[NOTE: This article has been updated to include excerpts from the orders, which were not available at press time Thursday.]

By Rich Heidorn Jr.

FERC on Thursday clarified that voluntary renewable energy credits (RECs) and participation in the Regional Greenhouse Gas Initiative (RGGI) will not subject capacity resources to PJM’s expanded minimum offer price rule (MOPR).

The commission rejected rehearing of its June 2018 order declaring PJM’s capacity market unjust and unreasonable (EL16-49-001, et al.) and virtually all of its December 2019 ruling spelling out the expanded MOPR (EL16-49-002, et al.) but provided clarification on several points.

FERC directed PJM to make a compliance filing within 45 days to set the default offer price floor for new energy efficiency resources at the net cost of new entry (CONE) and existing energy efficiency resources at the net avoidable cost rate (ACR).

Changes on EE, Interconnection Agreements

Noting PJM’s concern with the difficulty of calculating price floors based on verifiable efficiency savings, and the fact that those savings cannot be verified until the resource is in operation, FERC said the default offer price floor for EE “must be based on the costs of installing and maintaining energy efficiency resources, similar to how the default offer price floors for most other resource types are determined.”

It clarified that EE may also request the unit-specific exemptions to verify a Net CONE or Net ACR value lower than the default.

The commission also ordered PJM to file Tariff revisions expanding eligibility for the categorical MOPR exemption to include new resources that had obtained interconnection service agreements, wholesale market participant agreements or interconnection construction service agreements — the final stages of interconnecting to the PJM system — prior to the December order.

“The categorical exemptions were designed so as to not unduly disrupt established investment decisions,” the commission said. “… Resources that have not reached this stage of the interconnection process are not sufficiently advanced in the development process to warrant one of the categorical exemptions.”

Chairman Neil Chatterjee announced the decisions at the commission’s monthly open meeting, which was held via teleconference because of the COVID-19 pandemic. Chatterjee reiterated that the commission’s directive was needed to respond to subsidized resources that he said are suppressing prices in PJM’s capacity market. The new rules, he said, will result in a “level playing field” for unsubsidized generation.

`Stunningly Awful’

Commissioner Richard Glick, who dissented on the two original orders, repeated his criticism Thursday, calling the rehearing orders “stunningly awful” and the majority’s logic “just plain garbage.”

“At his December press conference, Chairman Chatterjee made an astounding admission: The commission issued the MOPR order without even considering the impact of this order on consumers. Today the commission continues to blunder down that path without attempting to assess the billions of dollars it will impose on customers. And I believe that abdicates our regulatory duty.”

Glick rejected the majority’s contention that it needed to act to protect the competitiveness of the wholesale market. If that were the motivation, he said, the commission would not have exempted subsidies such as siting incentives, subsidies that previously went to conventional generation or federal subsidies.

He said the commission “twisted itself into a pretzel” on the issue of federal subsidies.

“The commission argues that it can’t subject federal subsidies to the MOPR because that would block Congress’ policy objectives,” he said. But when parties said in rehearing requests that the ruling was frustrating state policy in support of renewables, “the commission’s response is that the MOPR does no such thing. The commission cannot and should not have it both ways,” he said.

Glick said the real motivation for the order is to counter state efforts to address the externalities of greenhouse gas emissions from fossil fuel generators. “That appears to be bothering this commission,” he said.

In a press conference after the meeting, Chatterjee rejected Glick’s criticism. “These are well reasoned orders, and broad attacks like that mean very little,” he said.

Chatterjee also disputed Glick’s contention that the expanded MOPR will cost consumers billions — a prediction that some, including PJM’s Independent Market Monitor, have disputed.

The IMM released an analysis last month that concluded that expanding the MOPR will not have an impact on clearing prices or auction revenues for the next Base Residual Auction, for delivery year 2022/23. (See MOPR May Not be Death Knell for Renewables in PJM.)

Rehearing Rejected

The commission rejected arguments that it failed to cite evidence that state out-of-market support is causing price suppression.

“These rehearing arguments rest on the faulty assumption that, in order for the commission to sufficiently support its Section 206 finding that PJM’s existing Tariff is unjust and unreasonable, the commission is required to analyze the results of previous capacity auctions and demonstrate that that state subsidies have had a significant price suppressive effect,” FERC said. “Rather, to support its Section 206 finding, it was appropriate for the commission to rely on record evidence and basic economic theory to conclude that PJM’s existing Tariff does not account for and mitigate the price suppressive impact of state subsidies… While the June 2018 order does not find that any particular capacity auction has produced unjust and unreasonable results, the commission need not wait to address price distortions from subsidized resources until it finds that the capacity auction has produced unjust and unreasonable results.”

It also dismissed arguments that an efficient market would price environmental externalities as “not relevant.”

“The purpose of a capacity market is to ensure resource adequacy at just and reasonable rates, not to mitigate the negative externalities associated with the production of electricity,” it said.

FERC also rebuffed claims that it had failed to follow precedent because it previously found that renewable resources do not pose a threat of price suppression. “Circumstances have changed. Evolution of the commission’s policy is justified in response to the proliferation of out-of-market support to resources that permit these resources to offer non-competitively and suppress prices,” it said.

And it said its orders did not violate state sovereignty, saying out-of-market payments such as RECs and zero-emission credits for nuclear plants allow resources to make capacity market offers below costs. “Because these programs disrupt competitive price signals that PJM’s capacity auction is designed to produce, we are obligated to act to deter uneconomic participation,” it said.

Glick’s dissents on Thursday’s rehearing orders criticized the commission for “a degree of condescension that is unbecoming of an agency of the federal government.”

He said the majority was abusing the MOPR concept, transforming “a narrowly tailored anti-monopsony measure into a regime for blocking state efforts to shape the generation mix.”

Glick predicted the orders will result in the “fracture” of PJM, the largest RTO in the country.

“States throughout the region are already looking for ways to pull their utilities out of the capacity market rather than remain under rules designed to damage their interests. Today’s orders snuff out what little hope may have remained that the commission would again change course and adopt a more sensible market design.”

Next Steps

The commission on Thursday also dismissed as moot a complaint by CPV Power Holdings over PJM’s MOPR, saying the relief the company had sought was addressed by the June 2018 and December 2019 orders (EL18-169).

The commission also denied requests for rehearing of its April 2019 order approving PJM’s quadrennial revision of the variable resource requirement (VRR) — the demand curve for the capacity market — rejecting complaints that it results in over-procurement of capacity. The order affirms PJM’s selection of the CT H-class turbine as the reference resource (ER19-105-004). The Sierra Club and the Natural Resources Defense Council released a study in February alleging PJM’s over-procurement costs consumers billions annually.

By ruling on the rehearing orders, FERC started a 60-day clock for those who want to challenge the commission’s rulings before the D.C. Circuit Court of Appeals. Dozens of stakeholders filed requests for rehearing or clarification of the December order, with some observers predicting the issue will end up before the Supreme Court. (See PJM MOPR Rehearing Requests Pour into FERC.)

Reaction

The New Jersey Board of Public Utilities issued a statement saying it is “deeply disappointed that FERC has once again sided with the fossil fuel industry rather than allowing states to implement policies that best benefit their residents. The decision fails to recognize the important steps we must take to address the impacts of climate change on New Jersey. We will fight this decision as vigorously as possible at every opportunity, and we will not let FERC’s actions stand in the way of implementing Gov. [Phil] Murphy’s clean energy vision. The governor is committed to continuing the battle against the devastating impacts of climate change and creating a safer, healthier environment and economy for all New Jerseyans.” The BPU last month opened an investigation to consider alternatives to the PJM capacity market. (See N.J. Investigating Alternatives to PJM Capacity Market.)

Jeff Dennis, managing director and general counsel for Advanced Energy Economy, said, “FERC’s decision to deny rehearing will only increase the growing tension and costly misalignment between state clean energy policies and federally regulated wholesale markets.”

But Todd Snitchler, CEO of the Electric Power Supply Association, praised the rulings. “FERC and Chairman Chatterjee today put consumers first by clarifying a ruling with significant impacts for 65 million electricity customers in PJM and nationwide. This is a step toward resolving concerns surrounding state goals and regional power markets, and we are pleased to see the commission act swiftly in support of fair competition in PJM’s capacity market.”

FERC’s exemption of RGGI and voluntary RECs from MOPR was consistent with the compliance filing PJM filed in March, which said capacity resources that generate RECs can use the MOPR’s competitive exemption if they certify that the credits will only be used and retired for voluntary obligations rather than state-mandated renewable portfolio standards. (See PJM Makes MOPR Compliance Filing.) Comments on PJM’s compliance filing are due May 15.

Chatterjee declined to comment on how quickly the commission will act on the compliance filing, but he did address concerns that some states might seek to pull their utilities out of the capacity market as a result of the ruling.

“Organized, competitive markets bring significant benefits to consumers, and I think state leaders will be really hard-pressed to ignore that,” he said. “From my view, I think that state leaders will wait to see how this plays out, wait and see how the auctions go and then reassess.”

Monitor: Maryland FRR Likely to Increase Capacity Costs

Also on Thursday, the Monitor released a report concluding that Maryland customers would likely pay higher capacity prices if the state’s utilities left PJM’s Reliability Pricing Model and acquired their capacity through a fixed resource requirement (FRR).

In five of six scenarios considered, Maryland ratepayers within the FRR would see capacity costs increase by 6 to almost 43%, while the state’s overall costs would be either unchanged or rise by as much as 23%. One scenario — the creation of an FRR for the Maryland portion of the Pepco locational deliverability area (LDA) — suggested costs within the LDA could drop by 5% and the rest of the state by 1%.

“Based on the analysis, the creation of a Maryland FRR, a BGE FRR or a Pepco/MD FRR, is likely to increase payments for capacity by customers in Maryland,” the Monitor said. “Creation of an FRR creates market power for the small number of local generation owners from whom generation must be purchased in order to meet the reliability requirements of the FRR entities. There is at least one single pivotal supplier in each of the Maryland, BGE and Pepco FRRs, which means that there is at least one generation owner, and in some cases more, that has monopoly power in each case.

“In the FRR approach, there is no PJM market monitoring of offer behavior by generation owners; there are no market rules governing offers; and there are no market rules requiring competitive behavior,” the Monitor continued. “As a result, even the higher estimates of the cost impact to the customers of Maryland from the creation of an FRR are likely to be conservatively low. If Maryland were to subsidize any generating units, the subsidy costs would be in addition to the direct FRR costs.”

The Monitor released a report in December that concluded that creation of an FRR in Commonwealth Edison’s LDA in Illinois was likely to increase capacity costs for ComEd customers while reducing capacity costs elsewhere in the RTO.