PJM clarifies bulk generation service auction, MOPR exception details with stakeholders

New York — PJM Interconnection staff Dec. 2 clarified details around how state-level default bulk generation service auctions and minimum offer price rule exemptions will be handled considering recent federal regulatory orders concerning upcoming PJM capacity market auctions.

The Federal Energy Regulatory Commission's order on rehearing in the Minimum Offer Price Rule, or MOPR docket (EL16-49), determined that state default generation service auctions are considered a state subsidy.

However, PJM's second compliance filing set out to propose tariff language that would allow continuing normal commercial activity in state default service auctions while "safeguarding against auctions that would distort the competitiveness of the base residual auctions," according to a document shared during a remotely held Market Implementation Committee meeting.

FERC's recent order on compliance agreed with PJM's proposed tariff language setting out the criteria for carving out state default service auctions from the definition of state subsidy, the document said.

The document basically says that based on how these default service auctions are conducted today, "we do not believe the MOPR will be applicable to any existing state default service auctions" because they meet the criteria laid out in the tariff that FERC accepted to ensure the auctions are non-discriminatory and competitive, Asim Haque, PJM's vice president of state and members services, said during the meeting.

The only exception is 5% of the District of Columbia's default service auction which includes a 5% renewable carve-out where 5% of the default service load is to be served by renewable power via a power purchase agreement transaction that occurs outside of the default service auction, according to PJM.

With 95% of the auction being competitive, non-discriminatory and fuel-neutral, it appears to satisfy PJM's criteria for avoiding MOPR application, according the document.

MOPR exceptions

Simply because a default service auction survives MOPR scrutiny, individual resources may still be subject to the MOPR, but may be able to qualify for unit-specific exceptions if the resource can justify an offer lower than the default offer price floor.

Up to the 2021/2022 delivery year, the most recent capacity auction PJM has conducted, projected PJM market revenues were based on the historical three-year average of net PJM energy market revenues received by the resource.

However, in accordance with FERC's Forward Net Energy and Ancillary Services order (EL19-58), effective with the 2022/2023 delivery year, the auction for which is scheduled for May 2021, projected PJM market revenues must be based on forward-looking energy and fuel prices.

PJM's independent market monitor will develop default EAS values for all resources seeking a resource-specific exception using the specific models, a set of standard inputs based on the resource's actual operating parameters, cost data and pricing points, and forward hourly locational marginal prices and forward daily fuel prices relevant to the resource, according to a presentation given during the MIC meeting.

One stakeholder asked about turn-around times for unit-specific MOPR exemption reviews which require sign off from PJM and the IMM. The market participant also asked about transparency and whether they will be allowed to see the model inputs used by PJM and the IMM.

Joe Bowring, president of PJM's IMM agreed these are "pretty dramatic changes" and said the goal is to turn around MOPR exception requests quickly while meeting all auction deadlines.

Regarding PJM-IMM coordination and transparency, Bowring said his group began coordinating with PJM as soon as the order was released and have spoken almost every day.

"We agree on the underlying data and transparency is part of that too," he said.

"We don't want anyone trying to guess how we came up with a number and will have detailed conversations with resource owners. Every part should be transparent ... not mysterious ... and rule driven," Bowring said.