States, Environmental Groups Challenge FERC Order on PJM Capacity Market Rules

New Jersey and Maryland filed a lawsuit with the D.C. Circuit Court of Appeals, challenging the Federal Energy Regulatory Commission’s order directing PJM Interconnection LLC to extend the minimum offer price rule, or MOPR, to state-subsidized resources, according to an April 27 news release. Several states have criticized the move, citing its potential to harm renewable generation seeking to participate in the capacity market. New Jersey regulators said that the requirement would make clean-energy resources less competitive and stifle the state’s program subsidizing renewable energy. The Natural Resources Defense Council, Sierra Club, Environmental Defense Fund, and the Union of Concerned Scientists also sued the agency, arguing that the order unlawfully interferes with the jurisdiction of states over resource portfolio decisions.

The legal challenges are in response to the agency’s April 16 decision that largely rejected requests to reconsider the December 2019 order. FERC also denied rehearing of its June 2018 order which found that state subsidies distort the market and that the existing market design relating to the MOPR applied in the capacity market is unjust and unreasonable. The MOPR sets a default floor price for generation to clear the capacity market in PJM, the regional grid operator for 13 states including New Jersey, Maryland and the District of Columbia.

The New Jersey Board of Public Utilities recently launched an investigation to examine resource adequacy alternatives to achieve the state’s clean energy goals. In addition to undermining the subsidies, these market rules will negatively affect ratepayers in New Jersey because a set percentage of capacity in the state must come from clean-energy resources. The state argues that the “MOPR will discourage clean-energy resources from entering the capacity market, and that it will cost consumers in New Jersey and elsewhere significantly more money.” New Jersey contends that the rule and the ensuing financial disincentive for clean energy sources works against several PJM states’ efforts to move towards a carbon-free future, while offering a competitive advantage to fossil-fueled generators.

In its rehearing petition filed with FERC, the Maryland Public Service Commission explained that the practical effect of the order will be to frustrate state policies that support cleaner generating resources, in violation of state authority under federal law. Regulators argued that the order jeopardizes Maryland’s new renewable energy resources, such as offshore wind projects, and stifles innovation of new energy efficiency products, by pricing them out of the market.