FERC Maintains Unit Specific Review in PJM Capacity Market Buyer-Side Mitigation

FERC largely accepted revisions to PJM's minimum offer price rule (MOPR), or buyer-side mitigation policies, for the centralized capacity market, but ordered PJM to retain a unit-specific review and exemption process.

Totally non-existent in true markets, the minimum offer price rule is a price floor allegedly necessary to prevent "buyer-side" market power, which is somehow claimed to exist even though buyers are compelled to purchase capacity in the centralized auction.

Like most aspects of the capacity market, the offer floor ignores real interactions among market participants, and instead imposes an administrative floor based on models and assumptions.

FERC found that, "there may be resources that have lower competitive costs than the default offer floor, and these resources should have the opportunity to demonstrate their competitive entry costs."

Indeed, FERC noted that the benchmark price for the offer floor, "is only an estimate that several intervenors, including the IMM, argue is currently too high."

Despite retaining the unit-specific exemption process, FERC, "encourage[d] PJM and its stakeholders to consider, for example, whether the unit-specific review process would be more effective if PJM requires the use of common modeling assumptions for establishing unit-specific offer floors while, at the same time, allowing sellers to provide support for objective, individual cost advantages."

"Moreover, we encourage PJM and its stakeholders to consider these modifications to the unit-specific review process together with possible enhancements to the calculation of Net CONE," FERC said.

Also of note, FERC rejected the extension of a blanket exemption from the MOPR to any state-sponsored competitive RFP for capacity, claiming that such competitive RFPs could be "discriminatory" simply for exercising the buyer's desire for a certain type of product (new capacity versus existing capacity). Capacity from such "discriminatory" RFPs could still avoid the MOPR through the unit-specific review process, however.

Docket: ER13-535