By Andrea I. Sarmentero Garzón
On May 2,
2013, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued
an Order partially accepting PJM Interconnection, LLC’s (“PJM”) proposed Tariff
changes to its Minimum Offer Price Rule (“MOPR”) subject to further compliance
filings (“MOPR Order”).
The current
MOPR was adopted in 2011 in order to mitigate what PJM calls “buyer-side”
market power by requiring all new, non-exempted resources to bid at a floor
price (i.e. ninety percent (90%) of the Net Cost of New Entry) or higher,
unless the resource can demonstrate, through a unit-specific review process,
that a lower bid is justified based on the economics of that unit. Last
December, PJM submitted revisions to its MOPR rule proposing to replace the
unit-specific review process with two broad exemptions: one for “competitive
entry” and one for self-supply LSEs. Under the PJM proposal, a resource would be
subject to the MOPR unless it fit within one of the exemptions.
While the Commission accepted the two
broad exemptions, it rejected PJM’s proposal to eliminate the unit-specific
review. The Commission reasoned that, “[t]here may be resources ineligible for any
MOPR exemptions that have lower competitive costs than the default offer floor,
and these resources should have the opportunity to demonstrate their
competitive entry costs. See MOPR Order at P 26.
PJM must now go back to its stakeholders
to discuss possible improvements to the alleged deficiencies of its
unit-specific review in tandem with possible enhancements to the calculation of
the Net Cost of New Entry. See MOPR Order at P 144.
A core issue in the case was whether
certain revisions to the MOPR are necessary to ensure that mitigation applies
to resources with incentives to submit bids below their actual entry costs. FERC rejected arguments suggesting that
vertically-integrated utilities should satisfy their capacity needs though
Fixed Resource Requirements (“FRR”) mechanisms instead of participating in the
capacity market with a MOPR self-supply exemption. On this, the Commission
stated, “At issue here, however, is not
the adequacy, or inadequacy, of the FRR option for vertically-integrated
utilities. Rather, the issue is whether PJM’s proposed tariff changes are just
and reasonable. We find that PJM has met this burden because entities that
self-supply a sufficiently large portion of their capacity requirement do not
have an incentive to use uncompetitive entry to lower capacity prices. See
MOPR Order at P 110. The Commission made clear that the effectiveness of the self-supply
exemption depends “critically” on LSEs meeting the net-short and net-long proposed
thresholds and directed PJM to make adjustments to its net-long threshold’s
assumptions to accommodate winter-peaking LSEs. The Commission further
recognized that the underlying assumptions used in the calculation of
self-supply thresholds are subject to change and required PJM to submit tariff
language memorializing its obligation to review
these thresholds on a periodic basis.
FERC also rejected PJM's proposal to
increase the mitigation period by applying the MOPR to a planned generation
capacity resource in two successive auctions after the one in which the new
entrant's resource clears. The current rules apply the MOPR until the planned
resource clears the capacity auction once.
The Commission found that, “applying
the MOPR offer floor to a resource already determined to be economic would be
unreasonable and could inefficiently discourage the entry of new capacity that
is economic.” See MOPR Order at 211. The Commission reasoned that a resource
that has cleared capacity auction has to begin building in order to provide capacity
in the corresponding delivery year (three-years ahead) for which it has cleared
and that no developer would reasonably commence construction without the certainty
that the project has been accepted as a new capacity resource in the PJM’s
capacity auction.
You may see the MOPR Order by clicking here.
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