Dive Brief:

• A new market rule could cost customers in the PJM Interconnection from $1 billion to $2.6 billion annually, according to an updated analysis from consulting firm Grid Strategies.

• The estimate cuts in half the group's cost analysis from August, which found the Minimum Offer Price Rule (MOPR) could cost up to $5.7 billion per year. But while it's widely been accepted by stakeholders that costs are not anticipated to rise in the next capacity auction, Grid Strategies' "conservative" estimate finds that over the long term, the "MOPR will result in billions or tens of billions of dollars in excess costs to electricity consumers across PJM," the report reads.

• The analysis comes in the midst of efforts by PJM and generators like Calpine to negotiate with stakeholders concerned by the MOPR's potential impacts to state resource goals, particularly for offshore wind.

Dive Insight:

States have been some of the most vocal opponents of the MOPR, passed by FERC in December, which effectively raises the bidding price in the PJM market for new resources that receive state subsidies. FERC defends the order as an attempt to mitigate the "price distorting effects of state subsidies," while opponents say the order favors fossil fuel generators and undermines state policies attempting to bring new renewables online.

Coastal states like Maryland and New Jersey worry the MOPR could adversely affect their nascent offshore wind market, while markets in states like Illinois, Ohio and New Jersey could be hurt by the rule's nuclear clearing prices. PJM in its March compliance plan attempted to minimize the impacts on nuclear, wind and solar, lowering the overall default-adjusted floor prices for clean energy technologies to clear future bid auctions.

The May report, authored by Grid Strategies founder and former FERC adviser Rob Gramlich and Grid Strategies Vice President Michael Goggin, finds the rule could cost consumers almost $24 billion over the next nine years, "assuming FERC adopts minimum bid levels that are closer to what PJM had initially proposed instead of the PJM's more recent filing." Under that scenario, "it is unlikely that subsidized nuclear units in Illinois, New Jersey, and Ohio will be able to clear the capacity market," according to the report.

But even assuming FERC adopts more recent PJM minimum bid levels, the group still estimates the MOPR would cost customers in the market $10 billion over the next nine years. And it's still possible some units wouldn't clear under PJM's newest bid numbers — the grid operator's proposed default bid floor of $179/MW-day "is slightly higher than the most recent auction's $165.73/MW-day clearing price for much of New Jersey" as well as northern Ohio's $171.33/MW-day clearing price.

There are several uncertainties about the MOPR's full impact, the report says, including whether new wind and solar resources will be able to clear the auction under PJM's proposed bidding prices. While all the default bid levels PJM proposed were, on average, higher than the most recent PJM clearing price, "it is likely that some solar, and potentially some land-based wind projects, could demonstrate evidence for unit-specific bid levels that are low enough to clear the capacity market," under the grid operator's most recent filing, the report found.

PJM itself has expressed its concerns about the long-term impacts of the MOPR, as has retail natural gas provider Calpine, which led the original complaint against PJM's tariff policies. 

"We agree that it seems unlikely that offshore wind would clear the MOPR," Calpine Senior Vice President of Government Affairs & Managing Counsel Sarah Novosel said during an April webinar hosted by Raab Associates.

"Calpine, and I think other generators, are open to coming back to the bargaining table" once there's more pricing data from the auctions, she said.

The grid operator also has concerns about the long-term impacts of the MOPR on the market, but notes there is "relative consensus that the MOPR decision will not have significant impact in the near term because of existing unit exemptions and due to the content of our first compliance filing," PJM spokesperson Jeff Shields told Utility Dive in an email.

"At the same time, we also believe that the MOPR decision does not present a long-term, durable solution for the capacity market," said Shields. "We hope to engage stakeholders on what a longer-term solution could look like for the capacity market. And in the near term, we continue to work with states to help them advance their individual energy policies."

"I think it's very notable that Calpine and EPSA and PJM itself are all talking about coming back to the table and figuring out a better long-term solution," Gramlich told Utility Dive.

States have been threatening to find alternatives to the PJM capacity market — Maryland and New Jersey have indicated they may pursue a Fixed Resource Requirement alternative that would allow parts or all of their state to secure capacity outside the wholesale market.