On September 29, 2021, FERC recognized that PJM’s Minimum Offer Price Rule (“MOPR”) replacement proposal, previously filed with FERC on July 30, 2021, went into effect by operation of law after the Commission failed to act on PJM’s filing within the 60-day statutory deadline. FERC’s notice stated that FERC did not act on PJM’s filing because the Commissioners are divided two-to-two as to the filing’s lawfulness. Consistent with the Federal Power Act (“FPA”), the Commissioners each issued a statement explaining his or her view on PJM’s MOPR replacement proposal. Going forward, PJM’s MOPR replacement proposal has already been appealed based on an emergency request for rehearing of FERC’s September 29 notice. Additional requests for rehearing continue to be filed prior to the October 29 deadline.

PJM’s July 30 filing proposed to replace the previously-applicable “Expanded MOPR” adopted in December 2019 (see December 20, 2019, April 22, 2020, October 22, 2020, and February 26, 2021 editions of the WER), as well as the previously-existing “Legacy MOPR” applicable to natural gas-fired resources.

PJM’s MOPR replacement filing proposed to require generators to certify whether they: (1) have received “conditioned state support,” defined as out-of-market payments in exchange for the same of a FERC-jurisdictional product conditioned on clearing in any PJM capacity market; and (2) intend to offer their resources into the capacity market to exercise market power. Under the proposal, PJM and its independent market monitor (“IMM”) would then confirm the certifications are correct. Where PJM or the IMM has reason to doubt the certification of lack of market power, PJM can require the seller to provide further information, and if concerns remain, apply the MOPR to the seller’s bid. Similarly, if PJM or the IMM identifies conditioned state support, PJM can seek FERC approval to apply the MOPR to the seller’s bid. Market participants that do not receive conditional state support and do not exercise market power can offer below the minimum offer price.

PJM’s filing stated that the minimum offer price also differs between new and existing units. New units that have never cleared in a capacity auction cannot offer below their cost of new entry, less estimated revenues. Meanwhile, existing units that have previously cleared a capacity auction cannot offer below the resource’s net going forward cost. In addition, PJM’s replacement MOPR filing carves out certain exceptions for merchant generation supply resources, for generators that are acquired through a procurement process, and for certain generation resources owned by or bilaterally contracted to vertically integrated utilities and public power entities (“self-supply exemption”).

PJM argued that the Expanded MOPR adopted in December 2019 is unjust and unreasonable because it: (1) ignores that state support for renewable resources has become a well-established determinant of supply in the PJM region; (2) incents withdrawal from the capacity market; (3) results in excess supply in the energy markets beyond the reserve levels cleared in the capacity market, increasing the role of capacity revenues in investment decisions; and (4) is not needed to ensure reliability. PJM explained that other capacity market rules reasonably ameliorate the risk of the possible exercise of market power. PJM also detailed its view that the Legacy MOPR is overly broad because it mitigates all new natural gas resource offers.

Chairman Glick and Commissioner Clements’ joint statement concluded that PJM’s MOPR replacement filing is a just and reasonable method of addressing buyer-side market power that provides PJM’s capacity market with appropriate protection against anti-competitive conduct without stymying competition or interfering with state jurisdiction. According to Chairman Glick and Commissioner Clements, PJM’s MOPR replacement filing will allow consumers to avoid paying for redundant capacity and inflated prices that they stated would result from the Expanded MOPR. Chairman Glick and Commissioner Clements also stated their belief that continued application of the Expanded MOPR would have threatened at least some aspects of the wholesale markets.

Commissioner Christie stated his agreement with Chairman Glick and Commissioner Clements that the Expanded MOPR is unsustainable and should be replaced. However, Commissioner Christie argued that PJM’s MOPR replacement filing failed to properly accommodate state policies while ensuring credible competition. Commissioner Christie pointed to the PJM IMM’s filing, and in particular its conclusion that the replacement MOPR is “worse than having no MOPR at all.” Commissioner Christie explained that he would have voted to reject PJM’s proposal and simultaneously initiated a FPA section 206 proceeding, requiring PJM to formulate a replacement MOPR.

Commissioner Danly’s statement explained his view that, by allowing the MOPR replacement filing to take effect, FERC “abandoned its responsibility to mitigate price suppression by state subsidies” in violation of FPA section 205. Commissioner Danly characterized PJM’s filing as being “structured as to ensure that it is virtually certain that the MOPR will never apply to any generation resource,” and that the proposal is “so deliberately ineffectual that [its] approval violates [FERC’s] statutory duty to ensure that PJM’s capacity market produce[s] just and reasonable rates.” Commissioner Danly urged a reviewing court to remand the replacement MOPR and instruct FERC to issue an order on the merits, or to vacate the September 29 notice.

FERC’s September 29 notice is available here. For the various explanatory statements from the FERC Commissioners, please see the links below:

Chairman Glick’s and Commissioner Clements’ joint statement can be found here.

Commissioner Christie’s statement can be found here.

Commissioner Danly’s statement can be found here.