On December 8, 2017, FERC issued an order on remand, rejecting PJM Interconnection, L.L.C.’s (“PJM”) proposed revisions to the minimum offer price rule (“MOPR”) in its entirety, reinstating PJM’s prior FERC-approved market design. FERC further determined that it would not require PJM to rerun the markets for the period in which the now defunct MOPR rules were in operation, as doing so would be burdensome and significantly disrupt the market.
PJM’s MOPR was established to mitigate the exercise of buyer-side market power in the capacity market. The MOPR requires new resources entering into the PJM capacity market to bid at a price equal to or higher than the set minimum price bid for one year. Historically, a new resource could seek an exception from the MOPR through a unit-specific review process that allowed the generator to demonstrate that a lower bid was justified. In December 2012, PJM submitted tariff revisions under section 205 of the Federal Power Act (“FPA”), proposing to remove the unit-specific review process and replace them with two categorical MOPR exemptions. PJM also proposed to extend the period of time that the MOPR applied to new entrants from one year to three years.
In May 2013, FERC conditionally accepted PJM’s categorical exemptions to the MOPR, subject to certain conditions but also required PJM to retain its prior unit-specific review process. FERC also denied PJM’s proposal to extend the application of the MOPR to three years. FERC’s hybrid approval was appealed to the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”). The D.C. Circuit reversed and remanded FERC’s orders, finding that by approving only part of the PJM proposal and inserting FERC’s own additional changes, FERC exceeded its authority under FPA section 205. The D.C. Circuit concluded that FERC’s required modifications created an “entirely new rate design,” distinct from what was proposed by PJM. In doing so, the D.C. Circuit explained that while “minor deviations” from a rate proposal were permitted under FPA section 205, wholesale modifications were not (see July 17, 2017 edition of the WER).
On remand, FERC determined that PJM had failed to show that its proposed categorical MOPR exemptions, and the extension of the MOPR to a three-year period, satisfied the standards of FPA section 205 without the changes previously required by FERC. Consistent with its prior orders, FERC found that while the categorical exemptions would excuse some resources with lower costs than the MOPR offer floor from the MOPR, it would not necessarily exempt all of them. FERC explained that if PJM prohibited generators that did not have market power from bidding into the PJM market, this would result in undue discrimination and unjust and unreasonable rates. FERC also affirmed its prior decision on the mitigation period, finding that extending the mitigation period would cause developers to be forced to “artificially inflate an otherwise competitive resource’s incremental cost in the second and third years.” FERC rejected PJM’s 2012 filing in its entirety, directing PJM to make a compliance filing reinstating its prior MOPR market design.
FERC’s order can be found here.