PowerSuite Perspectives

Note: The original full length story can be found on blog.aee.net

A decision handed down by the Federal Energy Regulatory Commission (FERC) on a seemingly obscure issue in one regional power market threatens to have far ranging impact on the cost of electricity, the future of state policy, and the ability for advanced energy to compete – and win, as it has been doing – in the marketplace. FERC’s policy change is purportedly intended to address the “price suppression” in competitive wholesale power markets allegedly caused by resources that are supported by state policies like renewable portfolio standards (RPS) and zero emission credit (ZEC) policies. But what FERC’s decision will actually do is limit the ability of advanced energy resources to participate in the nation’s largest electricity market, force customers from New Jersey to Ohio to pay twice for the generating capacity they need,  steer funds to existing coal and natural gas power plants that are otherwise redundant, and undermine state policies that are explicitly intended to promote advanced energy deployment. How it will do so is complicated, but potentially devastating to the advanced energy economy that has been steadily growing in the United States.

First, some background. PJM Interconnection, the regional grid operator serving 13 mostly mid-Atlantic states, operates a capacity auction to ensure the region has enough energy resources for reliability purposes. These auctions are held for a one-year period three years in the future. For example, a PJM capacity auction held in May 2020 would procure capacity for the June 2023 to June 2024 delivery year. In general, PJM’s capacity market has historically allowed resources flexibility in how they construct a capacity offer price, including allowing resources to submit low or zero price offers, with all resources that “clear” the market getting paid the highest amount bid by the clearing resources. 

However, since its inception, PJM’s capacity market has also included a limited “Minimum Offer Price Rule” (MOPR), which sets a floor price for bids from certain resources. MOPR was originally a narrow rule intended to prevent market manipulation by participants who both pay for capacity purchased in the capacity market and sell capacity (such as large utility holding companies who are load-serving entities paying capacity market charges). Absent the MOPR, these participants could over-build generation and offer it into the capacity market at artificially low prices, with the goal of lowering overall market prices enough to reduce their total capacity payments.. The original MOPR prevented this type of gaming of the market.

For the past several years, existing traditional generators in PJM (generally existing natural gas and coal) have claimed that capacity market prices were being suppressed by the participation of resources that receive revenues under state policy programs, specifically states that enacted Zero Emission Credit policies to compensate nuclear power plants for their emission-free attributes. They asserted that these resources are able to bid artificially low prices in the PJM capacity market because they are guaranteed revenues by state policies, and that these low offers suppress the prices paid to all the power plants that cleared the auctions. These generators eventually filed a complaint at FERC seeking expansion of the MOPR to apply it to more resources receiving revenues under state policy programs. After years of back and forth between PJM and FERC, the Commission finally issued its Order on the PJM MOPR on December 19th, 2019.

Since the order was issued back in December, public comments by organizations such as the National Mining Association, The Hershey Company, PJM and the Attorney General of Maryland have been submitted.

Want to easily follow these developments yourself? Start a free PowerSuite trial today.