On May 2, 2013, FERC issued a much anticipated order partially accepting the proposed changes by PJM Interconnection, L.L.C. (PJM) to its Minimum Order Price Rule (MOPR) for certain generation capacity resources seeking to participate in PJM’s capacity market auctions.
The MOPR, which was implemented in 2006, is intended to address the concern that certain resources participating in PJM’s capacity market may have an incentive to suppress clearing prices by offering supply at less than a competitive level. This can occur when a large net-buyer of capacity invests in generation capacity and then offers that capacity into the auction at a reduced price. The MOPR addresses this issue by requiring all new generation resources participating in the capacity market to bid at an established floor price or higher, unless the resource can demonstrate that a lower bid is justified based on the economics of the specific unit.
In December 2012, PJM filed proposed changes to its tariff to replace the unit-specific review process with categorical exemptions to the MOPR. PJM proposed for a resource to be qualify as exempt competitive supply in three ways: (1) if no costs are recovered directly or indirectly from customers through a non-bypassable charge linked to the construction, or clearing in any RPM auction, of the resource; (2) if the resource is the product of a competitive auction open to all available resources, both new and existing; or (3) if the resource does not receive certain payments from a governmental entity contingent on construction or clearing in any RPM auction. The third exemption proposed by PJM was for load-serving entities whose net short and net long positions fell within certain levels and whose long-standing business models include self-supply arrangements. Under PJM’s proposal, a resource would be subject to the MOPR unless it fit within one of those exemptions. PJM stated that the changes were necessary to provide more definition and transparency for granting exemptions to the MOPR. PJM also proposed to expand the application of the MOPR to the entire PJM footprint and to extend the duration of the MOPR to three years.
FERC generally accepted PJM’s broad categorical exemptions from the MOPR. However, FERC also rejected PJM’s proposal to eliminate the unit-specific review. FERC concluded that certain resources may not be eligible for the MOPR exemptions, but still have lower competitive costs than the default offer floor, and these resources should have the opportunity to demonstrate their competitive entry costs. FERC directed PJM and its stakeholders to consider changes to the unit-specific review process, including the use of common modeling assumptions for establishing unit-specific offer floors. While FERC accepted the expansion of MOPR to all of PJM, it rejected the proposal to apply MOPR for the first three years a new resource is offered and reaffirmed a single-year duration.
FERC approved PJM’s proposed changes effective as of February 5, 2013.