The Federal Energy Regulatory Commission pleased almost every sector of the energy industry -- except for coal and nuclear power plant owners -- with its unanimous decision to reject Energy Secretary Rick Perry’s plan to offer price supports to baseload power plants in the name of grid resilience.
But last week’s 3-to-2 vote approving ISO New England’s new market pricing proposal has reignited fears among clean energy and consumer advocates that FERC is setting the stage to pre-empt state clean energy policies in the name of market fairness.
Last week’s order (PDF) was narrowly approved, with Trump appointees Ray McIntyre and Neil Chatterjee approving, and commissioners Richard Glick, a Democrat, and Robert Powelson, a Republican, dissenting.
With the approval, ISO-NE is free to proceed with a plan to split its capacity market bidding into two parts. The market reform, dubbed Competitive Auctions with Sponsored Policy Resources (CASPR), is a complicated effort to balance zero-marginal-cost wind and solar power against fossil fuel and nuclear-powered generators for bidding to provide power in years to come.
Much like a similar proposal from mid-Atlantic grid operator PJM, ISO-NE’s plan has drawn the fire of clean energy and consumer advocates, since it’s likely to lead to higher power prices and increase the competitiveness of dirty power plants. Grid operators have argued that traditional market constructs, which set prices based on marginal generation costs, aren’t properly valuing baseload resources.
Commissioner Cheryl LaFleur, a Democrat and the only remaining Obama appointee, issued a separate concurrence, providing the third yes vote to pass the order. But in separate statements, both LaFleur and Glick dissented on a particular part of the order -- Paragraph 22, to be specific.
In that paragraph, the commission writes: “Absent a showing that a different method would appropriately address particular state policies, we intend to use the MOPR to address the impacts of state policies on the wholesale capacity markets.” This seemingly bland sentence represents a potential bombshell for state energy policies.
MOPR stands for "minimum offer price rule," a market mechanism that sets minimum prices for bids into energy or capacity markets, to prevent market manipulators from injecting artificially low prices into the market.
But they’re a very problematic model to use when talking about zero-marginal-cost wind and solar energy -- and both Glick and LaFleur are against using MOPR as a blanket approach to properly pricing clean energy against fueled power plans.
This issue has been a hot topic of debate among FERC stakeholders since it was introduced for discussion last May. Back then, Environmental Defense Fund's Michael Panfil told us that he and other groups supported a “limited MOPR," one that’s restricted to a particular use in markets.
But expanding the concept of a MOPR without these kinds of specific limits could impose on state energy policy, he warned. That’s because MOPRs could start to prevent clean energy resources from participating in capacity markets, and thus undermine the state policies that are supporting their growth.
In an email this week, Robbie Orvis, policy director at Energy Innovation, wrote that “Essentially, FERC proposed to address state policy by accommodating proposed market reforms that attempt to undo state policy. In ISO-NE’s case, the capacity market reforms put renewables at a disadvantage while raising costs for customers, all so that existing generators can squeak more money out of the market, which ISO-NE acknowledges is oversupplied.”
Natural Resources Defense Council attorney Miles Farmer responded to Friday's order by accusing commissioners Chatterjee and McIntyre of “contemplating an unprecedented power grab, seeking to coerce states into abandoning or modifying their energy policies.”
Farmer tweeted about how ISO-NE’s application of a MOPR could undercut state clean energy policies: “FERC’s CASPR order declares that by default, FERC will apply MOPR not only to market manipulators, but also to resources who submit low offers because they are supported by a state policy,” he wrote. “In many cases, this minimum offer price calculated by FERC will be too high to ‘clear’ (be chosen) in the market, and thus the generator won’t be able to sell any of its capacity, even though it is being supported by the state and is in fact able to supply capacity.”
Commissioner Glick agreed that a blanket use of the MOPR “is ill-conceived, misguided, and a serious threat to consumers, the environment and, in fact, the long-term viability of the Commission’s capacity market construct,” he wrote in a dissent attached to Friday’s order. “The suggestion in today’s order that the Commission will rely on MOPRs -- or something similar -- to mitigate the impacts of state public policies will eventually come to rank as a historically serious misstep.”
Glick wrote that FERC should instead “stop using the MOPR to interfere with state public policies and, instead, apply the MOPR in only the limited circumstance for which it was originally intended: to prevent the exercise of buyer-side market power.”
In a separately released statement, LaFleur noted that, despite her yes vote on the order, “I reject the notion, however, that we should use the MOPR as a 'standard solution' -- a blunt instrument -- against the impacts of all state policies.” She suggested alternatives, such as limited MOPRs, or even pricing carbon-neutral resources, as other grid operators such as New York ISO are contemplating.
And as Glick wrote, adding LaFleur’s dissent of the MOPR to his and Powelson’s dissents of the order itself means that the policy of using the MOPR as a blanket approach “is not adopted by a majority of the Commissioners that support the order.”
This unusual situation -- a split decision on different parts of an order that was passed with a bare minimum of yes votes -- is likely to lead to legal challenges to the order. Former FERC Commissioner Norman Bay wrote on Twitter that opponents of ISO-NE’s CASPR proposal are likely to redouble their efforts for a rehearing, and cite the “fractured vote” as a cause for legal appeals.
Meanwhile, mid-Atlantic grid operator PJM, the country's largest, has two capacity proposals before FERC, noted Energy Innovation's Orvis: a two-part auction similar to CASPR and an expansion of its MOPR. That will set the stage for the next big debate over how to manage the shifting balance of supply and demand, in a grid market that encompasses many of the coal-fired and nuclear power plants that have been petitioning the federal government for relief.
Separately, PJM is also asking FERC to approve an energy market price formation proposal that has drawn fire from clean energy and consumer groups, since it would increase total energy and capacity market costs from 2 to 5 percent, largely in higher prices that would benefit baseload power plants. In its Friday filing to meet FERC's demand for a report on grid resilience, PJM stated that its proposed market change is an "important and inter-related component of ensuring grid resilience," indicating that it intends to link the two issues from now on.