The Federal Energy Regulatory Commission on Thursday voted to largely uphold its December decision to raise the floor price for certain new resources in the PJM Interconnection wholesale capacity market.
FERC offered clarity on some aspects of the Minimum Offer Price Rule (MOPR) and said it will grant “certain narrow requests for rehearing.” The MOPR will not apply to resources procured through voluntary Renewable Energy Credits (RECs) supplied by private companies, or resources deployed as a result of the Regional Greenhouse Gas Initiative (RGGI) which includes some states in the PJM territory, FERC concluded.
The commission also denied requests to rehear its 2019 order approving PJM’s capacity demand curve, which critics say is too high and therefore leads to inflated market pricing. Commissioner James Danly voted in favor of the decision during his first public meeting on the commission, making it a 3-1 vote, with Commissioner Richard Glick dissenting.
FERC’s Dec. 16 order proposed raising the floor price of new resources attempting to enter PJM’s capacity market if they receive any kind of state subsidy. The broad language of that decision raised several questions among stakeholders concerned that any incentive to bring clean energy resources online could be considered a subsidy.
“Our December order addressed the price distorting effects of state subsidies. It did not address any effects of purely private transactions. I hope this action provides clarity regarding those investments,” Chair Neil Chatterjee said during Thursday’s meeting.
Power generators praised Thursday’s decision, which they said is fair to consumers and consistent with fair market principles.
“The bottom line is that customers pay the price when certain resources and companies enjoy an unfair market advantage that squeezes out competitors and removes the pressure to innovate, perform efficiently, control costs, and nimbly respond to changing circumstances,” Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), said in a statement. “EPSA agrees with the Commission that voluntary [RECs], which represent arms-length, voluntary transactions between two private entities, should not be subject to the MOPR.”
But environmentalists and the clean energy industry largely denounced the move, which critics have long said would hinder the ability of new clean energy resources to compete in the markets, and reduce incentives for those resources to be deployed.
“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,” Jeff Dennis, managing director and general counsel at Advanced Energy Economy, said in a statement.
“This decision reaffirms the misguided position that the states’ lawful exercise of their authority to regulate in-state generation facilities and the environmental impacts of power sector emissions must be ‘mitigated’ rather than accommodated.”
An attempt to combat ‘market distorting effects’
The MOPR issue was raised initially because of what some power generators and commissioners viewed as “market distorting effects” of state clean energy policies. The threat of climate change has driven more states to pursue aggressive carbon reduction goals, many aiming to reach net-zero emissions by 2050.
In response to those policies, PJM sent competing proposals to reform its capacity market to FERC in April 2018. FERC ruled those policies were unjust in June of that year and instead proposed expanding the grid operator’s proposed MOPR, which was originally intended to only apply to new gas resources, to include all new resources coming into the wholesale market.
PJM warned that expansion could have “paradoxically unintended consequences” and result in less economic efficiency.
“At the end of the day, all this rule requires is that new entrants are competitive,” said Chatterjee. “And I think that is why the majority of the commission stood by the core of our original December order.”
Glick, in his dissent, argued the commission ignores consumer impacts cited by the grid operator and does not, as the majority of the commission says, protect the competitiveness of the market.
“That explanation is, to be charitable, just plain garbage,” said Glick in his dissent, pointing out that FERC ignored subsidies that have already gone toward conventional generators, including resource siting incentives and federal incentives.
“With regard to federal subsidies, the commission twisted itself into a pretzel. The commission argues that it can’t subject federal subsidies to the MOPR because that would block Congress’s policy objectives achieved through [those] subsidies,” said Glick, yet it denies the MOPR blocks state energy policy.
“The commission cannot and should not have it both ways,” he said.
States’ threat to leave
Several states have expressed concerns over how the MOPR will impact their ability to deploy low carbon resources across their territories, and New Jersey and Illinois have raised the possibility of seeking resources outside the PJM capacity auction.
“Organized competitive markets, like the capacity market, bring significant benefits to consumers that state leaders are going to be hard pressed to ignore,” Chatterjee told reporters in response to the threat of a mass state exit.
“We all just need to pause and see how this all plays out. But I’m a big believer in the benefits of markets,” he said.
PJM itself did its best to assuage state and clean energy concerns in its compliance plan filed with the commission in March, which was praised by the renewables industry. The grid operator must file another compliance filing within the next 45 days, Chatterjee said.
FERC has not yet moved on the grid operator’s March filing, which leaves a great degree of uncertainty as to whether PJM’s proposal will remain as is, Casey Roberts, staff attorney at the Sierra Club’s environmental law program told Utility Dive.
PJM proposed to allow projects to advocate for lower MOPR floor prices on a case-by-case basis and lowering the overall adjusted floor prices for clean energy technologies to clear future bid auctions, which might be opposed by merchant generators that wanted the MOPR in the first place, she said.
There will likely be “pushback on some of these low offer price floors that PJM has proposed for nuclear. … I think it’s not a given that FERC is gonna going to approve it,” she said.
FERC also on Thursday denied a rehearing on the grid operator’s variable resource requirement (VRR) curve. The VRR is reviewed every four years and critics say PJM’s has allowed it to procure over 15,000 MW of excess capacity since its 2012/2013 capacity auction.
Commissioner Bernard McNamee voted in support of the order, but made a special note during the meeting of the challenges to keeping markets competitive within a highly regulated structure.
Regulated wholesale markets “are not free markets and they require a lot of tariffs, a lot of administrative assumptions and decision making,” he said. “We have to recognize that these are attempts to approximate a free market and provide opportunities for competition, but that there are administrative decisions that have to be made.”
But Roberts said the two orders combined make the market “a lightning rod for controversy.”
“Because renewables aren’t really able to compete fairly in this market, more capacity basically means more support for fossil resources,” she said. The two decisions leave PJM “buying too much capacity and … not even letting more resources compete to provide that capacity,” she said.
Original source: Utility Dive