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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On May 2, 2013, FERC issued an order conditionally accepting in part, and rejecting in part, tariff revisions filed By PJM Interconnection, L.L.C. (PJM) regarding the Minimum Offer Price Rule (MOPR) for generating resources seeking to participate in PJM’s capacity market auctions. The MOPR attempts to limit the potential exercise of buyer-side market power in PJM’s forward capacity market. According to FERC, a concern arises when a large net buyer of capacity in PJM’s forward capacity auction owns generating capacity and offers that capacity into the auction at a reduced price. To address that concern, at the time of its filing, the PJM tariff included a minimum bid price for all new generating resources unless the relevant market participant could demonstrate, through a unit-specific review process, that a lower bid was justified based on the economics of the market participant’s unit.

After it commissioned a report By an independent consultant, PJM submitted proposed revisions to its MOPR on December 7, 2012. PJM proposed to replace the unit-specific review process with exemptions for “competitive entry” and for resources designated as “self-supply.” Under the competitive entry exemption, the following units would be exempt from the price floor: (a) a unit that does not receive out-of-market funding and (b) a unit that receives outside funds only as a result of participating in a competitive auction open to all available resources. Under the self-supply exemption, a load serving entity (LSE) that owns or contracts for a “large proportion” (based on specified thresholds for LSEs that are net-short and net-long) of the capacity needed to meet its load would not be subject to the price floor. PJM also proposed to (a) limit the MOPR to gas-fired combustion turbine, combined-cycle, and integrated gasification combined cycle (IGCC) resources; (b) exempt incremental capacity increases of less than 20 MW; and (c) apply the MOPR to the entire PJM region, rather than just constrained Local Deliverability Areas.

In the May 2 order, FERC accepted the two exemptions proposed By PJM but required PJM to perform a periodic review of the net-short and net-long thresholds. FERC also accepted PJM’s proposal to limit the MOPR to gas-fired combustion turbine, combined-cycle, and IGCC resources; exempt certain incremental capacity; and expand the MOPR to the entire PJM region. However, FERC rejected PJM’s proposal to terminate the unit-specific review process. FERC concluded that “some resources, including those that would fail to qualify for PJM’s proposed exemptions, may nonetheless have competitive costs that fall below the benchmark price.” FERC also rejected PJM’s proposal to change the duration of mitigation from one year to three years.