The PJM Board of Managers on Wednesday approved the RTO’s proposed replacement for the extended minimum offer price rule (MOPR-Ex), setting up a final decision on the contentious capacity market issue at FERC.

At a special Members Committee meeting last week, stakeholders strongly supported PJM’s proposal in an 87-18 vote, for a sector-weighted score of 4.18/5. The PJM proposal was one of nine proposals voted on at the meeting but the only one to receive majority support. (See Stakeholders Back PJM MOPR-Ex Replacement.)

In a letter issued by the board on Wednesday, Chair Mark Takahashi said voters 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 board cited the “overwhelming member support” of PJM’s proposal during the critical issue fast path (CIFP) stakeholder process and the final vote as another reason for its selection. The board in April directed the RTO to use the CIFP process, which was designed to resolve controversial time-sensitive issues, marking the first time it was implemented.

PJM officials said they plan to work “diligently” to ensure the RTO files with FERC in time to have the changes incorporated into the 2023/2024 delivery year base residual auction scheduled for December. (See PJM Proposes Shifting MOPR Determinations to FERC.)

PJM CEO Manu Asthana said that, through the CIFP process, stakeholders “successfully tackled a complex issue in a compressed time frame, achieving both a workable solution and broad consensus behind that solution.”

“This proposal ensures that our capacity market accommodates state policy and self-supply business models, avoids customer costs of double-procurement, addresses attempted exercises of buyer-side market power and creates a sustainable market design by keeping clearing prices consistent with supply and demand fundamentals,” Asthana said.

PJM’s Proposal

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

Market participants will be asked to sign attestations declaring they arenot exercising market power or receiving state funds tied to clearing in the auction. PJM and the IMM will conduct “fact-specific, case-by-case reviews” if market power is suspected, and referrals will be made to FERC for a final determination.

The new rules will 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.

In its letter issued Wednesday, the board said discussions involved several items stakeholders had included in the matrix, including a request to delay a MOPR filing to FERC, the creation of an emerging technologies MOPR exemption, considerations related to self-supply proposals and increased reporting on capacity auction results.

The board said it ultimately decided against amending the PJM proposal because it “could alter the members’ intent as expressed in the vote” held on June 30. The letter said stakeholders can start further discussions on issues as they begin Phase 2 of capacity market discussions.

“We would like to sincerely thank the many stakeholders who invested time and energy to provide essential diversity of thought throughout this process,” Takahashi said. “We view the stakeholder process as a true strength of the organization, as it provides a venue for viewpoints across the industry to be heard and deliberated upon.”

PJM’s Response

Adam Keech, PJM’s vice president of market design and economics, said the MOPR proposal boiled down to three key points driving its design.

First, PJM wanted to ensure the proposal was “focused in” on BSMP, including attempts to exercise such market power.

The existing MOPR resulting from the December 2019 FERC ruling was too “broad” and went beyond the BSMP parameters, Keech said. Early in the CIFP process, he said, PJM received stakeholder feedback expressing the desire to refocus the MOPR on BSMP “the way it has been intended to since its inception and prior to the expansion” in December 2019.

Keech said the second driving principle was to accommodate state policy and self-supply business models. He said the existing MOPR “puts up challenges” for entities using those types of models and that PJM wanted to avoid creating “barriers” as long as they’re not attempting to exert BSMP.

The third proposal driver was to make market rules “sustainable,” Keech said, with PJM looking to move away from market designs that attempt to “reconstitute clearing prices” that aren’t consistent with the set of resources that cleared the auction.

“We felt in order to make the market rules sustainable, we had to make sure the markets adhere to the strict economic principles of making sure the prices reflect the supply and demand conditions in the market,” Keech said.

Keech said the PJM proposal advanced overwhelmingly because of the work done with stakeholders inside and outside the CIFP meetings, incorporating input, considerations and concerns while still focusing on the RTO’s three main drivers.

“It was a lot of work, a lot of listening and a lot of revisions to the proposal to try to address everybody’s concerns and give them confidence that their concern would be addressed with the proposal but not to the detriment of the effectiveness in terms of mitigating buyer-side market power,” Keech said.

Asim Haque, PJM’s vice president of state and member services, said in just three months members “tackled one of the most high-profile energy policy issues in the country.” Haque said PJM was “grateful” for the engagement by members in the expedited stakeholder process.

Haque said there was no trepidation in taking on the CIFP process even though it had never been implemented, saying the process was “highly negotiated” in Manual 34 and had a clear template for how to advance to the next steps.

PJM received “pretty clear signals” from FERC that some sort of MOPR reforms needed to be advanced quickly, and he knew the stakeholder body “would meet that call,” he said.

“Our stakeholders really stepped up and were participants in all of the different critical issue fast path stages and certainly met and exceeded our expectations of participation,” Haque said.