FERC Clarifies Order on State-Directed Default Service Auctions in PJM

Morgan Lewis - Power & Pipes

Morgan Lewis - Power & Pipes

FERC has issued an order revising its prior order on PJM’s Minimum Offer Price Rule (MOPR) by vacating a footnote that suggested the New Jersey Basic Generation Service default service auction—and by extension other state default service auctions shaped by state resource policy—were not “fuel neutral” or “nondiscriminatory” as required by Commission precedent. As a result of this clarification, resources selected through the New Jersey default service auction will not be presumed to be subject to the MOPR and may be eligible for the MOPR exclusion for independently evaluated, nondiscriminatory, fuel-neutral, competitive state-directed default service auctions.

This order cleared up an issue arising from FERC’s prior order in Calpine Corp. et al. v. PJM Interconnection, L.L.C. wherein FERC had accepted revisions to PJM’s Open Access Transmission Tariff (2020 Order). PJM’s tariff revisions, in response to a FERC directive, expanded PJM’s MOPR to impose a minimum capacity market offer price on resources, internal and external, that receive, or are entitled to receive, “state subsidies.” “State subsidies” were defined as:

“[a] direct or indirect payment, concession, rebate, subsidy, non-bypassable consumer charge, or other financial benefit that is (1) a result of any action, mandated process, or sponsored process of a state government, a political subdivision or agency of a state, or an electric cooperative formed pursuant to state law, and that (2) is derived from or connected to the procurement of (a) electricity or electric generation capacity sold at wholesale in interstate commerce, or (b) an attribute of the generation process for electricity or electric generation capacity sold at wholesale in interstate commerce, or (3) will support the construction, development, or operation of a new or existing capacity resource, or (4) could have the effect of allowing a resource to clear in any PJM capacity auction.”

Within that order, FERC was viewed as creating some ambiguity regarding whether state-directed default service auctions constitute “state subsidies.” In a footnote, FERC appeared to prejudge the New Jersey Basic Generation Service and find that it triggered the MOPR and/or mitigation. By extension, the footnote could have indicated that FERC might apply the expanded MOPR to any generation that cleared a default service auction.

FERC’s modification of the 2020 Order vacating the offending footnote removes a degree of uncertainty by reverting to the general rule that generation selected through competitive and nondiscriminatory state-directed default service auctions (i.e., those that qualify to be excluded from the definition of State Subsidy because they are nondiscriminatory, competitive, resource neutral, and do not require a contract with a specific resource or type of resource to meet the obligation) do not require mitigation under the MOPR. The Commission’s order did not address whether any individual state’s default service auction satisfies FERC’s requirements.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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