PJM moves to curtail compliance with FERC policy that hinders state-subsidized clean energy

After two years of market impasse and the threat of state revolts, mid-Atlantic grid operator PJM has made clear its plan for dealing with a Trump-administration-era policy that could harm the value of state-supported clean energy resources and undermine the integrity of its 13-state capacity market: It won’t enforce it.

That’s the upshot of this week’s proposal from PJM on how to deal with the minimum offer price rule, or MOPR, imposed upon it by the prior Republican majority at the Federal Energy Regulatory Commission.

In simple terms, the country’s largest grid operator has declared it won’t impose the MOPR’s administratively set prices on state-supported capacity resources, which could include renewable energy, nuclear power, demand-side resources, energy storage and other categories. PJM also won’t take action on complaints that those resources are improperly bidding into its roughly $10 billion per year capacity market.

Instead, PJM will presume that ​“state policies are done in good faith” and are ​“not an exercise in buyer-side market power,” according to Wednesday’s presentation from Adam Keech, PJM’s vice president of market design and economics. PJM will remain open to applying the MOPR to state-supported resources, but only if FERC orders it to do so by granting a complaint from a market stakeholder, said Keech.

These statements underscore the common view from clean energy and environmental advocates, energy market analysts and state regulators and lawmakers that FERC’s use of a rule designed to prevent market gaming has been misapplied in ways that could weaken, not strengthen, the country’s biggest capacity market.

Indeed, Keech’s presentation noted that applying the MOPR to state-subsidized resources could force PJM’s capacity market to ignore the gigawatts of wind and solar power and other carbon-free resources being built under state-level decarbonization efforts.

Forcing these resources to bid in at administratively inflated prices could ​“indicate more supply is required when it is not” and ​“delay retirement” of less competitive resources — including the coal and natural-gas power plants that make up the lion’s share of capacity resources in PJM today.

That disconnect between grid reality and market design could grow much more severe in years to come if the MOPR ended up barring large swaths of state-supported resources. This includes the many gigawatts of offshore wind planned for deployment off the East Coast, which under existing rules would be priced out of the market.

Wednesday’s proposal is part of a ​“critical issues fast path” decision-making process at PJM to solve a problem that has forced it to delay its capacity market auctions for more than three years. It has also led states including Illinois, New Jersey and Maryland to threaten to pull out of the market entirely.

MOPR opponents praised the proposal, calling it a vital first step in reforming how PJM’s market for ensuring grid reliability works. This is a particularly relevant issue for states that are setting increasingly aggressive renewable energy goals to combat climate change.

FERC’s imposition of the MOPR ​“protects legacy fossil-fueled power plants from competition from new resources being built as part of the transition to a modern grid,” Tom Rutigliano, senior advocate with the Natural Resources Defense Council’s Sustainable FERC Project, stated in a Thursday blog post. ​“Thankfully, both PJM and the Federal Energy Regulatory Commission are moving to undo this absurd policy.”

Rutigliano’s comment highlights how FERC’s approach to the MOPR has changed since President Joe Biden appointed Richard Glick, a Democrat who has consistently voted against his Republican colleagues at FERC on the rule, as chairman of the commission.

In a February press conference, Glick said he believes legal challenges to the MOPR decision will succeed, opening the door for PJM and its state and industry stakeholders to craft replacement structures.

He also said he’s ​“confident [his] colleagues will come up with a process that does not block state policies.” FERC’s five-member board will retain a three-Republican majority through at least the first half of 2021, when Republican and former FERC chair Neil Chatterjee’s term ends.

Meanwhile, PJM hasn’t held a capacity auction since 2018, as FERC’s MOPR orders, PJM’s attempts to comply with it and associated administrative and legal challenges have delayed its implementation.

The grid operator is scheduled to hold an auction later this year for capacity resources for delivery in 2022 and 2023. The auction will be the first to apply its interpretation of FERC’s MOPR orders, although industry analysts expect the impact on state-subsidized resources to be relatively minor at this early stage. PJM plans to file its latest proposal with FERC this summer in hopes of having a replacement ready for a December auction for capacity for 2023 and 2024.

The structure of the capacity market reforms that will replace the MOPR remains an open question. The Electric Power Supply Association has come out in support of carbon pricing, a step that FERC has said the country’s grid operators can pursue. The trade group, which represents power plant operators and energy developers, was responsible for the original complaint against state nuclear power plant subsidies in Illinois and New Jersey that led to FERC’s MOPR orders.

“MOPR revisions and other market design changes must be considered in relation to how it will impact all of PJM’s markets and the electric system,” EPSA CEO Todd Snitchler said in a Thursday statement. ​“Any market design changes, in addition to MOPR, must allow all resources to compete to reduce emissions, while maintaining reliability at affordable rates.”

At the same time, power plant owners such as Calpine and LS Power have proposed market reforms that they say will balance renewable energy growth, maintaining grid reliability and avoiding the price-suppressive effects of state-subsidized resources bidding into the market. But NRDC’s Rutigliano wrote this week that these proposals could lead to unneeded fossil-fueled capacity being retained — and at a cost that will inevitably increase energy bills for customers across PJM’s territory.

(Image credit: Andrey Metelev)