Update: Broad array of groups sue FERC over PJM MOPR decision as Chatterjee rejects cost, renewable concerns

Source: By Catherine Morehouse, Utility Dive • Posted: Tuesday, April 28, 2020

UPDATE: April 27, 2020: New Jersey and Maryland filed a petition for review on Monday ​with the D.C. Circuit Court of Appeals, challenging federal regulators’ decision to uphold a December order. The order “undermines New Jersey’s support for renewable clean-energy resources while incentivizing fossil-fuel resources that contribute to climate change,” New Jersey regulators said in a statement.

New Jersey state regulators in March launched an investigation into potential alternative proceedings to procure energy outside the wholesale markets.

Dive Brief:

  • A flurry of lawsuits hit the courts on Monday as industry and environmental groups reacted to the Federal Energy Regulatory Commission’s Thursday decision to uphold a controversial December ruling.
  • Several groups had filed a request for rehearing with FERC following the commission’s Dec. 19 order that would effectively raise the floor price for all new resources receiving a state subsidy in the PJM Interconnection wholesale power market. Though the commission clarified some aspects of the order last week, its decision to largely uphold the order prompted groups most threatened by the rule to file lawsuits.
  • Illinois regulators, the American Public Power Association (APPA), American Municipal Power and several environmental groups were among the parties who filed against FERC for its decision. Concerns largely surround long-term costs to customers and what is seen as unfair discrimination against new clean energy.

Dive Insight:

Public and municipal power groups felt particularly targeted by Thursday’s order which in its clarifications spelled out rules that would expressly subject those entities to the minimum offer price rule (MOPR).

In several instances, the order “explains that the public power business model is itself a form of state subsidy that should be subject to the MOPR,” an APPA spokesperson told Utility Dive in an email.

“Vertically integrated utilities, through cost-of-service rates approved by state public utility commissions, receive guaranteed cost recovery,” FERC writes in its determination. “Electric cooperatives and municipal utilities fit within the State Subsidy definition because they are created by state law, or, in the case of municipal utilities, are a subdivision or agency of the state, and thus are appropriately treated as units of state or local government.”

Even through an “arms-length” transaction through a third party, public power entities “cannot engage … without triggering the MOPR,” the commission writes in its rejection of APPA’s request for rehearing.

“The idea that public power is subsidized or has a competitive advantage and less risk than other business models reflects a lack of understanding,” Lisa McAlister​, senior vice president and general counsel at American Municipal Power told Utility Dive in an email.

“Public power exists to enable local communities to have an opportunity to serve their customer-owners reliably at the lowest possible cost. Public power entities engage in self-supply when they determine that constructing capacity or entering into long-term bilateral contracts will best serve these goals compared to purchasing capacity from the auction. It is unthinkable to disallow public power entities and their customer-owners the ability to self-supply if they determine it is in their best economic interest,” she said.

Commissioner Richard Glick criticized this move, among others, in his dissent.

“Today’s order … continues the Commission’s attack on public power, dismissing the entire business model as a state subsidy and jeopardizing the viability of a construct that has long benefited customers,” he said.  “As ill-advised as that attack is, it is equally unsupported. The Commission neither marshals evidence that the existence of public power has actually suppressed prices nor addresses arguments that the type of balanced portfolio typically developed by public power entities will not have that effect.”

FERC Chair Neil Chatterjee told reporters last week he felt the commission’s clarification on certain aspects of the MOPR was apt to quell stakeholder concerns, including issues on public power.

“There’s a point made that the decision to subject public power to the MOPR is going to undermine the business model. Commissioner Glick himself has made the case in a prior dissent that resources like utilities with guaranteed cost recovery are not competitive,” he said. “At the end of the day, all this rule requires is that new entrants are competitive. And I think that is why the majority of the commission stood by the core of our original December order.”

Chatterjee also shut down concerns raised by Glick and others that the rule would raise costs to customers, pointing to a March report from PJM’s Independent Market Monitor which found the order “is not expected to have an impact on the clearing prices and auction revenues in the 2022/2023” capacity auction.

The PJM Interconnection in March issued its compliance filing to FERC that lowered the floor prices for some resources, including nuclear power. The threat of some nuclear plants not clearing the auction under the MOPR was the root of short-term cost concerns, Tom Rutigliano, senior advocate at the Natural Resources Defense Council’s Sustainable FERC Project told Utility Dive.

“When the order first came out, the prices that were floating around for the nuclear plants were very high. It looked like the floor price for nuclear plants was going to push them out of the market and that would have been a huge shot,” he said. But the PJM’s compliance filing “should make the short term impact on consumers fairly limited.”

FERC has yet to approve the grid operator’s filing, and PJM itself is still reviewing the commission’s Thursday decision and considering next steps, spokesperson Jeffrey Shields told Utility Dive in an email.

But assuming the compliance filing is approved, longer term costs remain a key concern, said Rutigliano.

“A lot of the states in PJM have pretty ambitious renewable targets for 2030. And the resources that they build to meet those targets become the main victims of the MOPR,” he said. “And so we are still gonna have very large consumer costs, it’s just that it will probably be in a couple of years, not immediately.”

Chatterjee last week disputed claims previously raised that the MOPR would raise costs long-term, arguing that resources should be better able to compete in the future.

“As renewable technology, clean energy technology continues to evolve, continues to become more efficient and continues to decline in price, those resources, in my view, ought to be able to compete and will compete. And so I disagree with the notion that over the long term, these resources will be disadvantaged,” he said.

Illinois also filed a lawsuit against the commission. It and other states have threatened to leave the power market altogether over concerns that these rules undermine state policy.

“If the courts don’t overturn this, states are going to leave the power markets,” said Rutigliano. “We’re already seeing that states are starting to look very seriously at that.”