National business group sees FERC order as misapplication of rule, which would price renewable energy facilities out of capacity market, undermining state policies and market competition

WASHINGTON, D.C., December 19, 2019 – National business group Advanced Energy Economy reacted to an order issued today by the Federal Energy Regulatory Commission (FERC) requiring grid operator PJM Interconnection to extend a rule that sets an artificial floor price on offers into PJM’s capacity market to all new renewable generating facilities and other new advanced energy technologies (including energy storage) that receive any form of state support, along with (in some cases) new and existing nuclear power facilities.

“FERC’s order is an unfortunate and unnecessary transformation of a limited rule designed to prevent market manipulation into a price support scheme for existing coal and natural gas power plants,” said Jeff Dennis, general counsel and managing director at AEE. “The ruling punishes states that are pursuing a clean, advanced energy future through their valid legal authority over the generation mix. By effectively blocking new advanced energy resources like wind, solar, and energy storage from participating in the capacity market, this ruling will force on customers the cost of duplicate capacity that is not needed for reliability.”

Dennis added, “Rather than undermining valid state policies, FERC should be charting a course toward future market designs that recognize lawful state clean energy and environmental prerogatives. These market designs should also incentivize and reward the flexibility needed to meet electric power system needs in the future, utilizing a range of technologies. Unfortunately, FERC’s blunt approach doubles down on an existing and increasingly outmoded construct, while sowing regulatory uncertainty and conflict between federal and state jurisdictions.”

In March 2016, incumbent generators filed a complaint at FERC charging that PJM’s Minimum Offer Price Rule (MOPR) – which sets a price floor to ensure that certain generators cannot manipulate the market through below-cost offers – failed to deal with “price suppression” allegedly caused by state support for renewable energy and, in some cases, nuclear power. Rejecting two options offered by PJM, FERC directed the regional grid operator to extend its MOPR to all new and existing generators that receive revenues from so-called “state subsidies” with “few or no exemptions.” FERC also suggested that PJM develop a carve-out to give states flexibility.

According to a presentation by Chairman Chatterjee at FERC’s Open Meeting, today’s ruling exempts all existing renewable, demand response, energy efficiency, and energy storage resources from MOPR, but broadly applies the MOPR to all new resources receiving state support. FERC’s order also appears to rescind its earlier directive to PJM to provide states flexibility through a carve-out mechanism. This ruling effectively imposes an artificial and administratively determined price below which wind, solar, and (in states like Illinois, New Jersey, and Ohio) nuclear power facilities would be prevented from determining their own offer, likely pricing them out of the market, while allowing existing coal and natural gas plants to underbid them.

This discriminatory approach would effectively block many advanced energy technologies from PJM’s capacity market, hindering competition, increasing energy costs for 65 million customers in 13 states, canceling out clean energy policies supported by a majority of states in the PJM region, and potentially even interfering with the ability of large consumers to voluntarily procure clean energy. In comments submitted to the Commission, AEE called on FERC instead to keep PJM’s market fair for all resources by abandoning its proposed MOPR expansion, or at a minimum, ensuring that any expanded MOPR only applies to resources constructed or operated with an intent to suppress market prices. 

Background Resources:

• Federal Decision on Grid Operator PJM's Price Rule, one of four wholesale market briefs available for download here
• “How an Obscure Pricing Rule and Transmission Holdups Could Put Advanced Energy Resources on Ice,” blog post here
• AEE Comments to FERC on PJM Minimum Offer Price Rule here

About Advanced Energy Economy:
Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. Advanced energy encompasses a broad range of products and services that constitute the best available technologies for meeting energy needs today and tomorrow. AEE’s mission is to transform public policy to enable rapid growth of advanced energy businesses. Engaged at the federal level and in more than a dozen states around the country, including Florida, AEE represents more than 100 companies in the $238 billion U.S. advanced energy industry, which employs 3.5 million U.S. workers. Learn more at www.aee.net, track the latest news @AEEnet.