Legal Bulletins

The Federal Energy Regulatory Commission (FERC) issued an order on December 19, 2019, directing PJM Interconnection, LLC (PJM) to expand its current Minimum Offer Price Rule (MOPR) in a manner that will disadvantage new renewable resources participating in the PJM capacity market.

Background

The PJM competitive capacity market compensates energy suppliers who maintain available capacity to meet peak demands — typically during the depths of winter cold snaps or summer heat waves. Energy suppliers compete for payments in this market through a sophisticated auction process.

Some suppliers complained that renewable and, in some states, nuclear energy sources had an unfair advantage because they received some form of subsidy or reserve under state-mandated programs. The complaint alleged that a renewable resource receiving a state subsidy could “unfairly” submit a lower bid in the capacity auction.

The impacted states and renewable sources argued that the subsidies or reserves were designed to accomplish specific state policy goals, particularly greenhouse gas reduction. They argued that any change to offset those subsidies would frustrate these goals.

What Does the FERC Order Do?

This order achieves the following:

• Requires PJM to modify the capacity auction, thereby compelling new state-subsidized energy sources to comply with an expanded MOPR. The intent is to force these sources to submit higher bids in the competitive market, allowing nonsubsidized sources to win capacity share at higher prices. PJM is required to submit a plan for compliance within 90 days.
• Includes a surprisingly broad definition of the term “subsidies.” FERC defined it as any “direct or indirect payment, concession, rebate, subsidy, non-bypassable consumer charge, or other financial benefit.” This would apparently encompass any kind of advantage provided to clean energy sources, including renewable portfolio programs.
• Exempts existing energy sources and programs.

How Does the FERC Order Impact Renewables?

Renewable resources that are already constructed will not have to meet the requirements of PJM’s new MOPR rule. However, the order is likely to have a significant impact on financial projections for any renewable resource that has not yet been built. It may also affect any existing resources that receive subsidies under new state programs. When released, the PJM compliance plan should be reviewed to determine the exact scope of the impact.

The order is expected to also influence plans in some states regarding subsidies for nuclear power plants. Nuclear plants receiving subsidies under any new state programs will also likely be required to comply with the MOPR rules.

For more information, contact Michael C. Powell.

Michael C. Powell
(410) 576-4175 • mpowell@gfrlaw.com