Critics: Overhaul of PJM’s Minimum Offer Price Rule Will Crash the Capacity Market

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The Federal Energy Regulatory Commission received a wave of comments on August 20 in a hotly contested proceeding in the PJM interconnection capacity market. Source: TebNad / Getty Creative via Getty Images

The PJM interconnector faces strong reluctance to its proposal to replace a highly controversial minimum offer price rule, or MOPR, used to mitigate the effect of member states’ clean energy policies on the market. multi-billion dollar capacity of the network operator.

However, clean energy advocates are urging the Federal Energy Regulatory Commission to approve the proposed market rules without delay, as states within the Eastern Grid Operator’s footprint continue to pursue a diverse set of ‘energy and climate objectives.

FERC’s long-standing proceeding dates back to 2016, when a coalition of merchant producers complained (EL16-49, EL18-178) that off-market payments for at-risk coal and nuclear power plants in the Ohio would artificially suppress market prices for PJM capacity.

After years of debate, the FERC Republican majority in December 2019 sparked an uproar among clean energy advocates by ordering PJM to expand its MOPR initially designed to prevent the exercise of market power from the buyers’ side on all new and some existing state-subsidized energy resources.

The agency’s reasoning was that low-capacity market prices will fail to provide existing thermal generators, many of which are only online during times of high demand, the “missing money” they need to keep. continue to stay operational given the little income they were earning. PJM’s energy and ancillary services markets.

But the FERC order did not result in robust capacity market prices when PJM finally concluded a long-delayed capacity auction held in May for delivery year 2022-2023.

The December 2019 commission order also prompted Dominion Energy Inc. to flee the PJM capacity market, citing a conflict between the expanded MOPR and a new Virginia law that calls for major investments in offshore wind generation. to help achieve a 100% clean energy grid by 2050.

Critics have also called the expanded MOPR “impractical,” and FERC President Richard Glick is seeking to approve new rules that take into account state policies before PJM launches its next auction of capacity in December for delivery year 2023-24.

After a multi-phased stakeholder process to develop a revised MOPR, PJM asked FERC in late July to approve a “targeted” MOPR. (ER21-2582) The proposal approved by the board of directors would allow state-subsidized energy resources to escape the need to submit artificially high-capacity market offers as long as they do not participate in policies or programs of the State “conditioned” to a resource making it possible to balance the market or to make offers at a precise price. It would also require PJM to carry out case-specific reviews before the network operator submits the new resources to the floor prices of the default offer.

Protests against targeted MOPR

The proposed changes, which received massive stakeholder support, nonetheless sparked nearly a dozen protests at FERC, highlighting deep divisions over how to ensure that PJM maintains grid reliability in its 13-state footprint. .

NRG Energy Inc., the owner of 5,000 MW of generation at PJM, has warned that PJM’s proposal “will crater the market.”

“Continuously allowing a set of resources the ability to bid at a capacity auction at a level below a reasonable estimate of their true cost guts out any ‘reasonable opportunity” owner of existing production facilities providing reliability service at PJM [have] to earn return and equity in wholesale markets under the purview of the commissions, ”the company said.

The Electric Power Supply Association, a commercial group of merchant generators, also took issue with PJM’s claim that subsidies for offshore wind in states like New Jersey “will only reduce costs” for consumers of electricity. ‘other states like Pennsylvania and Ohio. Significantly, in making this claim, PJM concedes that the July 30 filing will do exactly what New Jersey and others have in mind: allow a state’s policy choices to skew wholesale prices in other states, ”the association said.

The Pennsylvania Public Utility Commission and the Ohio Public Utilities Commission jointly argued that FERC should require the grid operator to study the continuing effects of its MOPR policies. Adapting the proposal to state policies “unfairly transfers the consequences of the political preferences of a particular state to all states and consumers in the PJM region,” the commissions said.

PJM’s domestic market observer predicted that the rules proposed by PJM to examine the exercise of market power on the buyers’ side “will effectively make it impossible to pursue and complete an investigation in a timely manner.” The rules require PJM and the market monitor to consult with the capacity market seller prior to any “fact-specific examination”, but they would also “be based on a projection of the capacity market performance to the capacity market. using hypotheses on supply conditions and offer to sell prices ”. noted the market monitor.

The National Rural Electric Cooperative Association praised PJM’s efforts to reform MOPR “in a way that should better accommodate self-sufficiency resources held by government entities operating in long-standing business models.” But he also expressed concern that the tariff wording proposed by PJM might not be clear to some co-ops.

Exelon Corp., the country’s largest nuclear power producer, and Public Service Enterprise Group Inc. jointly highlighted the concrete results of PJM’s latest capacity auction in support of the operator’s proposed replacement of the network. In doing so, they claimed that Exelon’s 1,819 MW Quad Cities nuclear power plant in Illinois was effectively excluded from the PJM capacity market due to the state’s zero-emission credit program, which offsets emissions-free resources for their climate benefits.

Exelon and Public Service Enterprise Group specifically noted that PJM’s post-auction analysis indicated that Quad Cities’ failure to compensate in the last auction likely increased capacity prices by more than $ 10 / MW-day, or an additional $ 90 million, “borne in large part” by Commonwealth Edison Co. taxpayers.

“Due to the extension of MOPR, consumers have to pay extra, the market has gained unnecessary capacity and Exelon will not be compensated for the reliability service it actually provides to the market,” the utilities said. .

The proposal is also supported

While market producers blasted the proposal, environmental groups argued that payments for clean energy sources correct market failures.

“Compensation for the environmental value of policy-supported resources should not be seen as an illegitimate distortion of markets that should be ruled out, but rather as a correction needed to achieve a more effective outcome,” Natural Resources Defense Council, Sustainable FERC Project, Sierra Club and the Union of Concerned Scientists argued jointly.

Targeted MOPR can also provide market transparency and certainty in some cases, according to Advanced Energy Economy, a clean energy trading group. It “rightly recognizes that the vast majority of public policies supporting the development of advanced energy technologies are adopted for reasons that are well within state authority, offset attributes outside the PJM capacity market and are not the appropriate topic of market power mitigation. “the group said.

Other clean energy business groups have called the proposal a return to market fundamentals.

“Under the proposal, this would only apply to capacity market sellers who have the ability and incentive to remove the offset price from capacity auctions, and this price suppression would provide an overall net benefit. to an affiliate charge interest, ”the Solar Energy Industries Association and the American Clean Power Association maintained.

American Municipal Power Inc. said it disagreed with parts of the proposal, but viewed the entire targeted MOPR as “far superior to the status quo.” MOPR is “only part of building PJM’s capacity,” the state-owned electricity supplier added.

And the New Jersey Board of Public Utilities, a key player in the MOPR debate, has indicated that it anticipates a second phase of upcoming stakeholder deliberations on building the PJM capacity market. “Tomorrow’s capacity market must feature efficient pricing structures, which not only recognize but help meet the goals of states and corporate buyers driving the clean energy revolution,” said board of directors.

Ellie Potter is a reporter at S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.

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