Federal regulators, grid operators, state regulators and other stakeholders yesterday indicated they were willing to revisit rules that effectively raised the price for state-subsidized resources, such as renewables and nuclear, within eastern regional transmission organizations (RTOs), but consensus on what a successor model might look like is not yet obvious.
During the Federal Energy Regulatory Commission's first meeting in a series of technical conferences on the future of resource adequacy in eastern organized power markets, commissioners also seemed open to revisiting the minimum offer price rule (MOPR). The policy was seen in many states as an attempt by the federal government to control their resource decisions.
"Although I voted for our MOPR orders, and believe those determinations were supported by the record, I'm not wedded to the policy calls of the past," said Commissioner Neil Chatterjee, who was chairman when the MOPR order was implemented in PJM Interconnection. "And I'm open to better accommodating state policies, so long as we're still able to meet our statutory mandate."
FERC Chair Richard Glick said he ultimately hoped stakeholders would come up with a solution on their own, but added he believes the commission should step in if they are unable to, and create a more durable construct.
Though the initial panel focused on the MOPR expansion across the RTOs broadly, much of the day was focused on the policy in the 13-state PJM Interconnection.
The MOPR orders were ultimately an attempt to offset state subsidies and "level the playing field" for unsubsidized resources, such as gas plants. Some stakeholders reiterated their concerns that reliability could be at risk if not enough "traditional" fossil-fueled generation is able to bid into the markets. And PJM's independent market monitor repeated his testimony that renewable energy would not suffer under such a rule, because wind and solar resources are some of the cheapest on the market.
But stakeholders seemed to agree that current market constructs need to better accommodate state resource goals, rather than hinder them, in order to maintain a sustainable wholesale market construct.
If PJM stakeholders don't act, 'we need to do it for them'
Glick, who voted against the MOPR order and has been consistently critical of it, reiterated his views that the rule is an "unsustainable" market solution. He also cited the urgency of states potentially exiting the markets, and said he hopes the states and other stakeholders ultimately bring their own proposal to the commission. However, if stakeholders fail to find a clear consensus, he said, the commission has the authority to step in and take action.
"I think we should, to the extent we can, allow and enable the RTOs themselves, and the stakeholders ... to organically come up with an approach that's different than the current MOPR rules around the country," said Glick, adding that "if for whatever reason PJM and the stakeholders aren't able to act, … in my opinion I think we need to do it for them."
Commissioner Allison Clements has previously also said that she would prefer stakeholders to forward their own solutions, but would be willing to step in if necessary. On Tuesday, she said she was listening for market solutions that avoid asking customers to "procure redundant capacity," and allow states to better control their resource decisions, among other things.
Chatterjee said he was approaching the conference "with an open mind and an eye toward shaping what's next."
"We can make targeted improvements in the near term. That's absolutely true. But the real win for consumers will come when we've taken the time to map out a thoughtful set of reforms that's built to last."
Neil Chatterjee
FERC Commissioner
"It's clear that we're at an inflection point for thinking about whether our capacity markets are currently designed to support the generation mix that many of the eastern RTO states want," he said. "Indeed, certain states want cleaner energy resources, and are willing to pay for it."
However, he cautioned against an accidental "overcorrect" by getting rid of the competitive markets altogether or acting too quickly.
"I'd urge everyone to roll up their sleeves for an extended effort, and avoid a rush to judgment on an artificially compressed timeframe," he said. "We can make targeted improvements in the near term. That's absolutely true. But the real win for consumers will come when we've taken the time to map out a thoughtful set of reforms that's built to last."
Commissioner James Danly emphasized the commission's need to continue ensuring reliability, and maintaining low costs, regardless of state goals, if necessary.
"We have to ensure that the actions taken by one state do not end up foisting costs on other states," he said. "These are principles that are necessary for us to follow even if they conflict with a desire to respect the state policy goals that the states are implementing more and more all the time."
Commissioner Mark Christie said he hoped the technical conference answered two questions: Whether state policies can be accommodated by the markets, while remaining low cost and reliable; and whether the capacity market construct as it currently exists is still viable.
"I do think we need to ask about sustainability," he said. Within a multi-state RTO, "the political reality simply cannot fulfill the economic theory that these constructs were based on."
'Those carbon free resources are going to get built'
Underlying Tuesday's meeting was the threat that states may pack up and leave the capacity markets altogether. Maryland, Illinois and New Jersey have all floated the possibility of exiting the capacity constructs following outrage over the MOPR order.
The cost of leaving has been estimated by the PJM independent market monitor to be high for multiple parties. And Glick made it clear Tuesday he wants to prevent such an exit.
"In all three of the Eastern RTOs, several states are looking at either withdrawing completely from the markets [or] partially withdraw from the markets," Glick said. "And, again, these markets provide sufficient benefits we need to focus on ... and, in a way, try to keep everyone together if we can."
But Ralph Izzo, CEO, president and chair of New Jersey-based Public Service Enterprise Group, said his state was willing to leave if the markets couldn't figure out how to accommodate its mandate that requires 35% of energy sold in the state to come from qualifying renewable energy resources by 2035, and 50% by 2030.
"To think that the local will won't affect whether or not those carbon-free resources get built, I think, is a mistake. It will affect the willingness of states to remain part of RTOs
Ralph Izzo
CEO, President and Chair, PSEG
"In New Jersey, that horse has left the barn. Those carbon free resources are going to be built," he said.
"To think that the local will won't affect whether or not those carbon free resources get built, I think, is a mistake," he added. "It will affect the willingness of states to remain part of RTOs ... And that would be a very painful decision for companies like ours that were founding members of PJM. But it wouldn't be off the table."
The New Jersey Board of Public Utilities released its analysis of the MOPR impacts on Tuesday and found it could cost New Jersey ratepayers over $300 million annually, and could increase electric bills across PJM by $1.9-$2.3 billion. BPU General Counsel Abraham Silverman urged FERC to reverse the MOPR point blank in light of the agency's findings.
"Consumers receive no benefits — no efficient clean energy, and little, if any, reliability benefits for this extra money that they're spending," he said. "Frankly, I think the commission has the legal authority and the evidentiary record to tell PJM tomorrow to simply ... reinstate the tariff language that existed for seven years prior to the 2018-2019 orders, as an interim measure."
In the longer term, he said the commission had to integrate some sort of carbon consideration into the markets, something other stakeholders said should take the form of a carbon price.
A carbon price is the most efficient way to ensure low cost, cleaner resources are dispatched onto the grid, said Marji Philips, vice president of wholesale market policy at LS Power.
"That's why carbon pricing is so efficient because it says we want ... non-clean emitting resources to exit," she said. "So I think it's part of the MOPR consideration. We need to have rules that target the right kind of exit."
