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Experts tell FERC PJM's expanded MOPR needs to go, but views mixed on new path

The Federal Energy Regulatory Commission should move quickly but carefully to rescind a contentious order directing the PJM Interconnection to expand its capacity market mitigation rules to state-subsidized clean energy resources, a panel of experts said March 23.

But opinions were more mixed as to what should follow, with participants during a FERC-hosted technical conference offering a range of views on how the 13-state grid operator's multibillion capacity market can support states' varying decarbonization strategies.

The March 23 technical conference was the first in a series of conferences organized by Chairman Richard Glick to explore how states' choices over their own generation mixes can be harmonized with FERC-jurisdictional capacity markets designed to procure sufficient power supply at all times.

As FERC's lone Democrat at the time, Glick wrote a blistering dissent to a December 2019 order requiring PJM to expand its minimum offer price rule, or MOPR, to all new and some existing capacity auction participants receiving material subsidies.

Clean energy advocates and utilities such as Public Service Enterprise Group Inc. have said the expanded MOPR will eventually require consumers to "double-pay" by supporting state-procured clean energy resources whose administratively set offer floors prohibit them from clearing PJM's auctions.

In February, FERC finally cleared PJM to hold its next three-year forward capacity auction that had been delayed since June 2018. Under a compressed schedule, PJM plans to hold a capacity auction in May covering the 2022/2023 delivery period, with a second auction to follow in December.

Auction timing

While an initial panel of grid operators and state officials speaking during the March 23 conference focused on broader potential reforms to the nation's three mandatory capacity markets operated by the ISO New England, New York ISO and PJM, two later panels of industry experts focused exclusively on contentious rule changes within PJM.

Glick asked one of those panels to weigh in on a potential order that would eliminate the expanded MOPR ahead of PJM's December auction. "How quickly would we have to get everything in order if you were to keep the timetable of having an auction in December so that people have some certainty on a going-forward basis," Glick asked.

Stu Bresler, PJM's senior vice president of Market Services, responded that the grid operator would need a FERC order approving further tariff changes in "the September time frame."

"I think, between now and when that process would play out, it would be important for us to get as much stakeholder interaction as we possibly could," Bresler added.

Marji Philips, vice president of wholesale market policy for LS Power Group, noted that two offshore wind projects — the 1,100-MW Ocean Offshore Wind Farm in New Jersey and 120-MW Skipjack Offshore Wind Project in Maryland — are unlikely to clear under PJM's current capacity market rules when they are expected to come online in late 2024 and mid-2026, respectively.

Philips said LS Power would prefer to see a two-step maneuver where the expanded MOPR is jettisoned followed by a longer yearlong process to define resource adequacy in line with states' preferences. "We have a little time until the offshore wind really comes in, which is the one resource we all agree is probably most profoundly affected," Philips said.

Abraham Silverman, general counsel for the New Jersey Board of Public Utilities, was even blunter. "Frankly, I think the commission has the legal authority and the evidentiary record to tell PJM tomorrow to simply reinstate the tariff language that existed for seven years prior to the 2018-2019 orders as an interim measure," Silverman said.

Long-term changes

PJM, meanwhile, is already in the middle of a series of capacity market design workshops to explore further reforms. To that end, Glick and fellow Democratic Commissioner Allison Clements pressed participants on potential long-term fixes to the PJM capacity market construct.

Glick specifically asked about a forward clean energy market construct outlined in an April 2019 white paper by consulting firm The Brattle Group on behalf of NRG Energy Inc. The proposal would establish a new competitive regional market for clean energy attributes and then seek to "co-optimize" that market with PJM's traditional capacity market.

"I don't think we need to go down the path that Brattle was proposing with 'co-optimization,'" said Joe Bowring, president of Monitoring Analytics, PJM's independent market monitor. "It's a fancy word, but I think the proposal is way more complicated than it needs to be."

Bowring argued that PJM's existing capacity market simply needs an additional element that allows states to purchase what they want. "My expectation is that when that happens and the prices are transparent, it will erode the need for subsidies," Bowring said.

Roy Shanker, an independent consultant, said incorporating some sort of forward clean energy procurement mechanism would be "very straightforward" from a market design perspective. But "the real question is, who picks the numbers and who pays for them," Shanker added

"Is there a subsidy involved? Are there out-of-market payments? That's completely different from market design," Shanker said.

Clements asked participants to address a "capacity as a commodity" construct outlined in a November 2020 white paper by the American Wind Energy Association, which has since merged into the American Clean Power Association. That proposal envisions separating the resource adequacy planning process from procurement and establishing capacity credits that can be commoditized similar to renewable energy credits, allowing for greater customer choice.

In response, Bowring cited an ongoing PJM proceeding (ER21-278) at FERC aimed at better defining variable renewable generating resources' capacity values in relation to those of thermal generating resources.

With regard to further reforms, Silverman said FERC needs to look at carbon value to ensure just and reasonable rates. "It makes absolutely no sense for there to be a federal grid focused on reliability and cost and to have states running an entirely different grid at the state level largely focused on decarbonization," Silverman said.

Susan Bruce, an attorney representing industrial customers within PJM, urged FERC to move forward with another open proceeding (AD20-14) regarding carbon pricing in wholesale power markets. "We would encourage you to focus on that because that is one thing the states cannot effectively do by themselves," Bruce said.