PJM’s Pass Back to FERC’s MOPR Order

by Naveed Nanjee

In December 2019, the Federal Energy Regulatory Commission (“FERC”) released an order that requires PJM Interconnection LLC (“PJM”), a regional grid operator, to expand its Minimum Offer Price Rule (“MOPR”) to state-subsidized resources in the capacity market. This order attempts to extend the MOPR beyond its traditional use and also attempts to raise the price floor of resources that receive a state subsidy. Neil Chatterjee, FERC’s chairman, stated that the thinking behind the extension of the MOPR to state-subsidized resources is to “safeguard the competitiveness of the market” and provide “a level playing field for all resources.” The rule’s biggest critics are those that are most adversely affected, which include clean energy and consumer interest groups. These groups see this order as a full-court press on their industry as they claim that it unfairly raises the price for clean energy, specifically new wind and solar energy, and ultimately raises prices on consumers. In contrast, supporters of the rule, including natural gas companies like Calpine Corporation, suggest that the rule levels the playing field, because current subsidies allow non-competitive generators to bid lower and skew prices.

Since the release of this ruling, PJM itself has filed a request for rehearing, making substantial arguments against the FERC order. For example, PJM suggests that the order “disrupts the balance that has successfully worked to accommodate the interests of states and integrated utilities, with appropriate guardrails, while maintaining the integrity of the market and ensuring a wholesale rate in the zone of reasonableness.” In addition, PJM also argues that “the new approach also needlessly interferes with state resource policies well beyond what is needed to protect the market against inefficient price formation and achieve rates within a zone of reasonableness.”

A number of House Democrats have also publicly denounced FERC’s recent order. In a letter addressed to Chatterjee, 36 Democrats expressed concerns about the proposed rule, suggesting that the “decision will functionally nullify the energy preferences of states, increase consumer costs by forcing customers to pay twice for generation capacity, and deny states flexibility to pursue their policy goals.” This letter also outlines the issue of preemption with MOPR. The recent FERC order likely preempts state policy by limiting the ability of states to choose the source of their energy resource mix provided under the Federal Powers Act (“FPA”). The letter also states that the MOPR “largely denies states any flexibility in setting energy policy goals.” Because FERC establishes a broad definition of “state subsidy” through this order, any new resource would be subject to the MOPR. Thus, states that have established policies to incentivize clean energy would essentially be blocked from the PJM capacity market.

The Sierra Club, along with a coalition of interested parties, also responded with a letter to Maryland Governor Larry Hogan, Senate President Bill Ferguson, and Speaker of the House Adrienne Jones requesting the Maryland Public Service Commission to mitigate the FERC ruling. The coalition letter suggests that “[i]f this egregious decision to undermine states’ rights is left unchecked Maryland ratepayers could pay hundreds of millions in higher electric bills in the coming years to dirty power plants.” On March 18, 2020, PJM issued a 536-page compliance filing that could alleviate some of the concerns brought to light by environmentalists like the Sierra Club and the renewables industry. The compliance filing proposed to allow projects to individually advocate for lower MOPR and establishes a “resource-specific” exception. This exception allows a resource subject to the MOPR to avoid a default floor price and set a minimum bid price instead, providing flexibility for renewable energy technologies to remain competitive. The filling has requested a waiver for the reliability pricing model auction deadline and an extended comment period of at least 35 days, given the size of the filing.

This MOPR rule has already resulted in tremendous criticism. PJM’s compliance proposal takes a balanced approach to the MOPR rule. However, the ball is now back in FERC’s court as the compliance order is subject to its review and approval.