PJM has shared with stakeholders various proposals it is considering to be included in an upcoming Minimum Offer Price Rule compliance filing to exempt certain default service contracts from being ensnared by the revised capacity market MOPR rule, after FERC's sweeping finding that default service contracts constitute a state subsidy.

While, based on the straw proposals, PJM in the compliance filing will recognize the classification of SOS contracts by FERC as a state subsidy, PJM proposes to exempt certain default service contracts, meeting the conditions listed below, from the MOPR

As previously reported, in a rehearing order, FERC denied rehearing and clarification requests regarding state default service auctions, and found that state default service auctions are a state subsidy

"We deny rehearing and clarification requests regarding state default service auctions. State default service auctions meet the definition of State Subsidy to the extent they are a payment or other financial benefit that is a result of a state-sponsored or state-mandated process and the payment or financial benefit is derived from or connected to the procurement of electricity or electric generation capacity sold at wholesale, or an attribute of the generation process for electricity or electric generation capacity sold at wholesale, or will support the construction, development, or operation of a capacity resource, or could have the effect of allowing a resource to clear in any PJM auction," FERC has said

"If these auctions are truly competitive, as parties assert, and a winning resource wishes to offer below the default offer price floor for its resource type, the resource may demonstrate that its costs are competitive through the Unit-Specific Exemption, or qualify for another exemption elaborated on in the December 2019 Order. Nor do we find it meaningful that the New Jersey Basic Generation Service auction is voluntary or used by power marketers because a state default service auction qualifies as a State Subsidy because it is a state-sponsored process and includes indirect payments to the resource," FERC has said

Commissioner Richard Glick noted in a dissent that, "[T]he Commission makes no effort to wrestle with the practical challenges of its edicts. As the New Jersey Board explained in its rehearing request, the 'suppliers' in New Jersey’s default service auction are generally power marketers that rely on either financial or physical hedging and are not necessarily backed by particular physical generators. Do the Commission’s statements in today’s orders mean that PJM, the Market Monitor, or someone else will have to chase down every resource power marketers use to satisfy a default service auction contract? In addition, default service auctions generally do not align with PJM’s annual single delivery-year capacity auctions. For example, in New Jersey the auction runs annually and covers only one-third of load at time, but with three year contracts. In the District of Columbia the auctions are held annually. And in Pennsylvania they are run 'quarterly, or every 6 months.' How will PJM, the Market Monitor, or the Commission sort out which resources are to be mitigated in PJM’s Base Residual Auction based on those differing state calendars?"

Faced with SOS contracts being defined as a state subsidy, PJM is considering language to exempt "bilateral transactions" under a state default service auction from the MOPR.

PJM this week shared an Alternative Straw Proposal for consideration in its upcoming compliance filing

Under the Alternative Straw Proposal's reasoning:

• State default procurement auctions are State Subsidies

• "Bilateral transactions" used to fulfill default retail service obligations are exempt from MOPR where the state default procurement auction:

     --- is subject to independent oversight by a consultant or manager who certifies that the auction was conducted through a non-discriminatory and competitive bidding process;

     --- does not impose conditions based on the ownership, location, affiliation, or resource type – except for meeting state RPS requirements;

     --- does not require bilateral transactions to be sourced from any specific Capacity Resource or resource type in order to satisfy retail supply obligations; and

    --- costs can be avoided by retail customers who elect to obtain supply from a competitive retail supplier.

Under the straw proposed tariff language, the term state subsidy would exclude, "any bilateral transaction (including but not limited to those reported pursuant to Tariff, Attachment DD, section 4.6) with an Entity Providing Default Retail Service where such transaction is used to satisfy the default retail service obligations that were awarded through a state default procurement auction that was subject to independent oversight by a consultant or manager who certifies that the auction was conducted through a non-discriminatory and competitive bidding process, subject to the below condition, and provided further that nothing herein would exempt a Capacity Resource that would otherwise be subject to the minimum offer price rule pursuant to this Tariff..."

The straw tariff language would state that a state default procurement auction that has been certified to be a result of a non-discriminatory and competitive bidding process shall:

(i) have no conditions based on the ownership, location, affiliation, fuel type, technology, or emissions of any resources or supply (except state-mandated renewable portfolio standards for which Capacity Resources are separately subject to the minimum offer price rule or eligible for an exemption);

(ii) result in contracts for a retail default generation supply product and none of those contracts require that the retail obligation be sourced from any specific Capacity Resource or resource type as set forth in subsection (i) above; and

(iii) establish market-based compensation for a retail default generation supply product that retail customers can fully avoid by exercising their right to obtain supply from a competitive retail supplier of their choice.

Tags:
PJM   Capacity market   Default service  

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