PJM Board Approves Changes to Minimum Offer Price Rule in Capacity Markets

PJM Interconnection LLC’s Board of Managers has approved a proposal aimed to reform the minimum offer price rule, or MOPR, in the regional capacity market that PJM operates across 13 states and the District of Columbia. Out of nine proposals presented by the grid operator and its stakeholders, the board selected PJM’s proposal finding that it addresses buyer-side market power mitigation, accommodates state policies and self-supply business models, and also ensures that clearing prices are consistent with supply and demand fundamentals. The proposal was approved through a unique, unprecedented expedited stakeholder process used for time-sensitive or controversial issues.

MOPR was established to prevent the exercise of buyer-side market power such that resources are offered on a competitive basis. In December 2019, FERC issued an order that directed the grid operator to expand the MOPR to state-subsidized resources. MOPR was established to prevent the exercise of buyer-side market power such that resources are offered on a competitive basis. Previously, MOPR required that new, non-exempt natural gas-fired generators offer at or above the offer price floor set by the grid operator. Several states and clean energy advocates have criticized the commission’s 2019 order, citing its potential to harm renewable generation seeking to participate in the capacity market.

Under the proposal, PJM would apply the MOPR in limited situations pertaining to buyer-side market power and conditioned state support. The proposal defines the exercise of buyer-side market power as the “ability of market participant(s) with a load interest to suppress market clearing prices for the overall benefit of their portfolio.” Conditioned state support refers to  out-of-market payment or financial benefit from a state or a sovereign political subdivision of a state received for selling a FERC-jurisdictional product conditioned on clearing a capacity auction.

Among the key elements, the proposal provides that MOPR will not apply resources that receive out-of-market payments pursuant to legislative, executive, or regulatory authorization – referred to as “legacy policies” – that predate the effective date of the reforms.

The proposal further provides a framework for investigating suspected buyer-side market power plays by screening affected resources and requiring attestations against deliberately lowering market clearing prices before capacity auctions. It also provides the grid operator the ability to conduct a case-by-case analysis of suspected buyer-side market power.

The long-awaited capacity market auction for the 2022-2023 delivery year, held in May, cleared at $50 per megawatt-day, which is 64 percent lower than the 2018 auction and the lowest in almost a decade. It was the first auction to be conducted by the nation’s largest grid operator under the expanded MOPR resulting from a 2019 FERC order. The auction, originally scheduled to be held in May 2019, was postponed pending FERC’s approval of the new MOPR.

PJM anticipates incorporating the changes into the capacity auction for the 2023-2024 delivery year to be held in December.