On June 29, 2018, FERC rejected proposals by Calpine Corporation (“Calpine”) and PJM Interconnection, L.L.C. (“PJM”) to address what they view as shortcomings in PJM’s capacity markets resulting from what they characterize as state subsidy programs that suppress capacity prices (the “June 29 Order”).

The June 29 Order is the result of two proceedings initiated in response to increased out-of-market support for particular electric generating resources, including zero emission credits (“ZECs”) for nuclear facilities, offshore wind procurements, and more stringent renewable portfolio standards. The first is a March 2016 complaint filed by Calpine and other generation entities pursuant to section 206 of the Federal Power Act alleging that PJM’s Tariff—specifically, the Tariff’s Minimum Offer Price Rule (“MOPR”)—is unjust and unreasonable because it fails to address the impact of subsidized resources on the capacity market. Calpine’s complaint expressed concern that the amount and type of generation resources receiving out-of-market support has increased substantially and ultimately serves to depress capacity prices. In response, Calpine proposed interim Tariff revisions that would extend PJM’s MOPR, which sets a price floor for certain types of natural gas-fired resources, to a limited set of existing resources and asked FERC to direct PJM to initiate a stakeholder process to develop a long-term solution to price suppression.

The second proceeding concerned PJM’s proposed revisions to its Tariff to address the price-suppressing effects of out-of-market support for particular resources. PJM’s preferred solution, known as Capacity Repricing, would have included a two-stage annual auction, with capacity commitments determined in the first stage and the clearing price set in the second stage. Alternatively, PJM proposed MOPR-Ex, under which it would revise its MOPR to mitigate capacity offers from new and existing resources, subject to certain exemptions (see April 17, 2018 edition of the WER.

In the June 29 Order, a majority of the FERC—consisting of Chairman McIntyre, Commissioner Powelson, and Commissioner Chatterjee—agreed that it has become necessary to address the price suppression that has resulted from resources receiving out-of-market support, but rejected Calpine and PJM’s proposed Tariff revisions to do so. Rather, the majority established a paper hearing in Docket No. EL18-178-000 to address an alternative approach in which PJM would modify its MOPR to apply to both new and existing resources that receive out-of-market payments, regardless of resource type, but would include few to no exemptions; and establish an option in the Tariff that would allow, on a resource-specific basis, resources receiving out-of-market support to opt out of the PJM capacity market for some period of time. FERC referred to this option, which is conceptually similar to the Fixed Resource Requirement (“FRR”) that currently exists in the PJM Tariff, as the “FRR Alternative.”

Commissioners LaFleur and Glick dissented from the majority. Commissioner LaFleur indicated, among other things, that she would have refined PJM’s MOPR-Ex proposal by offering guidance to PJM and stakeholders, and also expressed concern that, in declaring PJM’s capacity market unjust and unreasonable, the majority imposed an ex parte restriction that will prevent the Commission from engaging with stakeholders about whether its proposal will meet their needs. Commissioner Glick argued, among other things, that the order would interfere with states’ authority over their electric generating resources.

A copy of the June 29 Order may be found here.