Challenges to PJM’s narrowed minimum offer price rule (MOPR) in the 3rd U.S. Circuit Court of Appeals do not just concern the RTO and its capacity market; they may set the precedent for all future legal reviews of tariff changes that go into effect because of a commissioner deadlock at FERC.
In briefs filed with the 3rd Circuit on Monday, the PJM Power Providers Group (P3), Electric Power Supply Association (EPSA) and two state utility commissions not only argued that the new MOPR threatened the competitiveness of the PJM capacity market, but that FERC did not provide adequate reasoning for allowing the rules to go into effect (21-3068).
The narrowed MOPR — which applies only to resources connected to the exercise of buyer-side market power or those receiving state subsidies conditioned on clearing the RTO’s capacity auction — automatically took effect Sept. 29, 2021, because FERC’s four members at the time were evenly divided. (See FERC Deadlock Allows Revised PJM MOPR.)
Such deadlocks are rare, but they had occurred before, including a tie vote over ISO-NE’s Forward Capacity Auction 8 in September 2014, the results of which were automatically accepted. The D.C. Circuit Court of Appeals refused to review the auction in 2016 because there was no order by the commission. (See FERC: FPA Change may not Solve Catch-22 on Vote Deadlocks.)
The America’s Water Infrastructure Act, signed into law by President Donald Trump in October 2018, added a provision to Section 205g of the Federal Power Act to allow for judicial review if FERC fails to act on the merits of a rehearing request within 30 days because the commissioners are divided 2-2. The challenge to the PJM MOPR marks the first time a court has been asked to address the standard of review in the new provision.
In its petition, P3 called the new MOPR a “radical reversal in policy” that “eviscerated more than a decade” of precedents by the commission regarding the rule.
The notice issued by the commission announcing a deadlock was not an order and contained “no findings of fact or conclusions of law authorizing PJM to implement market rule changes that reverse longstanding FERC precedent” and to “defy minimum requirements for controlling state-sponsored market power,” the organization argued.
“This policy reversal was not made through a FERC order, but rather announced by FERC’s secretary on the basis of a tie vote,” P3 said. “To the extent this court chooses to address the commissioners’ conflicting views on the merits of PJM’s proposal, it should find the MOPR revisions unjust, unreasonable and unduly discriminatory.”
P3 cited comments from Chairman Richard Glick, who dissented from a previous order under Chair Neil Chatterjee that expanded the MOPR, arguing that it would increase capacity prices and impede the development of renewable resources in the RTO. However, P3 cited, when PJM held its only capacity auction under the expanded MOPR in May 2021, capacity prices fell “dramatically” and “large amounts of new renewable resources displaced thermal resources.”
“Nevertheless, Chairman Glick repeatedly threatened PJM and other regional transmission organizations to propose their own modifications or FERC would ‘do it for them,’” P3 said.
The group also argued that independent power producers “cannot compete effectively against resources that employ state subsidies to submit uneconomic offers below their actual costs” and that the new rules “allow certain states to shift the cost of subsidized resources to consumers in other states through a market-wide clearing price.”
“PJM’s narrow MOPR discriminates against all unsubsidized power suppliers and cannot produce just and reasonable wholesale rates as required under the FPA,” P3 said. “It is beyond legitimate argument that subsidies disrupt competition, distort market prices and harm nonsubsidized resources.”
In its own petition, EPSA argued that FERC’s default acceptance of PJM’s MOPR proposal “does not represent reasoned decision-making by the agency” and should be set aside under the Administrative Procedure Act (APA).
EPSA said the APA’s arbitrary and capricious standard requires an agency to “articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’”
“The agency itself — as opposed to individual commissioners — has provided no explanation for its deemed action, and it is only FPA Section 205(g) that transforms FERC’s non-action into reviewable agency action in the first place,” EPSA said. “FERC has — through its inaction — allowed a rate structure to take effect that shares the exact feature that, in FERC’s own estimation, made the pre-2018 tariff unlawful: a MOPR that does not address state-subsidized resources. That abject failure to abide by the most basic requirements of reasonable administrative decision-making requires reversal.”
The group also argued that FERC’s action violated the FPA’s prohibition on “unduly discriminatory” rates and that the commission is not permitted to “approve a rate structure that would allow a single state to impose its own policy choice on neighboring states.”
“The focused MOPR improperly allows one state to project its policy choices regarding the generation mix beyond its borders, dictating the generation mix that applies to other states,” EPSA said.
State Challenges
In a joint petition, the Pennsylvania Public Utility Commission and Public Utilities Commission of Ohio argued that the commission’s inaction on the MOPR allowed PJM “to overturn a FERC-defined rate without any supportive reasoning or public decision-making whatsoever.”
The commissions said the narrowed MOPR will allow buyer-side market power to “infiltrate its capacity market with a low likelihood of screening.”
“FERC and the courts have emphasized that market power must be reviewed,” they said. “For its part, FERC has repeatedly approved buyer-side screens that review this sort of behavior without looking to intent. That review is not merely an option; it’s a critical feature of functioning competitive markets.”
They also argued that the changes “unjustly and unreasonably allow states to both subsidize resources and set a price contrary to the PJM capacity market auction price approved by FERC.”
“Regardless of when these policies were put in place, they have the effect of uncompetitively reducing prices through the market for the benefit of the buyer, and they therefore are an exercise of buyer-side market power,” the commissions said. “PJM and its supporters provide no coherent reason why old policies that exercise market power should be treated differently from new policies that do the same.”
