PJM capacity market overhaul largely survives second look by FERC

Washington — A divided Federal Energy Regulatory Commission voted Thursday to approve key clarifications to its overhaul of PJM Interconnection's capacity market in a move that also cleared the way for legal challenges related to the closely-watched proceeding to move forward.

During its monthly open meeting, FERC largely affirmed a June 2018 order (EL16-49) in which a deeply divided commission found that PJM's then-existing capacity market rules failed to address potential price distortion caused by state-sponsored clean energy resources.

In doing so, the commission also addressed requests for rehearing and clarification to a December 2019 order (EL18-178) directing the 13-state grid operator to expand its minimum offer price rule (MOPR) to all new resources and some existing generators seeking to participate in its capacity market that receive a material state subsidy.

Bitterly opposed by renewables advocates, FERC's December 2019 order also created confusion among market participants and PJM who sought clarification on whether the administratively set price floor would apply to private clean energy transactions and generators in states covered by the Regional Greenhouse Gas Initiative.

In a win for corporate clean energy procurement, Chairman Neil Chatterjee clarified during the Thursday meeting that the MOPR will not apply to voluntary purchases of renewable energy credits (RECs). Following the meeting, Chatterjee also clarified to reporters that RGGI will not be viewed as a state subsidy because the regional cap-and-trade scheme does not amount to "a payment or concession."

The full text of the orders was not available directly after the meeting, which was held virtually due to the coronavirus pandemic.

FURTHER CLARIFICATIONS

Commissioner Richard Glick, who dissented from both of the rehearing orders, said in an interview that further clarifications to the agency's December 2019 directive will also subject energy efficiency resources to the MOPR "even though there's nothing in the record to suggest that [energy efficiency] causes any price suppression."

Glick said the commission's action Thursday could also cause certain demand response resources to be implicated in market mitigation. "The order handles demand response by essentially calling into question the way PJM takes demand response into account," he said.

Speaking to reporters after the meeting, Chatterjee cited Glick's dissent to the commission's June 2018 order as a way of justifying its decision to affirm the MOPR will apply to publicly-owned utilities that procure their own generating resources, known as self-supply entities.

"Commissioner Glick himself has made the case in a prior dissent that resources like utilities with guaranteed cost recovery are not competitive, and so at the end of the day all this rule requires is that new entrants are competitive," Chatterjee said.

But Glick later called that a "mischaracterization," explaining he made that point while asserting MOPRs are generally ineffective because all resource types arguably receive some form of subsidy.

"You can't distinguish between them, which is why you shouldn't go down the MOPR path at all," Glick said.

'STUNNINGLY AWFUL'

Glick offered a strong rebuke of the rehearing orders during the meeting, maintaining his position that FERC's actions would dramatically increase the price of capacity and slow PJM's transition to a clean energy economy.

He called FERC's response on rehearing to the December order "stunningly awful" as "it continues to target state clean energy policies and force consumers to pay billions of dollars more for generating capacity that they don't need."

Among his concerns was that FERC failed to consider the costs associated with broadening the application of the MOPR.

Chatterjee later told reporters that Glick's cost estimates were overblown and based on incorrect assumptions.

Glick responded in a statement: "People can quibble over assumptions, but my analysis was one of many that showed costs in the excess of $1 billion/year."

The clean energy sector expressed dismay with FERC's decision to largely reject rehearing requests, but advocates were encouraged by the acknowledgement that voluntary RECs would not trigger the MOPR.

Despite disappointment with FERC's decision to stay the course, trade groups representing solar and wind power advocated for a swift resumption of PJM's three-year-forward capacity auctions.

Meanwhile, competitive power producers celebrated FERC's orders Thursday as sound policy. "The bottom line is that customers pay the price when certain resources and companies enjoy an unfair market advantage that squeezes out competitors and removes the pressure to innovate, perform efficiently, control costs, and nimbly respond to changing circumstances," Todd Snitchler, president and CEO of the Electric Power Supply Association, said in a statement.

COURT APPEALS

The rehearing orders clear the way for entities to take their gripes with the MOPR orders to the DC Circuit Court of Appeals.

Protective petitions for review have already been filed by the New Jersey Divisions of Rate Counsel, the National Rural Electric Cooperative Association and most recently East Kentucky Power Cooperative in light of a separate court case challenging FERC's issuance of tolling orders.

FERC earlier in the week filed motions to dismiss the two earlier proceedings as "incurably premature" since commission action was not yet final as rehearing requests were still pending. "Today's orders render that motion moot and removes outstanding rehearing requests as an obstacle to judicial review," a note from ClearView Energy Partners said.

ClearView added that other entities now have until June 15 to seek appeal. It cast doubt on the likelihood of a stay of the orders being granted by the DC Circuit.

PJM now has 45 days to submit a filing addressing the issues raised in FERC's Thursday orders. Comments on a compliance filing PJM submitted last month are also due May 15.