Co-authored by Andrea I. Sarmentero Garzón

On June 29, 2018, FERC issued an order rejecting two proposals (i.e., the Capacity Repricing and the MOPR-Ex proposals) filed by PJM Interconnection, L.L.C. (“PJM”) to address subsidization of resources in its capacity markets (Docket No. ER18-1314). The FERC order also granted in part a complaint filed by Calpine Corporation and others challenging PJM’s minimum offer price rule (“MOPR”) as unjust and unreasonable. The complainants proposed interim Tariff revisions for immediate implementation that would extend the MOPR to a limited set of existing resources and asked the Commission to direct PJM to conduct a stakeholder process to develop and submit a long-term solution (Docket No. EL16-49). FERC agreed with Calpine’s argument that the PJM MOPR is unjust and unreasonable because it does not prevent market price suppression by subsidized resources. However, FERC rejected the solutions separately proposed by PJM and the first Calpine complaint. Notably, another complaint filed by Calpine and others proposing to expand the MOPR to apply to all existing resources, with no exceptions (the so-called “Clean MOPR” proposal in Docket No. EL18-169), is still pending.

In order to build a record allowing the Commission to establish a just and reasonable solution, FERC initiated a paper hearing under section 206 of the Federal Power Act in Docket No. EL18-178. FERC proposed establishing an expanded MOPR with few or no exceptions. FERC seeks comment on the type of exceptions (if any) that should be allowed in an expanded MOPR construct. Responses will likely include comments seeking to exempt particular resources, such as demand response, renewables, and self-supply resources, among others.

The exemptions issue is particularly challenging because FERC no longer sees the MOPR solely as a means to address buyer-side market manipulation, but rather as means to address the effect of out-of-market state subsidies on capacity market prices. As a result, capacity resources that have no incentive to manipulate or suppress market prices may be subject to mitigation if the impact on the market is viewed by FERC as sufficiently material to warrant attention. This threshold will likely be determined as FERC addresses what constitutes a material subsidy in the newly opened proceeding.

FERC recognizes that an expansion of the MOPR to all resources may lead to states paying twice for capacity. While suggesting that such an outcome would be appropriate pursuant to the court’s ruling in Connecticut Dept. of Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir. 2009), the Commission seeks to accommodate resources receiving state subsidies by proposing a resource-specific fixed resource requirement (“FRR”) alternative. This FRR alternative would allow individual resources receiving subsidies to exit the capacity market with a commensurate amount of load and operating reserves (rather than requiring LSEs to remove their entire footprint from the capacity market as the existing FRR construct does). Resources and load that take advantage of this new resource-specific FRR would not participate in the PJM capacity market, but would continue to participate in the PJM energy and ancillary services markets (as is the case under the current FRR construct).

Commissioner LaFleur and Commissioner Glick each filed dissenting statements. Both commissioners are concerned about reforming the PJM capacity market through a section 206 proceeding without appropriate stakeholder input and participation. Commissioner Glick suggests that the order inappropriately limits states’ jurisdiction over electric generation facilities by taking subsidized resources out of the capacity market. Commissioner Powelson filed a concurring statement expressing strong support for the order.

The deadline for intervention in Docket No. EL17-178 is July 20, 2018.  Initial briefs are due August 28, 2018. Reply briefs are due September 27, 2018. The refund date for the new section 206 proceeding will be the date of publication in the Federal Register. FERC expects to render a decision in this proceeding by January 4, 2019. Finally, the order suggests that PJM should file any requests for waiver or other relief that would be necessary due to delays in implementing market modifications before the next base residual auction in May 2019.

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C.

Andrea Sarmentero Garzon, Member – [email protected]
Omar Bustami, Associate – [email protected]
Joel Greene, Member – [email protected]
Gary Newell, Member – [email protected]
Alan Robbins, Member – [email protected]
Debra Roby, Chair – [email protected]
Matthew Ross, Member – [email protected]
Debbie Swanstrom, Member – [email protected]