FERC PJM order muddies state subsidy definition under MOPR, potentially hinders renewables, Glick says

Dive Brief:

Federal regulators on Thursday accepted, in part, the PJM Interconnection's June compliance filing that responds to a commission order effectively raising the bidding floors for state-subsidized resources in the grid operator's wholesale capacity market.
Though Thursday's order clarifies that "certain state default service auctions … do not meet the definition of state subsidies," a footnote suggests that the New Jersey default service auction could be considered a state subsidy because under state law, a certain portion of utility procurements need to come from renewable energy. Commissioner Richard Glick said other state default service auctions within PJM might similarly be treated as a subsidy because of the footnote.
Glick, who dissented on the order, said the footnote was further evidence that the Federal Energy Regulatory Commission is overreaching when it comes to state clean energy policies. Chairman Neil Chatterjee is "substituting his view for the state legislature's view," he said in an interview after Thursday's meeting. "It's not up to a FERC commissioner whether states should subsidize resources or not."

Dive Insight:

Default service auctions are offered by restructured states as an alternative to retail suppliers. But FERC's action on Thursday may have muddied the waters for how states handle such auctions.

FERC in its April ruling that largely upheld the Minimum Offer Price Rule (MOPR) order initially placed those auctions under the "state subsidy" umbrella, subjecting them to the MOPR. But PJM in its compliance filing attempted to clarify that default service auctions would be exempt from the MOPR, worrying that subjecting those auctions to the rule could present an "immense, unintended, and unreasonable administrative burden" on the grid operator and market participants.

FERC in its Thursday order largely upheld the grid operator's filing, clarifying that "certain" auctions would not fall under the MOPR, based on PJM's assertion that the auction "is competitive and resource-neutral." Auctions must not condition resource bids based on fuel type, technology, emissions or other factors, and auctions will be subject to oversight from a third party, among other conditions, the grid operator wrote in its compliance filing.

"Under PJM's proposal, competitive and fuel-neutral, state-directed default service auctions do not require mitigation," Chatterjee told reporters.

FERC said in its order it was "persuaded" by the PJM's arguments, and set aside part of its April rehearing order, to the extent it relates to state-directed default service auctions.

But a footnote within the order may suggest otherwise, according to Glick.

The footnote specifies that the order accepts PJM's proposal, but simultaneously "does not constitute a ruling that any particular state-directed default service auction actually meets these requirements. For example, we note that the New Jersey Basic Generation Service (BGS) auction appears to give guidance that conflicts with the proposition it is ‘nondiscriminatory' or ‘fuel neutral,'" the order reads, pointing out that the auction needs to comply with the state's renewable portfolio service.

Under New Jersey state law, the auction requires a portion of utilities' electricity supply to come from renewable resources — each electricity provider must produce 22.5% of its electricity from renewables by 2021, including 4.1% from solar by 2028. Maryland, Pennsylvania and Washington, D.C., are among the members, within PJM that have similar requirements under their auctions, and therefore could be subject to the MOPR based on the commission's footnote, according to Glick.

"[W]hat the Commission gives with one hand it appears to quickly take away with the other. In a bizarre footnote, the Commission goes out of its way to suggest that New Jersey's default service auction — the Basic Generation Service or BGS auction— would constitute a State Subsidy based on the possibility that the auction winners would have to comply with the requirements of the state's renewable portfolio standard," he said in his dissent. Though it's hard to say how that footnote may impact future proceedings, the addition "provides every reason to believe that the grant of rehearing on state default service auctions will end up being almost meaningless."

And if that is the case, this is further evidence, in Glick's view, that the commission is continuing to infringe on states' rights when it comes to clean energy policies.

"The chairman continuously suggested that these technologies don't need subsidies," he said after the meeting. But "it's irrelevant what our views are" when it comes to state laws.

Chatterjee declined to go into details about what may have made New Jersey's default service auction considered a state subsidy.

The footnote was intended "purely to illustrate our thinking on what may or may not qualify as non discriminatory or feel neutral," he said.

"This order does not constitute a ruling that any particular state-directed default service auction actually meets PJM's requirements," he added later.