Week Ending April 17, 2020

Rehearing Orders on PJM MOPR Blasted by Glick, Others as Compliance Timing is Questioned

This Article Appears as Published in Foster Report No 3295
Rehearing Orders on PJM MOPR Blasted by Glick, Others as Compliance Timing is Questioned

Acknowledging a few clarifications made by FERC in rehearing orders approved April 16 that largely uphold a previous ruling on the PJM Interconnection minimum offer price rule (MOPR) and state clean energy policies, renewable energy groups and Commissioner Richard Glick criticized the orders.

The reactions were similar to those expressed when FERC issued its PJM order in December — higher costs for consumers in the PJM region, states considering pulling out of the PJM capacity market, and increased revenues for existing generation owners. Glick dissented on the two rehearing orders, as he did in December, and said the rehearing orders are “stunningly awful.”

The American Wind Energy Association (AWEA), Solar Energy Industries Association (SEIA), the American Council on Renewable Energy (ACORE), and Advanced Energy Economy (AEE) issued a joint statement on the orders, concluding that FERC is undermining the PJM capacity market and hindering state efforts to foster clean energy resources. The orders denying most rehearing requests will increase the tension and costly misalignment between state clean energy policies and federally regulated wholesale markets, said Jeff Dennis, managing director and general counsel at AEE.

Others noted that with the rehearing orders issued, parties can challenge the rulings in court. Among the elements deemed more vulnerable to legal challenges are the decision to apply the MOPR to state subsidies but not federal subsidies and applying the MOPR to new state policies but not Renewable Portfolio Standards (RPS) that were in place in 2019, observers said after the December order was issued. Both of those elements were upheld in the rehearing orders (EL16-49, EL18-178).

The PJM Independent Market Monitor has said there is no point in treating generation resources differently unless the goal is to favor one over another, and that is essentially what FERC is doing, Glick said.

The rehearing orders affirm the Commission’s previous conclusion that state generation preferences are suppressing capacity market prices in the PJM region. They address the fallout from the Commission’s June 2018 order that found out-of-market payments imposed by states to support certain resources threaten the competitiveness of the PJM capacity market. Going forward from the December 2019 decision, any new resource that receives a state subsidy will be subject to the MOPR.

FERC Chairman Neil Chatterjee defended the orders, stating that he supports a competitive capacity market in PJM as renewable resources have come down in cost and can compete without state support. The majority at the Commission found that a broad MOPR with limited exceptions is the best way forward to address state subsidies, Chatterjee said during the April 16 open meeting, which was held online due to COVID-19.

States trying to advance clean energy agendas may try to end their utilities’ participation in the PJM capacity market, Glick and others have said over the past several months, with a fixed resource requirement (FRR) alternative gaining increased attention. The FRR approach, jokingly dubbed FRRexit, is being examined in Maryland and New Jersey.

During a press conference after the meeting, Chatterjee asserted that states are not likely to exit the capacity market that brings significant benefits to consumers. States considering the FRRexit option will wait to see how the PJM compliance plays out and how the capacity auctions are handled, he said.

The timing on PJM’s compliance with FERC’s orders is subject to questions, since the grid operator made an initial compliance filing in March that is pending and is subject to comments coming that will be filed with the Commission. Those comments are due by May 15.

Chatterjee said the rehearing orders seek a compliance filing from PJM within 45 days. He declined to state when he expects the Commission to act on either the initial compliance filing or a subsequent compliance filing. “We’ll need to act on the compliance filing that PJM provided last month,” Chatterjee said during the press conference, commenting that PJM’s response to the rehearing orders will inform FERC’s action on the initial compliance filing.

The rehearing orders were issued shortly before midnight April 16, and several sources viewed it quite unlikely that FERC would act on the initial PJM compliance filing in May, before a subsequent PJM filing would be coming in. A logical step would be one order on both compliance filings, sources said, declining to speculate on if that would be preferred by stakeholders while planning for PJM’s capacity auctions is in limbo.

Among the changes on rehearing is a clarification that voluntary renewable energy certificate (REC) contracts entered into by companies are not considered subsidies and do not trigger the MOPR. “I was pleased we could provide that clarity and certainty,” Chatterjee said during the meeting, which was held online due to COVID-19.

Another clarification is that states in the Regional Greenhouse Gas Initiative (RGGI) trading plan will not be considered subsidies subject to the MOPR because it is not considered a payment, Chatterjee said during the press conference.

The price floors in the expanded MOPR will force renewable power project owners to submit artificially high bids and the beneficiaries will be coal and natural gas-fired units that will clear the market, several parties said in requests for rehearing of the December order. Thus, FERC’s remedy for the price distortion it found in the June 2018 order is an even bigger price distortion in the market, argued consumer group Public Citizen.

During the meeting, Glick said the rulings will force consumers to pay for generation capacity that is not needed. He said the idea that the orders are protecting the integrity of the market “just plain garbage.”

The Federal Power Act (FPA) does not provide FERC with the authority to address generation choices, but the orders are regulating generation, several groups said in rehearing requests. The Organization of PJM States Inc. (OPSI) raised that issue in its request for rehearing, asserting that FERC’s order is a direct attack on state authority to select generation resources. By nullifying state policy preferences, the order crosses the line drawn in the FPA and violates Congress’ intent to maintain separate jurisdiction between FERC and the states, OPSI said in its filing.

The Commission’s definition of state subsidies is overly broad and ambiguous, unreasonably expanding the scope of the MOPR to be contrary to the FPA by giving little consideration to costs imposed on consumers, others said.

“I completely disagree with that” Chatterjee told reporters. He denied claims from MOPR opponents that FERC’s actions will drive up capacity costs, pointing to an analysis from the PJM Independent Market Monitor that the December order is not expected to have a dramatic impact on capacity auction clearing prices. He said Glick’s calculation of costs to consumers during the December meeting were overstated and incorrect.

That garnered a response from Glick after the press conference. Glick said his office prepared a back-of-the-envelope calculation on potential costs to consumers because FERC failed to do that in the order, and that his analysis was one of many that showed costs in excess of $1 billion per year. Any cost estimate that is lower is likely due to an assumption that FERC would not aggressively impose the MOPR on some resources, which the rehearing order makes clear is a mistake, Glick said.

Chatterjee’s comments about Glick’s back-of-the-envelope estimate does not excuse the Commission’s refusal to perform its own analysis, Glick said in a statement. “Make no mistake, the PJM MOPR will have an expensive impact on consumers, particularly over the long term as it attempts to block the transition to the clean energy future by making consumers pay twice for capacity,” he said.

Commissioner Bernard McNamee defended the rehearing orders as FERC striving to ensure just and reasonable rates in organized wholesale power markets. “These are administratively created markets” and they involve a lot of assumptions to try and approximate a free market, he said.

The orders continue down the path FERC laid out in its December order in a resource-neutral manner, McNamee said during the meeting.

Wind and solar power projects or other facilities that meet state RPS requirements are being built based on investments made for those policies, so it makes sense to not subject those projects to an expanded MOPR, Chatterjee said.

Most new resources planned in PJM are cleaner resources, and the effect of the orders will be to keep existing generation capacity online longer, opponents argued. While about 5,000 MW of solar and wind power capacity under RPS rules would be exempt from the MOPR, roughly 38,000 MW in the planning stages would not be exempt, Glick said in December.

Leaders at SEIA, ACORE, AWEA and AEE said they are pleased FERC clarified that voluntary REC contracts will not be subject to the MOPR. “While we are encouraged by today’s acknowledgement that voluntary RECs are an appropriate market tool, these last-minute clarifications only highlight the lack of reasoned decision-making behind the MOPR,” said Greg Wetstone, president and CEO of ACORE.

The rehearing orders continue the misguided position that state generation preferences should be mitigated rather than accommodated, officials said, vowing to explore options to preserve state policies. FERC is imposing added costs on consumers for state clean energy choices and bailing out fossil fuel generation resources, they said in the statement.

“We urge FERC to act quickly to approve PJM’s recent compliance filing and restore annual capacity market auctions,” said Katherine Gensler, vice president of regulatory affairs at SEIA. The groups hope the Commission approves the PJM compliance filing because it better recognizes the value that renewable energy resources provide in a competitive capacity market, added Amy Farrell, senior vice president of government and public affairs at AWEA.

By Tom Tiernan ttiernan@fosterreport.com

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