The narrow MOPR proposal is the product of a rushed stakeholder process that was focused on getting stakeholder votes, rather than a just and reasonable means of addressing buyer-side market power.”