In October, the Federal Energy Regulatory Commission (FERC) issued a long-awaited order on plans submitted by PJM Interconnection (PJM) to implement the broad Minimum Offer Price Rule (MOPR) the agency ordered in late 2019. As we’ve detailed in prior posts, the broad MOPR that FERC has imposed in PJM and other regions threatens to exclude advanced energy resources supported by state policies from the centralized capacity markets, a result that could derail state clean energy ambitions and unnecessarily raise costs to consumers. While not approving the compliance plan in its entirety, FERC’s order did accept PJM’s proposal to provide flexibility in the application of the MOPR that could mitigate some of the MOPR’s anticipated negative effects, without eliminating them entirely. Meanwhile, court challenges to FERC’s MOPR policy in PJM are poised to begin, and the broader impacts of FERC’s MOPR-like policies in New York and New England continue to play out, all setting the stage for a new chapter in this ongoing state-FERC saga in the new year, this time with new FERC leadership.

FERC’s October order on PJM’s MOPR compliance plan, followed by a November order finalizing key inputs to MOPR, are just the latest chapter in the flurry of FERC decisions, state responses, and federal court litigation regarding FERC’s MOPR policy, which impacts not only PJM, but also advanced energy resources in the centralized capacity markets operated the New York Independent System Operator (NYISO) and ISO New England (ISO-NE), where FERC’s MOPR-like policies also continue to play out. Meanwhile, in January a new Administration will install a new FERC leadership that has opposed these policies, setting the stage for a new chapter in this ongoing state-FERC saga. 

So where do we stand on the implementation of MOPR, and challenges to it, in PJM and beyond, and what comes next? 

PJM’s Compliance Plans May Ease MOPR Impact

While the strict MOPR policy that FERC announced threatened to broadly exclude advanced energy resources supported by state policies from PJM’s capacity market by requiring them to offer their capacity at artificially high default MOPR floor prices, PJM’s compliance plan included important flexibility that allows these resources to construct their own lower unit-specific MOPR floor prices that better reflect their actual costs and financing circumstances. That gives these resources a better chance of being selected in the capacity market auctions; for that reason, AEE and a coalition of clean energy trade groups supported PJM’s compliance filing before FERC, while continuing to oppose the MOPR policy.

FERC’s October order largely approved these flexibilities in PJM’s compliance plan, providing some measure of relief from the potential harsh consequences of MOPR, at least in the near future. Most importantly, FERC approved PJM’s proposal to allow advanced energy resources to use certain assumptions in the unit-specific MOPR floor price calculation that differ from the assumptions used in the default MOPR floor price calculations, which in many cases are based on natural gas-fired power plants. For example, FERC allowed resources to base their unit-specific MOPR floor price calculation on a longer assumed asset life than the 20 years used in the default calculations; this provides important flexibility for wind and solar resources, which are often financed based on an asset life of up to 35 years, to develop more accurate (and lower) floor prices. 

In addition, FERC in the October order approved mechanisms to ensure that advanced energy projects supported by voluntary purchases (e.g., projects supported by contracts with corporate buyers to satisfy their advanced energy procurement goals) are not subject to MOPR. These mechanisms include the ability to “tag” renewable energy certificates in PJM’s tracking system to ensure they are not used for compliance with a state renewable portfolio standard, and rules that allow a project that serves both a voluntary buyer and a utility complying with a state law to be structured to ensure that the portion serving the voluntary buyer is not subject to MOPR.

While all this is positive, FERC’s approval of PJM’s compliance plan does not resolve all of the ills of MOPR for advanced energy resources and clean energy states in PJM in the long term. For example, even the flexibility to develop resource-specific MOPR floor prices are unlikely to allow offshore wind to participate, an advanced energy resource that is central to meeting the clean energy goals of several PJM states. Moreover, even with compliance flexibility, MOPR still singles out advanced energy resources supported by state policies for discriminatory treatment, presenting a long-term hurdle to market entry for these resources and a continuing lightning rod for tension between PJM states and the wholesale markets. Inexplicably, FERC fanned the flames of this tension when it stated, in a footnote, that state default service auctions (which procure electricity supplies for retail customers who have chosen not to shop for a non-utility supplier in states with retail competition) may be subject to the MOPR to the extent they must comply with state renewable portfolio standards.    

The October order was followed by an order in November approving new values for the energy and ancillary services offset, a key input to the calculation of both the default and unit-specific MOPR floors. FERC’s decision earlier this year to require PJM to alter the Operating Reserve Demand Curve, a market mechanism that allows wholesale prices to rise in times of scarcity when system reserves are in short supply, required that PJM revisit the assumed energy and ancillary services revenues that this offset reflects. 

The October and November orders from FERC cleared the way for PJM to restart its long-delayed schedule of capacity auctions. The delayed auction for the 2022-2023 capacity delivery year, originally scheduled for May 2019, will be held in May 2021. PJM also announced a schedule for holding subsequent auctions that will see the region return to a normal auction schedule – with capacity auctions conducted three years in advance of the capacity delivery year – in May 2024. 

The advanced energy industry and the states will be watching the May 2021 auction closely to see how advanced energy resources supported by state policies fare under the strict MOPR and PJM’s flexible compliance rules. In the meantime, PJM states with strong clean energy  commitments, including Illinois, Maryland, New Jersey, and Virginia, are all continuing to consider whether to leave the PJM capacity market through the Fixed Resource Requirement (FRR) alternative. The New Jersey Board of Public Utilities (BPU) is expected to issue a report in the first quarter of next year assessing various alternatives to continuing to participate in the regional capacity market. AEE has raised concerns about the costs and risks of FRR as a response to MOPR, and urged states to pursue reforms inside the PJM market before devoting significant resources to the FRR alternative. 

Finally, focus will now shift to the United States Court of Appeals for the Seventh Circuit, based in Chicago, where more than two dozen petitions challenging FERC’s PJM MOPR orders were consolidated on appeal. While FERC’s recent orders resolved nearly all of the outstanding matters before it, lawyers for FERC recently sought a short additional delay in starting the court proceedings to give it time to resolve remaining narrow requests for rehearing of the October order (which include state objections to FERC’s footnote on the application of MOPR to default service auctions). Specifically, FERC asked the court to continue to hold the case in abeyance until January 22, 2021. While none of the challengers opposed this request, nearly all of them asked the court to ensure that the case moves forward after this additional abeyance ends, explaining that the potential uncertainty and harm to market participants from MOPR will grow as the restarted auctions move forward. With this delay expected to be granted by the court, briefing in the consolidated appeals is likely to begin in Spring 2021, with a decision from the court later in the year. 

In NYISO, Buyer-Side Mitigation Expands as the State Considers Options 

NYISO, where MOPR is called Buyer-Side Mitigation (BSM), has also seen significant developments in recent months.  Much like MOPR in PJM, BSM has historically applied to certain resources supported by state policies only in the “downstate” zones (New York City and the Lower Hudson Valley) of NYISO. Throughout the course of 2020, however, FERC has required NYISO to expand BSM to electric storage, demand response, and a broader set of renewable resources in those zones. While FERC has allowed NYISO to exempt a limited amount of resources from BSM, it recently issued a surprising rejection of rules proposed by NYISO to prioritize renewable resources built to meet the requirements of New York State clean energy laws in its process of reviewing requests for this exemption.

In addition, a complaint recently filed at FERC by two large natural gas-fired generators in upstate New York seeks a Commission ruling expanding BSM beyond the downstate zones to all of NYISO. A large coalition of clean energy businesses and supporters, including AEE, filed a protest with FERC last month opposing the complaint.

In the meantime, the New York Public Service Commission (PSC) has continued its investigation of whether the existing NYISO capacity market is compatible with the requirements of the Climate Leadership and Community Protection Act, which requires the state to generate 70% of its electricity from renewable resources by 2030, and reach 100% zero emissions in the electricity sector by 2040. That law also sets procurement targets for energy storage, offshore wind, and solar. Like the New Jersey BPU, the PSC is considering a variety of alternatives to continued participation in the NYISO capacity market, with the state taking over the role of assuring resource adequacy.

In addition, like the PJM MOPR, FERC’s recent decisions expanding BSM will soon be before the courts. Several petitions challenging the expansion of BSM to electric storage and demand response have been filed in the United States Court of Appeals for the District of Columbia Circuit, but have been held in abeyance pending the completion of proceedings before FERC.  

ISO-NE States and NEPOOL Study Market Reforms as Legal Challenges to CASPR Proceed  

ISO-NE’s version of the MOPR has been in place for several years. For most of its existence, ISO-NE’s MOPR included an exemption for a certain amount of renewable resources that qualify under state renewable portfolio standards or goals. In 2018, FERC approved, in a divided vote, a three-year phase-out of this exemption as part of a new market design called “Capacity Auctions with Sponsored Policy Resources” (CASPR). CASPR was intended to add an option for new capacity resources supported by state policies to participate in a substitution auction to replace existing generators who offer to retire in exchange for a payment and the relinquishment of their capacity supply obligation. Last month, FERC denied rehearing of its 2018 decision to approve CASPR. This likely clears the way for legal challenges to CASPR and the phase-out of the renewables exemption from MOPR to proceed.

In the meantime, the New England states continue to press ISO-NE to pursue reforms to its markets to align them with state energy policy objectives. One state, Connecticut, has initiated a formal examination of the compatibility of ISO-NE’s markets, including the capacity market, with its energy policies as part of its integrated resource planning process. More broadly, the New England states, through the New England States Committee on Electricity, issued a vision statement calling on ISO-NE to develop reforms to its wholesale electricity markets, transmission planning process, and governance to support the achievement of state clean energy policies. 

ISO-NE and its stakeholders (who work within the the New England Power Pool, or NEPOOL, governance structure) have begun an examination of the reliability needs of the future grid as it evolves in response to the expansion of state clean energy and environmental goals, and of potential market reforms to support this evolution. Potential market reforms that have been introduced in this process include a Forward Clean Energy Market (FCEM), which would allow the states to procure clean energy through a regional market construct, and an Integrated Clean Capacity Market (ICCM) (a mechanism AEE and its members encouraged ISO-NE and NEPOOL to consider), which would co-optimize procurement of clean energy with resource adequacy needs, thereby more directly addressing the tension between state clean energy goals and capacity markets caused by policies like the MOPR. Other options, such as carbon pricing (which the New England states have repeatedly rebuffed) and returning resource adequacy responsibility to the states, are also under consideration. This initial exploration of potential solutions will culminate in a summary report due out by the end of 2020, and will continue well into next year and potentially beyond, with ISO-NE slated to conduct analysis of at least two options—carbon pricing and the FCEM—starting in early 2021.  

Will New FERC Leadership Reverse MOPR?

With President-elect Biden set to take office in January, it is expected that the new Administration will tap a new FERC Chair who is opposed to FERC’s strict MOPR policies from among the Democrats on the Commission. Commissioner Richard Glick has dissented from every order on MOPR and BSM during his tenure, and recently confirmed Commissioner Allison Clements (D) is expected to also oppose these policies. 

However, without further changes in the composition of the Commission, it is not clear that either Commissioner, were they tapped to become Chair, would have the votes to reverse MOPR. Current Chairman James Danly and Commissioner Neil Chatterjee, both Republicans, have strongly supported MOPR. The views of recently confirmed Commissioner Mark Christie, also a Republican and previously a Judge on the Virginia State Corporation Commission, are unknown. Moreover, reversing MOPR could risk further damaging uncertainty for all market participants, including clean energy developers, and for the RTOs/ISOs themselves.

For these reasons, new leadership at FERC may seek instead to initiate and seek bipartisan consensus on broader reforms to the energy and capacity markets in PJM, NYISO, and ISO-NE to better align them with state policy goals and move beyond the conflicts caused by the MOPR. Concepts such as the FCEM and ICCM noted above, and currently introduced in the ISO-NE and NEPOOL examination of market reforms, could be considered by the Commission. The Commission might also pick up, and expand, its proposed policy statement on state-set carbon prices in RTOs/ISOs, as a means of pressuring them to pursue market reforms that accommodate or implement a broader range of state policies beyond just state-set carbon prices. (AEE’s recent comments urged FERC to do just that.) It could also explore broader reforms to how resource adequacy needs are met in these regions, and whether RTO/ISO-operated centralized capacity markets should be replaced with state-driven requirements and mechanisms or other markets altogether. In these ways, FERC might be able to move beyond the conflicts caused by the MOPR once and for all. 

Click below to view the recorded AEE webinar, "MOPR Gets Real: How PJM Plans to Apply the Minimum Offer Price Rule."