The PJM Interconnection's Board of Directors on Thursday approved the grid operator's proposed plan to mitigate the impacts of the minimum offer price rule (MOPR) in on the wholesale power market.
The decision by the board follows stakeholder consensus that of the nine proposals brought forward by utilities, merchant generators and others, PJM's proposal would best solve the problems raised by the MOPR expansion. PJM's plan, which will need to be approved by federal regulators, aims to accommodate state policies, mitigate buyer side market power and be a long-lasting, resilient solution, according to officials.
- Federal Energy Regulatory Commission Chair Richard Glick in April indicated that if a solution to the MOPR, which faced heavy opposition from states and other stakeholders, wasn't implemented by December, FERC may take the matter into its own hands.
The Board's decision is the result of an accelerated stakeholder process led by PJM that began in April, according to the grid operator. It follows a several-year controversy sparked by merchant generators' concerns that state-subsidized resources — largely zero-carbon technologies including wind, solar and nuclear — were depressing market prices and making it more difficult for newer gas plants, for example, to compete.
In response to the complaint, and following proposals by PJM and others to mitigate the effects of subsidies, FERC issued the MOPR expansion rule in December 2019, effectively raising the bid price for all state-subsidized resources. But resistance to the rule grew strong enough that states with more aggressive clean energy goals or mandates threatened to pull out of the PJM capacity market altogether. That in part prompted an effort by FERC — under Glick's leadership since January — and other stakeholders to address concerns that the MOPR could have long-term harmful effects on state renewable energy procurement.
The PJM proposal seeks to mitigate the MOPR in three critical ways, according to Adam Keech, vice president of market design and economics at PJM: to narrow the scope of the MOPR back where it was originally intended, aimed at mitigating buyer-side market power; to avoid harming state policies and power providers with self-supply business models; and to make sure the market design is robust and could work well into the future.
PJM's plan effectively removes the pre-existing and expanded MOPR, and instead applies that rule to instances where buyer-side market power is exercised, in an effort to prevent power providers from bidding into the capacity market at an artificially low price, or in specific instances where a state law is providing subsidy support conditioned on clearing in the capacity market. If PJM and its market monitor believe that a state law is doing this, they can file a section 205 complaint with FERC, and the commission will make the final decision.
"In all, my personal view is that this is a reasonable outcome that starts to move us beyond endless MOPR wars," said Jeff Dennis, general counsel and managing director at Advanced Energy Economy, in an email. "I also think leaving the call to FERC is the right move. Forcing PJM to arbitrate the validity of state policies was unworkable, to say the least, and threatened to completely undermine PJM’s relationship with the states in the region at a time when aligning wholesale markets with state policies is critically important."
Chairman Glick's assertion that he wanted to see the MOPR resolved by December certainly played a role in accelerating the stakeholder process, said Asim Haque, PJM's vice president of state and member services.
"I do think that there is a cause and effect there: The chairman of the FERC asked the stakeholder body at PJM to try and meet this call. And, again, we are very grateful to the stakeholder body," he said. "This isn't just PJM here. It took really a village over the past three months to try and get to a place [where] the majority of the membership could feel comfortable."
Calpine, which spearheaded the initial complaint to FERC, Exelon, along with Public Service Electric & Gas Company, LS Power and others issued their own proposals to PJM stakeholders.
PJM Power Providers Group (P3), which represents Calpine, LS Power and other competitive power providers in the region, opposed the PJM proposal, describing it as "bad public policy."
"PJM is moving forward with an extremely flawed proposal that will do nothing to address buyer side market power or to preserve the integrity of capacity market pricing," said Glen Thomas, president of P3 in an email. "The proposal is bad public policy and completely inconsistent with prior FERC and court precedent. P3 believes in competitive markets, reliability and environmental progress. The PJM proposal does damage to all three."
Exelon also supported the PJM proposal.
"PJM and stakeholders swiftly developed an overwhelming consensus proposal to reform the flawed Minimum Offer Price Rule, which increases consumer costs and puts carbon-free sources of energy at risk in favor of carbon-emitting sources," the company said in an emailed statement. "Exelon encourages FERC to approve PJM’s reforms, which will permit states to achieve their environmental aims while assuring that consumers receive the reliability benefit of the clean energy they support."