The Federal Energy Regulatory Commission Thursday (Dec. 19) adopted a long-awaited rule on the restructuring of the PJM capacity market to deal with state subsidies for preferred generation that many critics have seen as causing an anti-competitive price war in the giant regional wholesale market.
A divided commission voted 2-1 for the order, which stems from a proposal of over a year ago, with the two Republicans, Chairman Neil Chatterjee and Commissioner Bernard McNamee in favor and Democrat Richard Glick in dissent. The order establishes a floor price, a “minimum price offer rule” or MOPR, for state-subsidized generation (mostly renewables, nuclear, and in some cases coal and gas) to prevent the subsidies from giving those resources a competitive advantage versus unsubsidized generating capacity. It applies to new resources. In a press release, FERC noted that the rule exempts:
“Existing renewable resources that are participating in state renewable portfolio programs; existing demand response, energy efficiency, and storage resources; existing self-supply resources; and competitive resources that do not receive state subsidies.”
The order does not apply to PJM’s energy and ancillary services markets.
Chatterjee said, “FERC is affirming our obligation to safeguard the competitiveness of the PJM capacity market. I recognize, and wholeheartedly respect and support, states’ exclusive authority to make choices about the types of generation they support and that get built to serve their communities. They still can do so under this order.
“But the Commission has a statutory obligation, and exclusive jurisdiction, to ensure the competitiveness of the markets we oversee,” Chatterjee added. “An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint.”
Glick offered a blistering critique of the FERC order, which followed his dissent in the preceding June 2018 order, which found that the PJM’s original MOPR, in the commission’s words, “failed to address the price-distorting impact of resources receiving out-of-market support.” He reprised the words of former commissioner Cheryl LaFleur that the earlier 2018 order was an act of “regulatory hubris,” then doubled down on that characterization.
Glick said, “We have created regulatory uncertainty after regulatory uncertainty.” He said a back-of-the envelop calculation by his staff suggests that the new MOPR will increase capacity costs in PJM by $24 billion a year in the early years.
Glick added that the new order is a “direct attack on the states” and will make it “difficult for state-preferred generation to clear in the capacity market,” and suggested that the overall impact of the FERC action will be to bias the market against new generation and favor existing, old, and dirty power plants. It will, he said, “artificially increase capacity prices, keeping existing, unneeded, unwanted generation on line. Everything in this order from beginning to end is aimed at new generation.”
McNamee defended the decision. “Our order,” he said, “preserves the interstate electric market. It ensures market competition by establishing a level playing field.” McNamee added, “State subsidies are artificially suppressing prices,” adding that the FERC order “is resource neutral.”
PJM has 90 days to comply and give FERC a new timetable for its next capacity auction.
Glick offered a blizzard of dissents at Thursday’s meeting, including the PJM order, an accounting order on cyber security costs, an order on transmission planning in the Midcontinent Independent System Operator market, on what parties can participate in a FERC decision to cancel a hydro license, and on four gas pipeline certificates (echoing his many earlier gas dissents on the issue of greenhouse gas emissions).
A common theme of Glick’s dissents is that he believes FERC is blithely ignoring court decisions, state authority, and Congress as it imposes its judgments in many cases.
— Kennedy Maize