Competitive generators are quietly reversing course on a controversial federal rule many see as a blatant attempt to squash state energy policies.

Though competitive suppliers, led by generator Calpine, initiated the complaint that led to the Minimum Offer Price Rule (MOPR) expansion with the PJM Interconnection, they are now pivoting their support toward more market-based mechanisms, largely as a response to state threats to exit the PJM capacity market altogether, three industry sources close to discussions confirmed.

"The [MOPR expansion] policy has no economic foundation — price controls never 'fix' subsidies — and it's painted merchants as the political villain," Devin Hartman, director of energy and environmental policy at free market think tank R Street Institute, said in an email. Merchant generators "need to turn political angst against subsidies and towards embracing their core business model: market competition."

The MOPR sets a minimum price floor for resources bidding into the wholesale markets, and the Federal Energy Regulatory Commission in December expanded that rule to apply to all resources receiving a state subsidy. It quickly became a source of political animosity between states, clean energy interests, generators and federal regulators, causing merchant generators to rethink their approach.

The transition has been in the works for a while — the Electric Power Supply Association (EPSA) and several of its members were among the broad coalition that requested the Federal Energy Regulatory Commission host a technical conference on carbon pricing. Though EPSA has supported carbon pricing since 2007, some stakeholders now see it as one potential offramp for the PJM MOPR expansion. And Calpine as early as May indicated it and other members were willing to come to the table to workshop long-term solutions to the MOPR, an early recognition that some generators did not find the policy politically viable.

But while EPSA acknowledges there are "more efficient" solutions than the MOPR, the group maintains it was necessary public policy, and says stakeholder fears that it will impinge of state clean energy ambitions are likely overblown.

"The FERC order granted much of what the [Calpine] complaint asked for," said Todd Snitchler, president and CEO of EPSA, adding the commission "was duty bound to do something" to address what EPSA and others view as the market-distorting impacts of state subsidies.

"In the end, you still need to have a just and reasonable market," he said. "The current state approach is not achieving that objective." EPSA members are made up of competitive suppliers across the U.S. including Vistra, NRG Energy and Competitive Power Ventures, who own fleets of merchant gas plants across the country, and felt their gas resources were at a disadvantage in states with subsidized nuclear or renewable resources.

Less than a year after the MOPR's expansion, EPSA and its members hope to see the conversation shift toward more efficient state solutions. But the MOPR battle may not end there —​ two other generators, Cricket Valley Energy Center and Empire Generating Company, are pushing for a proposal similar to the MOPR within the New York Independent System Operator, and say they want it by the end of the year.

MOPR's PJM expansion

The PJM MOPR was originally intended to prevent load-serving entities, from offering resources into the capacity market at an artificially low price that could suppress the overall market price. It initially applied almost exclusively to new gas resources. 

New Jersey and Maryland started a program in 2009 that guaranteed income for new state-sponsored gas plants in order to ensure they could clear the PJM capacity market auction, something FERC and others at the time said violated the MOPR structure. A 2016 ruling from the U.S. Supreme Court affirmed the legitimacy of the MOPR, as well as FERC's ability to prevent price suppression in the markets. Competitive generators filed a complaint with FERC in 2017 alleging that state subsidies for clean energy resources such as nuclear and renewable energy were also artificially suppressing prices.

FERC in 2019 decided the only way to address this issue was to expand the MOPR's application to all new market entrants that receive state subsidies, something clean energy interests feared would stifle market growth for renewable energy, and that states protested was an illegal effort to interfere in state resource decisions.

PJM itself has questioned the broad reach of this decision, speculating in January comments that the MOPR "may have paradoxically unintended consequences over time and may result in less economic efficiency." But stakeholders became much more nervous when states began to threaten to leave the wholesale markets altogether, something PJM's independent market monitor found would cost New Jersey and Maryland millions of dollars per capacity auction. 

One study from consulting firm Grid Strategies found, on the flipside, that the expanded MOPR could cost billions of dollars annually long-term. But PJM's market monitor found short-term costs will not rise, and former FERC Chair Neil Chatterjee as well as Snitchler have encouraged stakeholders to wait for future capacity auction results in order to determine the order's impacts.

"Given the fact that the MOPR has yet to be implemented, it's premature to speculate on what we might see," said Snitchler. "The auctions need to run."

But the harsh rhetoric surrounding MOPR is still making some competitive generators rethink their support, something market stakeholders say is essential for state confidence as well as the future of wholesale markets.

"A graceful transition from MOPR is imperative for the long-term political support of independent power generation," said Hartman. "MOPR is not only causing states to rethink their participation in organized markets, but it's deterring stakeholders in the West and Southeast from forming an RTO."

"I think a lot of parties have come to the realization that MOPR is not the answer. Direct attacks on state policies are not a way to win friends among state policy makers," Rob Gramlich, former economic advisor to FERC Chair Pat Wood III and founder and president of Grid Strategies, agreed in an email. 

Making friends with states

Competitive generators have attained a bad reputation through all this, and EPSA wants that to change, said Snitchler. "EPSA has been painted by some as the fossil generators who want to protect their own interests ... that's fundamentally not true," he said.

The trade group, which represents U.S. competitive power suppliers including Calpine, NRG Energy, Vistra, bp and others, released a report last month that outlines a number of "alternative" market-based, clean energy solutions within the 13-state PJM region. The report, commissioned by EPSA and written by Energy and Environmental Economics, argues the current "patchwork of policies" laid out by states is "inefficient and ineffective," said Snitchler.

Carbon pricing or a well-designed clean energy standard would achieve the greatest outcome at the lowest cost, the report argues, versus renewable portfolio standards, which the report says are more limited in scope.

Carbon pricing has made some political and legal gains in the past year, but some opposition remains on the political right — after FERC issued a policy statement affirming its jurisdiction to implement a state or grid operator-proposed carbon price, the commission's Chairman, Neil Chatterjee, was demoted by the White House. Some, including former FERC staff and Chatterjee, believe the two are related.

But being on the side of carbon pricing is in general a more politically tenable stance than the MOPR these days, said Gramlich, adding that it would benefit generators to focus more on their competitive attributes in contrast with traditionally vertically-owned utilities as the conversation around decarbonizing the grid evolves.

"Carbon pricing at either the state or federal level is a much better focus," he said. "I also think competitive generators have a very strong argument to make about independent generation vs. utility ownership, and I hope they regain the focus and moral high ground on that issue."

MOPR expansion in NYISO?

As these discussions are brewing in PJM, two generators are attempting to replicate the MOPR expansion within NYISO, and want FERC to take action by the end of the year. Similar to the 2017 complaints, the Cricket Valley Energy Center and Empire Generating Company argue in their October FERC filing that NYISO's rates are unjust and unreasonable because of suppressed prices caused by state subsidies for renewables and nuclear.

And although generators agree that carbon pricing is a tenable solution, it "is not a substitute for a clean MOPR," Damon Anderson, commercial vice president at Advanced Power, which led the development of the Cricket Valley project, said in an email. A "clean MOPR" as defined by Cricket Valley and Empire, as one that is transparent and leads to the cheapest resources meeting reliability needs.

Cricket Valley supports a federal, not state, carbon policy that "covers all sources of CO2 and utilizes CO2 prices set by supply and demand with market participants," said Anderson.

Hartman says that Cricket Valley and Empire's pursuit of a MOPR expansion is a sign of the potential long-lasting harm of FERC's December decision.

"MOPR in PJM was always a gateway drug to other mechanisms and markets," he said. "It delineates the consequences of FERC playing a deferential role to regional stakeholders in building a record for major precedent setting. … Now interests outside of PJM fight an uphill battle to counteract a damaging precedent they had no initial say on."