Dive Brief:

• PJM Interconnection on Monday issued an updated compliance filing with federal regulators to avoid an "immense, unintended, and unreasonable administrative burden" on the grid operator and its market participants.
• The filing addresses the Federal Energy Regulatory Commission's April ruling on the Minimum Offer Price Rule (MOPR) that clarified default capacity auctions constitute a state subsidy. Restructured states that offer default service policies as an alternative for customers who do not get their power from retail suppliers are most impacted by this, including New Jersey, Maryland and the District of Columbia.
• "As a restructured state, we are appalled" by FERC's decision to deem default service a state subsidy, Maryland Public Service Commissioner (PSC) Michael Richard said during a Thursday Cleanpower 2020 webinar.

Dive Insight:

PJM has long expressed concerns over FERC's MOPR expansion and said the order is not a "long-term durable solution" for the market. 

"The goal is to try and get through this period of the iteration of the capacity market that is MOPR-based," Asim Haque, vice president of State and Member Services for PJM said Thursday on the webinar hosted by the American Wind Energy Association. "Once we understand really what we're dealing with ... we need to be open to having a discussion surrounding the next iteration of the capacity market."

The MOPR order was approved by FERC in December and effectively raises the price for all new resources bidding into the market that receive a state subsidy.

PJM's initial compliance filing, issued in March, exempted default service from its definition of state subsidies. But based on FERC's clarification, the grid operator updated its MOPR compliance language to allow "normal commercial activity" to resume within state default service auctions, "while safeguarding against any state default service auctions that would distort the competitiveness" of its auction.

Initial language proposed by the grid monitor on the default service question was met with a "lukewarm" response from stakeholders, said Haque. "So we frankly gutted it and we started from the beginning trying to work with our states and our members that were very concerned about that language."

In its filing, PJM interpreted the commission's inclusion of default service as a concern that the mechanism could, if left unchecked, serve as a way to construct uneconomic generation. But, PJM added, such auctions only occur in restructured retail states as a necessary measure for customers who don't choose or can't access a competitive supplier "and generally are conducted in a manner that provides the benefits of economic efficiency to end-use customers."

As a result, the grid operator proposed to exempt default service auctions from the definition of a state subsidy so long as the "underlying state auction is competitive and resource-neutral." To verify this, auctions must not place conditions on 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.

Without allowing some default auctions to be exempt from the MOPR, FERC's order could impose "an immense, unintended, and unreasonable administrative burden on PJM and Capacity Market Sellers" and "paralyze the voluntary bilateral markets as they exist today," the filing said.

Richard said he was happy with the efforts PJM had made, but the state is still struggling to find an approach under the MOPR that will allow it to reach its clean energy goals, including its offshore wind target of 1,200 MW by 2030.

Maryland and New Jersey have been some of the most vocal critics of the MOPR and have looked into potential alternatives to the grid operator's capacity market, including a fixed resource requirement alternative. 

"We've really appreciated PJM looking at that issue and coming up with, I think, a very sensible approach," said Richard. Transmission policy is another way besides the default clarifications that states could "help incentivize their preferred resources," he said. 

But "other than a major do over ... it's hard to salvage this order at this point," he said. "I suppose a discussion with PJM about disbanding the capacity market or a significant overhaul could make the whole MOPR issue moot. But even under that circumstance, we'd have to figure out how we continue to advance our clean energy projects, such as offshore wind."