The U.S. Court of Appeals for the Third Circuit upheld the Federal Energy Regulatory Commission’s action that saw the PJM Interconnection’s “focused” minimum offer price rule, or MOPR, take effect by operation of law when commissioners deadlocked on the issue.
In the precedent-setting decision released Friday, the court dismissed arguments by the PJM Power Providers Group, or P3, the Electric Power Supply Association, known as EPSA, and the Pennsylvania and Ohio utility commissions that the focused MOPR was invalid.
The decision marks the first time a court has issued a ruling under a new law allowing judicial review on cases when FERC fails to issue a decision because it is deadlocked or lacks a quorum. The ruling offers a “helpful yardstick” for judicial reviews in such cases, according to ClearView Energy Partners. “A four-member FERC is not a rare occurrence, and in a persistently polarized Washington, a 2-2 Commission alignment could remain common, if not more frequent,” the research firm said Friday in a client note.
The issue centered on PJM’s MOPR, designed to prevent electricity capacity buyers who own generation from lowering capacity prices by selling below-cost capacity. When the MOPR is triggered as part of PJM’s capacity auction, the bidder’s price is increased.
In 2019, FERC approved a proposal to expand the MOPR to include resources that received state subsidies, such as renewable energy facilities and nuclear power plants. Two years later, FERC was unable to vote on a PJM proposal to effectively reverse the expanded MOPR when commissioners deadlocked 2-2 over the issue. As a result, the proposal took effect without a FERC decision.
Until recently, cases that took effect without a FERC decision couldn’t be appealed in court. However, Congress in 2018 amended the Federal Power Act to permit judicial review in cases when a proposal takes effect in those situations.
Based on the revised law, the court said FERC’s 2021 tacit acceptance of PJM’s tariff was not arbitrary or capricious and was supported by “substantial evidence in the record.”
The evidence included statements issued by FERC’s four commissioners, as required by the amended Federal Power Act, that explained their thinking on PJM’s proposal. Former FERC Chairman Richard Glick and Commissioner Allison Clements supported PJM’s focused MOPR while commissioners James Danly and Mark Christie opposed it.
“The statements of the deadlocked Commissioners do more than record each person’s individual rationale for affirming or rejecting the rate filing,” the court said. “Collectively, they illuminate the agency’s reasons for inaction, which Congress has instructed us to construe as an affirmative order.”
The joint statement by Glick and Clements acknowledged that the 2021 MOPR reflects a change in policy and identified reasons for finding the change just and reasonable, the court said.
P3 and the other litigants could ask the U.S. Supreme Court to review the appeals court’s decision but “given the thoroughness with which the appellate court appeared to disassemble the legal theories advanced by the petitioners here, we would not give them strong odds of success on appeal,” ClearView said.
Following the “disappointing” decision, PJM should adopt market reforms that fairly pay dispatchable resources, according to EPSA.
“While we are still reviewing the decision, our initial impression is that the focused MOPR as approved and upheld today cripples the ability of the market to establish a clear and useful price signal for capacity resources and address the price suppressive effects of subsidized resources clearing the system, most of which cannot deliver power on a 24/7 basis,” EPSA President and CEO Todd Snitchler said.
The court’s decision ends a long-running effort by fossil-fueled generators to use PJM’s rules to thwart state clean energy efforts, according to Danielle Fidler, a senior Earthjustice attorney who represented the Union of Concerned Scientists and Sierra Club in the case.
“A clean energy transition is necessary not only to bring justice to communities overburdened by the harms of our energy system and address the root causes of climate change, but to ensure that all Americans have just, affordable, and reliable energy now and in the future,” Fiddler said.