On January 29, 2020, thirty-six Democratic members of the U.S. House of Representatives (“Representatives”) signed a letter expressing their concern about FERC’s December 19, 2019 Order (“Order”) directing PJM Interconnection, L.L.C (“PJM”) to apply its Minimum Offer Price Rule (“MOPR”) to all state-subsidized capacity resources (see December 20, 2019 edition of the WER). According to the Representatives, the Order “nullif[ies]” state energy preferences, prohibits states from pursuing their policy goals, increases consumer costs by forcing them to buy duplicative capacity, runs contrary to FERC’s duty to ensure energy markets are truly competitive, and places deregulated markets at risk. The Representatives requested that the Commission provide a response to each concern discussed in the letter.
The letter explains that while the Federal Power Act gives states the authority to select their preferred resource mix, the Order broadly defines “state subsidies” in an attempt to “sweep in” nearly all state policies presently developed to encourage the deployment of energy technologies. The Representatives claim that applying the MOPR to state-subsidized resources will not only block them from PJM’s capacity market, but will also limit how low they can bid. The Representatives note further that the Order could harm the long-term health of PJM’s market by forcing many load-serving entities to elect PJM’s “fixed resource requirement” and completely leave the capacity market, thus reducing competition. The Representatives also stated that they believed FERC’s decision would result in consumers paying twice for generation capacity—once through the capacity market, and again for clean energy resources through state policies. In other words, the Representatives argued, the MOPR forces consumers to pay for capacity in the market that they do not actually need because such capacity is also provided by the clean energy resources that are procured through state RFPs but are not credited as capacity for auction purposes as a result of the MOPR.
Because most PJM’s states support specific energy resources or targets, the Representatives estimate that enacting a minimum price for these resources will require renewable energy wholesale capacity bidders to seek significantly higher prices than would otherwise obtain. If developers forego capacity market payments, the average wind and solar projects will increase their prices 20% and 25% respectively the elected officials state. The Representatives cite industry estimates suggesting that the costs of functionally barring these state-subsidized resources could range from $1.6 billion to $5.7 billion per year—which may rise in the future if increasing amounts of state-RFP-sponsored resources come online and are, subsequently, barred from PJM’s capacity market.
Click here to read the letter.