FERC: Plan by PJM, Generation Owners to Impose Price Floors on More Capacity Offers Is "Deficient"

A "settlement" among certain stakeholders, notably PJM and capacity owners, to revise the Minimum Offer Price Rule (MOPR) in PJM's capacity market, such that the MOPR applies to a larger set of capacity offers, is "deficient," a delegated FERC order found yesterday.

FERC directed PJM to file additional information regarding the "settlement" which resulted from negotiations that have been described as "secretive" by state regulators excluded from the negotiations.

Specifically, FERC directed PJM to explain the following:

• Please explain why it is reasonable for a resource that fails to qualify for either the competitive entry exemption or the self-supply exemption to be mitigated to a default offer price even if that unit may have lower competitive costs than those assumed in determining the default offer price.

• Please provide a justification for why PJM proposes to apply the MOPR to integrated gasification combined cycle plants.

FERC also directed PJM to provide the following with respect to the proposed self-supply exemption, with some of the questions indicating a concern by FERC that the as-proposed filing does not adequately combat the use of self-supply strategies as means of reducing the capacity clearing price, while others indicate a concern that a legitimate resource may be denied the exemption.

• Please provide the basis supporting the development of each net short and net long threshold for each customer class;

• Please provide a study to support the thresholds in your filing that will show the minimum amount of non-self-supply that would render subsidies cost-effective for load serving entities of different sizes. Please provide a separate analysis for each Locational Deliverability Area that has a separate Variable Resource Requirement curve and for the unconstrained portion of the RTO. Assume that in determining whether subsidizing uneconomic entry is cost-effective, a load serving entity would compare: (i) the additional cost from the subsidy, with (ii) the benefit, i.e., the reduction in the load serving entity's bill resulting from purchasing the non-self-supplied portion of its capacity requirement from RPM. Assume further that the benefit depends on the reduction in the price resulting from the subsidized entry (which depends on the slope of the applicable Variable Resource Requirement curve for the applicable Locational Deliverability Area and the size of the Locational Deliverability Area), and the amount of non-self-supplied capacity purchased by the load serving entity.

• Please explain whether PJM's proposal may allow resources to evade the net-short threshold, and thus receive a MOPR exemption, by contracting for capacity on a short-term basis. Explain whether a load serving entity that meets the net-short threshold, in part, or in whole, with short-term contracts, would have an incentive to reduce the RPM price by subsidizing uneconomic entry. If so, explain what the minimum contract term should be in order to remove this incentive.

• Please explain why a resource associated with a load serving entity that does not qualify for the self-supply exemption should not be entitled to this exemption if it otherwise meets the relevant net short and net long thresholds. In this regard, please explain why a non-self-supply load serving entity that meets these thresholds would still have an incentive to reduce the Reliability Pricing Model (RPM) auction clearing price. Please provide your explanation based on both the proposed net-short and net-long requirements.

Docket: ER13-535