A divided independent Federal Energy Regulatory Commission (FERC) has issued the long-awaited Decree on December 19, which requires PJM Interconnect to significantly expand MOPR to resources subsidized in almost all countries. The order will have a significant impact on the PJM capacity market. While it is not surprising that this decision immediately provoked widespread reaction from many manufacturers and affected countries, the decree deserves serious consideration in a broad context.
The FERC commissioner instructed the PJM to vote 2-1. It is the largest Regional Electricity Transmission Organization (RETO) in the United States. Its wholesale competition market covers all or part of the 13 states and the District of Columbia, requiring it to be in the state. Almost all government subsidies for electricity in the state are outside the PJM and reach the lower price limit set by the PJM to participate in future PJM auctions.
To this end, it has accepted the PJM proposal, which will significantly expand the MOPR of the grid operator now applicable to new natural gas units, including any fuel regardless of size that it has received or is entitled to use the new and available auction resource capacity. Government subsidies were received. This order excludes only certain resources from the rules, including existing non-subsidized auctioned resources and non-trading “trading” resources created without subsidies outside PJM managed markets
After FERC made key adjustments to the market in June 2018, members voted against PJM’s ability market reform plan by 3 votes to 2 votes. In this order, federal regulators acknowledged that the integrity and effectiveness of the PJM capacity market was affected by increased state subsidies for priority generation resources and “irresistible threats.
Especially in June 2018, FERC identified unplanned payments and then identified them as revenue provided by the government to market suppliers, including zero-emission credit (ZEC) and Renewable Portfolio Standards (RPS). The documents that form the basis of PJM’s operations are unfair and unreasonable because MOPR cannot resolve price distortions caused by public resources. However, in June 2018, FERC failed to resolve the issue, noting that it could not make a final decision to replace PJM tariffs at a reasonable price based on existing records.
Although FERC initially promised to issue replacement rules by January 2019, the issue remains stagnant for more than a year, creating considerable uncertainty and significant impact. For example, on October 1, PJM confirmed the suspension of all terms and events related to major auctions that remained during the 2022/2023 and 2023/2024 delivery years, and suggested that the future auction deadline could also be suspended in 2020.
At the same time, FERC inaction has been reduced by five after the death of Commissioner Kevin McIntyre in January 2019 and the departure of Commissioner Cheryl LaFleur in August 2019.The members’ committee now only works with three commissioners. Due to an ethical violation, he was prevented from dealing with his former employer, Avangrid, on November 29, 2019.
The MOPR originated from PJM’s settlement with the bidders and was originally intended to determine the appropriate conditions for determining when the seller could bring the price below competitive level in the PJM capacity auction. Initially, it did not apply to base load resources that took more than three years to create (for example, nuclear power, coal, combined cycle gasification and hydroelectric power, or some upgrades to existing plants). It focuses on all new unused natural gas resources and requires that these resources be supplied at a cost equal to or higher than the net worth of new records for the respective asset classes and capacities. The initial MOPR exempted planned resources that were developed in response to national regulatory or regulatory requirements to overcome planned capacity shortfalls.
However, since then, the MOPR has been reworked through a series of amendments and court battles. In 2011, FERC accepted a proposal from the PJM to waive the Government’s revenue exemption, although it eventually allowed the PJM and its Independent Market Monitor (IMM) to review the rationality of the unit price quotation below. As part of the 2011 action, FERC has finally added wind turbines to the list of generators that already include nuclear, coal, IGCC and hydropower resources, which were allowed to enter the main auction of excess zero capacity.
In 2013, FERC adopted other categories of PJM benefits to counteract the state-supported market impact of new gas entities, although this forced network operators to review their specific procedures. The FERC procedures have finally revised the MOPR to clarify that it applies only to gas resources, namely gas turbines and combined cycle resources. However, following the cancellation of these modifications by the DC chain in July 2017, MOPR reverted to 2011, essentially requiring that all new unused natural gas resources be rated below or below a particular type of resource or single review process.
However, since the country has limited support for renewable energy in 2013, this stock has expanded dramatically, with thousands of megawatts of resources ranging from small solar and wind power plants to large nuclear power plants.
In one of two proposals submitted in April 2018, PJM sought to extend the existing MOPR and apply all subsidized and redundant production resources. The so-called MOPR-Ex method seeks to extend the geographical coverage of MOPR by applying to external power resources and internal power resources without a resource size threshold.
However, in June 2018, FERC issued an abduction order, which in fact increased the uncertainty of the market. In this order, while it agrees with the IPPs that current tariffs are unfair and cannot protect the integrity of competition in the capacity market, it rejects two options for PJM because PJM does not show that they are “reasonable, reasonable, without undue discrimination and advantage.
Finally, PJM proposed two new approaches on October 2, 2018, apparently to recognize the state’s right to form a part of its energy park. The first involves the joining of MOPR-ex structures and a Resource Carve-Out(RCO) construct. The RCO seeks to provide States with alternatives to withdrawing state-funded subsidies from capacity markets subject to MOPR. The RCO will then allow the subsidized resources to receive capacity-building commitments without needing to clear the capacity market. In the second embodiment, PJM is called advanced RCO, and PJM seeks to combine RCO with a mechanism to restore market clearing prices to the most economical and correct level of competition. An expanded RCO also includes pricing rules to prevent price reductions, which can cause prices to fall if the RCO exists independently.
The order means that PJM will now have 90 days until March 18, 2020 to extend its current MOPR, which requires a revision of new types of natural gas to apply to new and existing fuels. Some internal and external resources will receive certain OTC payments, unless there is an exemption. In the future, the indicated default minimum price applicable to new resources will be the Net Cost of New Entry; the applicable quoted existing minimum price for existing resources will be equal to the net Avoidable Cost Rate for this resource category.
However, exceptions to the coefficient of substitution include a long list that reflects previous FERC actions: available resources for self-supply; available renewable resources that are currently participating in state RPS programs; and existing responses to demand, energy efficiency and storage resources. Exceptions also include new and existing non-subsidized competitive resources (which is why they usually do not need revision). Significantly, in order to maintain flexibility, FERC also added new and existing non-categorical suppliers to justify a competitive bid below the unit price exclusion
Taken together, these exceptions underline our overall intention that most existing resources that have approved auctions for capacity building, especially those that may have been released by pre-orders, will continue to be released, FERC explained. Similarly, new resources that will prove to PJM that they will not receive unscheduled payments will typically be exempt from competition through competition exceptions, with the exception of new gas resources that have been revised in accordance with the current MENR and remain below the rate changes.
By mid-March 2020, FERC had submitted regulatory compliance documents and provided revised dates and schedules for major residual auctions for 2019 and related auctions, as well as a revised auction schedule in May 2020.
FERC acknowledged that the problems were not clearly related. This coefficient of substitution is not intended to remedy the actual or theoretical shortcomings in the PJM capacity market as stated by the parties in these merger procedures or related procedures. There is still stakeholder disagreement on issues that we cannot resolve in this post. FERC’s primary goal is to focus on the core issues raised in the Calpine complaint and PJM’s April 2018 announcement, which is a way of subsidizing resources for distortions in the capacity market, which sets reasonable prices in competitive auctions.
Glick insisted on giving regional markets a reasonable path to public policy. At the annual meeting of the National Association of Regulatory Utility Commissioners (NARUC) in San Antonio in November. Glick’s opposition to this order was based on its clear definition of a subsidy, which it could subject to a significant if not most PJM capacity contract (MOPR). He also questioned the broad scope of the exemption, which would have the main effect of consolidating the current resource structure by excluding several existing resources from mitigation. Finally, the order unceremoniously overthrew the so-called resource-related alternative, an alternative to the fixed resource requirement, which is an important part of the recommendations made by the Commission in its order in June 2018, moved us along the current path. He noted that an alternative to FRR is the fig that FERC submitted to the National Authority, which was in its possession in June 2018. Without this, the capacity market can eventually lead to an administrative pricing system that carries the entire cost-effectiveness problem. There is no benefit to overseeing services. He warned that the impact of the order would be profound. This will increase the price of the core potential of the main PJM service, will lead to high offers of PJM clients and increase the already large reserve capacity of PJM.
However, the industry’s reaction is ambiguous. While competitive manufacturers typically value this solution, public electricity producers criticize it, saying it threatens its core business model. Trade groups representing coal, nuclear, wind and solar also point to specific problems that may be hindering their business.