Will DC opt for a PJM pullout? District PSC Chair says proposed MOPR appeal could impact decision

The Federal Energy Regulatory Commission’s (FERC) December 2019 Order expanding the Minimum Offer Price Rule (MOPR) has been the proverbial thorn in the side of the renewable energy industry.

The problem? The MOPR creates price floors for a host of clean energy resources receiving state support, making it difficult for these resources to clear PJM's capacity market and costing PJM ratepayers significantly more money.

In April, the FERC announced its intention to fully repeal the MOPR, enabling states to pursue their aggressive clean energy goals. The news is promising for states like New Jersey and Maryland, who have challenged the policy in court, as well as the District of Columbia, who has mulled over what a PJM pullout might look like.

“The Commission's primary concern has been the potential negative impact that PJM's enforcement of the MOPR on electricity suppliers which serve the District could have on the District's renewable energy and climate change policy objectives,” Willie Phillips, DCPSC Chairman, told NPM. “Given the parameters of FERC’s MOPR order, the District's procurement of renewable resources for Standard Offer Service (SOS) customers through a long-term Power Purchase Agreement targeting five percent of the SOS load may be subject to the MOPR and thus, it could have some undesirable price impacts.”

The District has been considering the implications of satisfying its capacity obligations through the Fixed Resource Requirement (FRR) option, recently commissioning a report from PJM’s Independent Market Monitor.

The FRR is an alternative to continued participation in PJM’s capacity market, requiring electric utilities and load-serving entities to develop a plan to procure enough electric capacity to meet forecasted peak power demand for customers.

But the FRR might not be the best option for the District, according to the Market Monitor analysis, which indicates that it likely will not be cost effective.

“We also observed the recent decline in RPM (Reliability Pricing Model) capacity price from USD 140 to USD 95 for the Pepco zone for the 2022/2023 delivery year,” Phillips said, noting the June 2 results out of PJM’s capacity market. "The PJM Market Monitor's report suggests that we stay with the PJM capacity market. It really depends on which option will give the customers the most benefits. Due to FERC's recent comments regarding its intent to change the MOPR requirements, and the low price shown in the RPM auction, we believe the FRR issue can be revisited once FERC makes the decision about MOPR reform."

Several states within PJM's territory have been evaluating whether the FRR represents a viable alternative that allows greater control over the resources that are procured and built to meet both consumer energy needs and states’ clean energy policy goals. They argue that the MOPR makes clean energy resources less competitive and undermines the impact of state programs subsidizing those renewable energies.

PJM agrees, releasing a statement in April that recognizes the need to repeal the rule due to the shifting energy landscape. While citing its capacity market as facilitating a “smooth transition” during the dramatic fuel switch from coal to natural gas and renewables, PJM said that renewable resources and batteries now make up more than 90 percent of planned projects being studied in its interconnection process.

“With 13 states and the District of Columbia in our footprint--many with decarbonization goals and state policies aimed at choosing cleaner resources--we believe that some elements of our capacity market must evolve,” PJM said. “Administrative market rules, such as MOPR, were historically implemented to address buyer-side market power in capacity markets, yet today are increasingly viewed as costly to consumers and an impediment to states’ development of these non-emitting resources. States have been presented with a 'blunt-instrument' choice between living with a market mechanism that doesn’t accommodate their resource choices and exiting the capacity market.”

In its recent capacity market workshop, PJM and market participants said the capacity market should “respect and accommodate” state resources. In addition, FERC Chair Richard Glick has provided clear, publicly stated guidance to address the issue sooner rather than later.

“The Commission is cautiously optimistic that PJM will accommodate the recommendation to amend the MOPR tariff by ensuring that state policies regarding electricity supply resources are recognized as being a legitimate exercise of a state's authority over its electric supply mix,” Phillips said. “PJM’s markets are designed to be built upon these state policies and not impede them.”

The PSC will continue to evaluate ratepayer impacts within PJM’s capacity market, says Phillips, and will engage with PJM, the FERC and other stakeholders to ensure that the District has the flexibility to meet its renewable energy and climate change policy objectives.

“We are closely monitoring PJM’s renewable integration efforts and working through the Organization of PJM States to jointly monitor how MOPR reform will impact achieving our renewable resources and clean energy goals in the long-term,” he said.