The PJM Interconnection is proposing to eliminate a controversial rule that effectively raises the price for state-subsidized resources, such as renewables and nuclear, bidding into its wholesale capacity market.
The grid operator on Wednesday laid out its proposal in an hours-long call with stakeholders, explaining that under its plan, the minimum offer price rule (MOPR) — expanded through a 2019 Federal Energy Regulatory Commission ruling that attempted to combat price suppression in the capacity market— would no longer apply to state-subsidized resources. Clean energy advocates praised the move as a win for state decarbonization goals.
PJM's proposal is in response to a series of FERC technical conferences focused on the future of wholesale power markets. Some competitive generators, including Calpine — which led the initial complaint that prompted the expanded MOPR — on Tuesday argued in comments before FERC that the ruling remained appropriate and should not be revised.
Just over a year after the MOPR expansion rule was issued, and without it yet applying to a capacity auction, PJM is officially proposing to end the policy.
"Repricing proposals and those that heavily rely on the MOPR create inconsistencies between prices and actual conditions," PJM said in its presentation to stakeholders Wednesday. "PJM believes this leads to unclear market signals."
The grid operator's new proposal would remove the application of the MOPR from any resources that are subsidized by the state, as was laid out in the December 2019 FERC rule, and instead assume all state policies are in "good faith." However, if a generator or other market participant has a complaint about tariffs, it may still file with FERC through a Section 206 filing. Though PJM lays out some scenarios under which it believes an entity could or should file such a complaint, the grid operator also emphasizes that a response to such a filing would come from FERC — not PJM or the independent market monitor.
"PJM will not apply the MOPR to a resource that is the subject of state support unless FERC grants the aforementioned complaint," the grid operator said. Two scenarios PJM specifies that could be the subject of a complaint include if a state policy effectively replaces the wholesale rate for capacity, ancillary services, or some other FERC-jurisdictional matter; or if a payment or level of payment is contingent on clearing the capacity market.
That caveat could continue to create some market uncertainty, said Casey Roberts, senior attorney with the Sierra Club's Environmental Law Program, but is an "inevitable" stipulation the grid operator has to put forward, given there is always the possibility that some participant is unhappy with market rules and files a complaint at FERC.
Broadly, though, PJM "appears to understand that when you ignore the capacity contribution of resources supported by state policy, that results in capacity prices that send the wrong signal to the market," said Roberts. For example, it might "signal that you still need new investment, when in fact you may not. But I think that the fact that PJM has come around to that view — which is, in my mind, the correct view — is very, very encouraging."
Other clean energy advocates also credited the grid operator with evolving in its approach to the energy transition and state clean energy goals.
"PJM has new leadership — Manu Asthana — and he has been clear he sees a big part of his mission as shepherding PJM through the energy transformation," said Tom Rutigliano, a senior advocate with the Sustainable FERC Project at the Natural Resources Defense Council. "And this is a very concrete sign of that shift."
The MOPR expansion was originally intended to address what some competitive generators refer to as "market-distorting effects" of state clean energy policies. As zero-carbon resources such as wind, solar and nuclear power began to receive credits or other subsidies from states, that in turn suppressed overall capacity market prices, making it more difficult for resources such as new gas plants to compete in the market, the original complaint that led to the expanded MOPR alleged. Some competitive suppliers argue the 2019 rule is still appropriate.
"It is not clear that anything has changed since the June 2018 and December 2019 orders to impact or negate the Commission's findings that the Expanded MOPR is needed to protect the capacity market from price suppression," Calpine wrote in comments filed Tuesday with FERC. "State subsidies have only increased since those orders were issued and will ultimately lead to more price suppression."
Broadly, competitive suppliers believe that if a repeal of the MOPR is deemed necessary, it should include a replacement market design. Vistra Energy in its comments suggested the commission replace the MOPR with something similar to the the New England Independent System Operator's Competitive Auctions with Sponsored Policy Resources rule, and NRG Energy suggested it examine a Forward Clean Energy Market.
"MOPR revisions cannot be considered in a vacuum," said Todd Snitchler, CEO of competitive power supplier trade group the Electric Power Supply Association, in an emailed statement. "These markets are interrelated and changes must be considered holistically. We believe PJM should consider what market design changes, in addition to MOPR, must be addressed to maintain reliability at affordable rates. Any solution must be sustainable for all market participants."
PJM is aiming to file its proposal with FERC by July in an effort to have a replacement in place by the December auction for 2023/2024 capacity. FERC Chair Richard Glick has indicated that if the grid operator does not have a proposal finalized on that timeline, he would be in favor of the commission taking action unilaterally.