Docket: ER21-2582-000
In the event the Commission does not act on a filing made pursuant to Federal Power Act (FPA) section 205 within the 60-day period established therein “because the Commissioners are divided two against two as to the lawfulness of the change, as a result of vacancy, incapacity, or recusal on the Commission, or if the Commission lacks a quorum,” FPA section 205(g)(1)(B) requires each Commissioner to “add to the record of the Commission a written statement explaining the views of the Commissioner with respect to the change.”[1] This statement complies with the statute.
I agree that the current PJM MOPR structure[2] needs to be replaced or significantly modified. Whatever its merits or demerits in terms of economics, I believe the incumbent PJM MOPR is simply unsustainable given the political realities of a region consisting of 13 sovereign states and the District of Columbia – a region in which the various jurisdictions’ public policies have diverged greatly since the PJM capacity market was established a decade and a half ago.[3]
My agreement that the incumbent PJM MOPR should be replaced or significantly modified does not mean that we should contemplate accepting a MOPR replacement or modification that is the flawed and rushed result of an “expedited”[4] stakeholder process and results in a structure that the PJM Independent Market Monitor (IMM) says is even worse than having no MOPR at all.[5] Finding a replacement MOPR that properly accommodates state policies while ensuring a credible capacity market to benefit consumers – one in which competition is real, not a sham – has always been the challenge. PJM’s present proposal simply fails to meet the challenge and, as the pleadings filed by intervenors to this docket demonstrate, the proposal fails to meet the FPA section 205 standard of being just and reasonable and not unduly discriminatory or preferential.[6]
We must do better and we can. We should not rush into place a grossly inadequate proposal just to meet the artificial deadline of the December Base Residual Auction (BRA)[7] – an auction PJM itself has already asked to postpone[8] – and do so just because we do not like the current MOPR structure.
As strongly recommended by the PJM IMM and others,[9] I would have voted to reject PJM’s proposal because it fails to meet even the minimum standard required by FPA section 205, and I would have simultaneously initiated an FPA section 206 proceeding with a procedural schedule designed to meet the goal of putting in place an acceptable replacement for the incumbent MOPR regime by the June 2022 BRA.
In the order initiating the section 206 proceeding and setting up a paper hearing, I would have proposed that PJM formulate a replacement for the current MOPR based on three broad principles: (1) a state may designate specific or categorical resources as “public policy resources” and such designated resources will be funded through a mechanism chosen by the state outside of the capacity market without forcing the state or its regulated utilities to take full Fixed Resource Requirement (FRR) status under current rules;[10] (2) load and reserve requirements associated with the capacity of the designated public-policy resources would be removed from the capacity market; and (3) non-sponsoring state consumers would not be forced to pay for another state’s designated public-policy resources.[11]
These principles would ensure that each state could fund its preferred policy resources and eliminate any potential for its consumers “paying twice,” as critics have repeatedly alleged is associated with the incumbent PJM MOPR. Under my principles, the sponsoring state’s ratepayers would only pay once for their own state’s policy resources; conversely, consumers in other states would not be forced to pay for the policy choices made by the sponsoring state’s politicians. This fundamental principle is already embedded in PJM’s State Agreement Approach for funding policy-driven transmission projects[12] and it should be embedded into PJM’s market constructs as well.
I do not minimize the challenge that PJM management faced in developing the MOPR Proposal filed in this docket. PJM management has been under intense pressure – both from outside and within the PJM stakeholder process – to eliminate the current MOPR. Nonetheless, the PJM MOPR Proposal comes nowhere close to meeting the standard required for approval under section 205. Moreover, while this consideration is not part of the Commission’s section 205 analysis, I cannot help but note that the PJM MOPR Proposal, now in effect by operation of law, forfeits any remaining credibility to the claim that the PJM capacity market is based on actual competition or is run for the benefit of consumers.
The PJM IMM, in a devastating critique of the PJM MOPR Proposal made in this docket, says it best:
The PJM markets would be better off, more competitive, and more efficient with no MOPR than with PJM’s proposed approach. PJM’s proposal would effectively eliminate the MOPR while creating a confusing and inefficient administrative process that effectively makes it unnecessary and impossible to prove buyer side market power as PJM has defined it.[13]
Not surprisingly given the widely disparate impact on individual states of PJM’s proposal, the states are not of one mind. The states of Pennsylvania and Ohio, which were forecasted by PJM to represent collectively nearly 40% of both summer and winter peak load in PJM, as well as having nearly 40% of existing installed capacity,[14] oppose PJM’s section 205 filing and ask the Commission to open a section 206 proceeding to develop a just and reasonable alternative to the current MOPR, which they agree PJM’s proposal is not.[15] These two states declare that: “the PJM proposal fails to provide the necessary checks and balances to ensure that sufficient market power protections exist. In this respect, the PJM Proposal fails to reach a just and reasonable outcome.”[16] They also point out that the PJM MOPR Proposal “unjustly transfers the consequences of a particular state’s policy preference(s) to all states and consumers within the PJM region.”[17]
OPSI filed comments, agreed to by a majority of its Board, that expressed support for PJM’s proposal but acknowledged the narrow scope of its improvements necessitated by the “expedited process” engaged in by PJM. OPSI expressed its hope that “important capacity market reforms that were not included” in PJM’s MOPR Proposal be addressed in that next phase of improvements.[18] As a reform in that next phase, OPSI suggests creating an emerging technologies exemption that it states could resemble a resource-specific FRR alternative.[19] As I stated above, while I agree that any just and reasonable MOPR proposal could include a resource-specific FRR alternative,[20] in my view expecting PJM’s stakeholder process, heavily influenced by market participants, to correct any one of the filed proposal’s fundamental flaws is like waiting for Godot. As I said in my dissent to the Commission’s July 30, 2021 order approving PJM’s fundamentally flawed ELCC, “. . . the prospect that PJM will revisit this proposal in the near term to fix the flaws identified is fanciful.”[21]
There is, however, a silver lining in PJM’s MOPR Proposal going into effect, as it did by operation of law and without a majority vote of this Commission.[22] We can now dispense with the charade that what is called the “PJM capacity market” is, in fact, a market, the central characteristic of which is actual competition with consumers as the winners. A construct in which winners and losers are determined by which interest groups’ lobbyists can obtain the biggest subsidies from politicians is no market, but a rent-seekers’ paradise in which consumers lose. While the PJM capacity market has never been a true market but rather an administrative construct with some market characteristics, in the beginning there was agreement among all of the participating states that non-discriminatory competition on a level-playing field should be the central principle that would animate this capacity construct (and energy as well, by the way). FERC policy reinforced that common understanding.
As I said earlier this year in the Commission’s order on State Voluntary Agreements:
Importantly, the states which chose to participate in RTO/ISO markets during the restructuring era shared a general consensus that the purpose of RTOs/ISOs was to . . . operate energy and capacity markets to provide consumers with least-cost power on a non-discriminatory basis, i.e., without regard to the source of the electrons (sometimes called “economic dispatch”). Federal regulation reflected this consensus about the purpose of RTOs/ISOs.[23]
I also said in the Commission’s Technical Conference Regarding Resource Adequacy in the Evolving Electricity Sector back in March of this year:
Now the . . . thing that’s happened in the last 15 years [,] as a matter of policy[,] some of the states moved away from the goal of least cost power and decided to pursue environmental goals, and so they enacted mandatory portfolio standards and other policies . . . that were intended to change the resource mix in the capacity markets, and change the generation supply mix.
And let me emphasize, I don’t question for one second the prerogatives of any of these states to adopt their own preferred policies. They’re all clearly within their sovereign authority . . . . Tip O’Neill said all politics is local. He was absolutely right, and I absolutely respect the right of every state to adopt the policies that they wish.
But after 15 years of this experiment, and it is an experiment, we now have to ask[:] while these multi-state administrative constructs called capacity markets may have been based on a sound, or at least a [defensible] economic theory at the beginning . . . , does the real[i]ty of politics and rent-seeking in a multi-state RTO, and PJM is 13 states and D.C.[ – i]t’s the largest [–] simply make it impossible for these administrative constructs to consistently deliver on the economic goal of least cost power[?]
. . . And if the reality is they cannot, it’s just not sustainable . . . . [Is] the most realistic path now for the states to reclaim their authority and reclaim their responsibility . . . for resource adequacy and chart their own course to achieve the resource mix they want that’s consistent with their own chosen public policies[?][24]
Pennsylvania, Ohio and the other states in the PJM region that entered the PJM capacity market because they wanted generation resources to engage in competition on a level playing field in order to deliver reliable power at the least cost to their consumers, may wish to ponder the last question. For what is still archaically called the “PJM capacity market” no longer bears any resemblance to a credible market.
______________________________
Commissioner
[1] 16 U.S.C. § 824d.
[2] See Calpine Corp. v. PJM Interconnection, L.L.C., 169 FERC ¶ 61,239 (2019) (December 2019 Order), order on reh’g, 171 FERC ¶ 61,035 (2020) (December 2019 Rehearing Order I), order on reh’g & clarification, 173 FERC ¶ 61,061 (2020) (December 2019 Rehearing Order II), order setting aside prior order, in part, 174 FERC ¶ 61,109 (2021) (vacating note 134), review pending sub nom. Ill. Com. Comm’n v. FERC, Case Nos. 20-1645, et al. (7th Cir. Apr. 20, 2020).
[3] See PJM Interconnection, L.L.C., 115 FERC ¶ 61,079 (2006); PJM Interconnection, L.L.C., 117 FERC ¶ 61,331 (2006) (2006 RPM Settlement Order).
[4] PJM July 30, 2021 Revisions to Application of Minimum Offer Price Rule (PJM MOPR Proposal) at 53 (“the PJM Board initiated an expedited ‘Critical Issue Fast Path’ process for stakeholders to address the MOPR and its future application in the capacity market on April 6, 2021. . . . On June 30, 2021, the PJM Members Committee voted on nine distinct packages sponsored by various parties designed to address the concerns with the Expanded MOPR.”).
[5] IMM August 20, 2021 Protest (IMM August 20 Protest) at 1.
[6] For detailed and persuasive discussions of the failures in the PJM 205 filing see, e.g., IMM August 20 Protest, passim; Pennsylvania Public Utility Commission (PAPUC) and Public Utilities Commission of Ohio (PUCO) August 20, 2021 Joint Protest (PAPUC and PUCO August 20 Joint Protest) at 4-5, 9-20; Office of the Ohio Consumers’ Counsel (OCC) August 20, 2021 Comments In Support of Competitive Markets for Benefitting Consumers (OCC August 20 Comments) at 6-8.
[7] See, e.g., PAPUC and PUCO August 20 Joint Protest at 19-20 (“If FERC rejects PJM’s Section 205 filing, the Commission should not delay the December BRA. . . . While the current MOPR construct has many deficiencies that need to be addressed, its impacts in the most recent 2022/2023 BRA appeared to be minimal. . . . [A]llowing the December BRA to occur as scheduled would be preferable as near-term negative impacts are not expected.”).
[8] PJM Interconnection L.L.C., Compliance Filing, Request for Waiver, and Motion for Shortened Comment Period, Docket Nos. ER21-2877, ER21-244, EL19-63, EL19-47, at 5-15 (filed Sept. 10, 2021) (PJM requests, inter alia, a 55-day delay in the December 1, 2021 BRA to January 25, 2022, a delay of the RPM Auctions and associated pre-auction deadlines associated with the 2026/2027 Delivery Year, and a further three week delay to the Third Incremental Auction associated with the 2025/2026 Delivery Year.).
[9] IMM August 20 Protest at 1 and passim; see also, e.g., PAPUC and PUCO August 20 Joint Protest at 1-5 and passim (recommending denial of the PJM MOPR proposal and the opening of a section 206 proceeding “to ensure a just and reasonable capacity market with all deliberate speed” without disruption of the “long-delayed capacity procurement auctions going forward under the existing capacity market rules.”); OCC August 20 Comments at 15 and passim (requesting that the Commission “direct PJM to work with its stakeholders to develop a Resource-Specific FRR Alternative plan that is consistent with the guidelines proposed in this pleading.”).
[10] This could, for example and not by way of limitation, include a resource-specific FRR alternative. The OCC advocates for a version of Resource-Specific FRR and the Organization of PJM States, Inc. (OPSI) also references a Resource-Specific FRR. See, e.g., OCC August 20 Comments at 4-5, 8-13 (“That plan would remove all subsidized generating plants from participation in the PJM markets. But it would still accommodate state public policy preferences by providing the subsidized plants an alternative means of serving consumers and recovering their costs through a targeted out-of-market approach.”); OPSI August 20, 2021 Comments (OPSI August 20 Comments) at 3-4 (suggesting that OPSI’s desired emerging technologies exemption “can also be tailored in a way that resembles the Resource-Specific FRR suggested by the Commission, but on a very limited basis and without forcing states to exit the capacity market, and in a manner that does not constitute states setting capacity prices as proscribed by the courts.” (footnotes omitted)). It could also include a separate demand curve for state-sponsored resources as proposed in general terms by the PJM IMM at the March 23, 2021 FERC Technical Conference Regarding on Resource Adequacy. See, e.g., Technical Conference Regarding Resource Adequacy in the Evolving Electricity Sector, March 23, 2021, Docket No. AD21-10 (March 2021 Resource Adequacy Technical Conference), Transcript at 153:16-20, 197:5-10, 223:8-224:7.
[11] Chairman Glick and Commissioner Clements seem to suggest that the three of us may be on the same page when it comes to the PJM section 205 MOPR Proposal. See, e.g., Joint MOPR Statement (Joint Statement) at P 47 and n.99. Indeed, the Joint Statement goes so far as to imply that my own statement supports APA requirements they seek to meet. See, e.g., Joint Statement at PP 46-48. To be clear: we are not on the same page, which is why I would reject the PJM section 205 MOPR Proposal filing as unjust and unreasonable and immediately initiate a FPA section 206 proceeding to develop a just and reasonable alternative. I set forth three broad principles in this statement to guide the development of an alternative in the section 206 proceeding – principles, not a detailed construct, which is for PJM to develop – and there is no basis to imply that the product of the section 206 proceeding I propose would be essentially indistinguishable from the PJM MOPR Proposal in its effect on rates or other attributes. For starters, under my proposed principles for the section 206 proceeding, consumers in non-sponsoring states would be held harmless from the costs of another state’s public-policy resources, which would be removed from the capacity market and funded by the sponsoring state according to its own chosen mechanism. The differences between my proposal (i) to reject PJM’s 205 filing and (ii) to initiate a 206 proceeding under my guiding principles, are inconsistent with the suggestion that the disagreement among the Chairman, Commissioner Clements and me should “not [be] overstat[ed] . . . .” Id. at n.99. Further, the Joint Statement says, “Like Commissioner Christie, we believe . . . the Expanded MOPR is ‘simply unsustainable,’ as it fails to adequately account for capacity provided by state supported resources and results in additional costs to consumers.” Id. at P 47 (citing supra at P 2) (emphasis added). On the contrary, I explicitly stated that “[w]hatever its merits or demerits in terms of economics . . . .” the incumbent MOPR is unsustainable because of the political realities relevant to an RTO consisting of thirteen sovereign states and the District of Columbia and their increasingly divergent policies. See supra at P. 2.
[12] See PJM Interconnection, L.L.C., 142 FERC ¶ 61,214 (2013), order on reh’g and compliance, 147 FERC ¶ 61,128 (2014); PJM, Intra-PJM Tariffs, Operating Agreement, sched. 6, section 1.5.9(a) (State Agreement Approach).
[13] IMM August 20 Protest at 1 (emphasis added). The Joint Statement of Chairman Glick and Commissioner Clements seems to suggest I rely upon that single statement by the IMM but that I “fail[ed] to acknowledge” any of the responses made by PJM to the IMM criticisms. Joint Statement at n.243. To be clear: I rely on the entire “devastating critique” by the IMM. See supra at P 9. As to PJM’s responses to the IMM, simply put, I found the IMM’s criticisms both credible and amply supported by the record; I found PJM’s specific responses to the IMM’s criticisms to be neither. By contrast, however, it appears that in their headlong rush to slay the MOPR dragon as soon as possible, Chairman Glick and Commissioner Clements are willing to disregard the IMM of the largest RTO in the country, who strongly urges us to reject PJM’s MOPR Proposal and initiate a section 206 proceeding to achieve a just and reasonable replacement. In disregarding the IMM, they are willing to ignore warnings such as, “PJM creates a convoluted and impossible to enforce definition of market power while making the task of evaluating offers for buyer side market power almost impossible. The markets would work better and more efficiently if the MOPR were eliminated without pretense than with PJM’s effective elimination of MOPR plus the addition of a new, incorrect and entirely unnecessary definition of buyer side market power. . . . [C]onsistent with the overall theme, PJM creates an unenforceable definition of market power, complete with a complex set of barriers to gathering information and impossible deadlines for the Market Monitor.” IMM Protest at 2-3 (emphasis added).
[14] See PAPUC and PUCO August 20 Joint Protest at 3.
[15] Id. at 3-5.
[16] Id. at 4.
[17] Id.
[18] OPSI August 20 Comments at 2-4, (citing PJM MOPR Proposal at 4 (wherein PJM notes that its proposal “will be followed by further PJM stakeholder discussions to examine whether additional reforms are needed to ensure that the PJM Region is able to get the reliability value from each Capacity Resource.”)).
[19] Id. at 3-4 and n.9.
[20] See supra P 6, n.10.
[21] PJM Interconnection, L.L.C., 176 FERC ¶ 61,056 (2021) (Christie, Comm’r, dissenting at P 11) (available at https://www.ferc.gov/news-events/news/commissioner-christies-dissent-order-concerning-pjms-proposed-elcc ).
[22] PJM Interconnection, L.L.C., Docket No. ER21-2582-000 (Sept. 29, 2021) (Notice of Filing Taking Effect by Operation of Law).
[23] State Voluntary Agreements to Plan and Pay for Transmission Facilities, 175 FERC ¶ 61,225 (2021) (Christie, Comm’r, concurring at P 4 (emphasis in original) (citation omitted) (available at https://www.ferc.gov/news-events/news/item-e-2-commissioner-mark-c-christie-concurrence-regarding-state-voluntary )).
[24] March 2021 Resource Adequacy Technical Conference, Transcript at 25:17-26:15, 26:18-24 (emphasis added).