Responding to a federal appeals court's finding that it overstepped its jurisdiction by conditioning approval of revisions to the PJM Interconnection's buyer-side mitigation rules on the grid operator adopting substantial changes, the Federal Energy Regulatory Commission on Dec. 8 rejected those revisions outright.
However, the commission noted that PJM is free to file a new proposal that will "cure the deficiencies" the agency cited in its previous order conditionally approving changes to PJM's minimum offer price rule, or MOPR. Of particular note, FERC again took issue with PJM's plan to replace its existing unit-specific MOPR exemption with two new exemptions for units that are designated as self-supply or that receive no out-of-market funding.
"We continue to find that PJM has failed to show that its proposed categorical exemptions, standing alone, are just and reasonable, and not unduly discriminatory or preferential, because there would be no means for non-exempted resources with lower costs than the MOPR offer floor to have a competitive bid considered in the auction," FERC said.
PJM's MOPR is designed to prevent suppliers receiving out-of-market subsidies pursuant to state or other initiatives from bidding to sell power in the grid operator's capacity markets below competitive price levels.
Before 2012, not every new market entrant was subject to PJM's MOPR because the rule established a "unit-specific review" exemption under which a generator would be permitted to bid below a PJM-set price floor if it could demonstrate that its actual costs were less than that floor. In addition, after a generator had been mitigated by PJM for one year, it could bid into subsequent auctions below the floor.
However, because many of PJM's generators complained that the unit-specific review lacked transparency and was allowing new market entrants to submit below-cost bids that depressed capacity market clearing prices, the grid operator in December 2012 asked FERC to approve new MOPR provisions backed by the vast majority of stakeholders.
PJM specifically proposed to replace the unit-specific review process with the two broad categorical exemptions, have the MOPR apply only to certain gas-fired technologies, extend from one year to three years the period over which MOPR mitigation could apply, and expand the application of the MOPR to the entire PJM region.
FERC in May 2013 largely approved the proposed revisions, including the self-supply and competitive entry categorical exemptions, but also ordered PJM to retain the unit-specific exemption and the one-year mitigation period. Some resources not eligible for any MOPR exemptions should have the chance to demonstrate that their competitive costs fall below the benchmark price, and extending the duration of mitigation to three years could lead to over-mitigation, FERC reasoned.
While PJM subsequently agreed to FERC's proposed modifications, certain stakeholders asked the U.S. Court of Appeals for the District of Columbia Circuit to review FERC's decision, arguing that the agency overstepped its authority under Section 205 of the Federal Power Act. The court agreed and in July remanded the matter to the commission.
In its Dec. 8 order, FERC explained that the concerns it raised previously persist even after reviewing the record in light of the court's remand.
"We emphasize that a properly designed MOPR should not erect an unnecessary barrier to entry that is detrimental to a competitive market," FERC said. "While the two proposed categorical exemptions may reasonably exempt some resources from the MOPR that lack the ability or incentive to exercise buyer-side market power, they do not necessarily capture all resources with competitive costs."
FERC acknowledged the concerns about the lack of transparency with respect to the unit-specific review but said the grid operator "fails to explain why narrowing the opportunity for resources with potentially competitive costs to avoid the default offer floor is just and reasonable."
As for PJM's proposal to adopt a three-year mitigation period, FERC said doing so would force some resources "to offer at an artificially inflated price, thereby raising the risk that the resource may fail to clear in auction-years two and three and be displaced by another resource with higher going-forward costs."
The commission accordingly rejected PJM's proposal "in its entirety and reinstate[d] its previously approved market design, i.e., a MOPR without categorical exemptions but with a unit-specific review process and a one-year MOPR mitigation period."
Finding that rerunning PJM's markets "would cause significant disruption and burdens that are not warranted under the circumstances," FERC exercised its discretion to not have the grid operator "attempt to recreate capacity rates for the prior auctions under the preexisting tariff provisions." Doing so "undermines the markets themselves by creating uncertainty for market participants, and we generally eschew directing them to be rerun," the commission said. (FERC docket ER13-535)
