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PJM Board Of Managers Approves Proposal To Address Capacity Market Reform; Addresses Default Service Auctions

July 8, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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PJM Interconnection's Board of Managers has approved a proposal to address what PJM termed, "long-standing concerns with the Minimum Offer Price Rule (MOPR) in the PJM capacity market."

PJM said that it expects to work diligently to make a FERC filing with the goal of incorporating the changes into the 2023/2024 Delivery Year Base Residual Auction, to be held in December 2021.

Under the adopted proposal, PJM will only apply the MOPR in the limited situations of either a) Exercise of Buyer-Side Market Power (BSMP), or b) Conditioned State Support, as further set forth below.

BSMP is defined as, "Ability of market participant(s) with a load interest to suppress market clearing prices for the overall benefit of their portfolio."

Under the adopted proposal, exercises of BSMP require both the ability and incentive to do so. The exercise of BSMP shall be defined as , "Anti-competitive behavior of market participant(s) with a load interest, or directed by a load interest, to uneconomically lower capacity market offer(s) in order to suppress market clearing prices for the overall benefit of the market seller’s load portfolio or that of the directing load interest." It is the exercise of BSMP that shall be prohibited.

Under the adopted proposal, Conditioned State Support is defined as, "Out-of-market payments or other financial benefit from a state, or political subdivision of a state acting in its sovereign capacity, provided in exchange for the sale of a FERC-jurisdictional product conditioned on clearing in any RPM auction. The term 'conditioned on clearing in any RPM auction' refers to directives as to the price level at which a resource must be offered in the capacity market or directives that the unit is required to clear in any capacity auction."

The provisions concerning application of the MOPR to resources receiving Conditioned State Support will not apply to any legislative, executive or regulatory authorization that specifically directs an out-of-market payment to a designated or prospective capacity resource whose enactment predates the effective date of the proposal, regardless of when any implementing executive or regulatory action is enacted or promulgated to specifically effectuate the authorization to direct an out-of market payment.

The adopted proposal notes that state policies providing out-of-market payments to generating resources are recognized as being a legitimate exercise of a state's authority over the electric supply mix serving customers in the state, and will not be deemed Conditioned State Support and subject resources to MOPR so long as the policy does not constitute the sale of a FERC-jurisdictional product that is conditioned on clearing in any RPM auction.

The adopted proposal states that, for example, such legitimate policies, if not accompanied with a requirement conditioned on clearing in any RPM auction, may include:

i. Policies to procure, incent, or require environmental attributes, whether bundled or unbundled

ii. economic development programs and policies

iii. tax incentives

iv. state retail default service auctions

v. policies or programs that provide incentives related to fuel supplies

vi. resources of a) vertically integrated utilities that are subject to state regulation and b) state rate-regulated electric cooperatives

vii. resources of municipal utilities or municipal Joint Action Agencies subject to approval by the retail regulator

viii. policies or programs implementing PURPA

With respect to BSMP, the adopted proposal states that, for clarity and transparency, MOPR will not be applied if any of the following, non-exhaustive circumstances are known or are identified in the course of a fact-specific, case-by-case review by PJM or the IMM:

i. Merchant generation supply resources not contracted to load

ii. Resources acquired through a fully competitive and non-discriminatory process open to new and existing units

iii. All owned and bilaterally contracted (new and existing) generation resources of Self-Supply Entities that are demonstrated to be consistent with or included in their long-range resource plan (e.g. long-range hedging plan) which is approved or otherwise accepted by the retail regulator provided any such plan approval or contracts do not direct the submission of an uneconomic offer to deliberately lower market clearing prices.

iv. Support of resources aligned with well-demonstrated customer preferences

The level of the MOPR floor price differs between new and existing units. New units (which have never cleared in an RPM auction) are subject to MOPR at Net CONE. Existing units (which have previously cleared an RPM auction) are subject to MOPR at Net ACR. Existing units would under no circumstances be changed to “new” status.

Units will remain subject to MOPR in future auctions so long as they trigger the MOPR criteria -- even after clearing at the MOPR floor price. Once the MOPR criteria is no longer triggered (that is the market seller is no longer found to be attempting to exert BSMP or accepting Conditioned State Support), the resource is no longer subject to MOPR -- even if it did not clear at the MOPR floor price while previously subject to MOPR.

See more details on the adopted proposal here

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