Petition for Writ of Certiorari — Public Utilities Commission of Ohio, Petitioner v. Federal Energy Regulatory Commission, et al.
Supreme Court briefMar 28, 2024
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No. 23-___
In the Supreme Court of the United States
______________________________
PUBLIC UTILITIES COMMISSION OF OHIO,
Petitioner,
v.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
______________________________
ON PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________________________
APPENDIX
______________________________
DAVE YOST
Ohio Attorney General
MICHAEL J. HENDERSHOT *
*Counsel of Record
Chief Deputy Solicitor General
SAMUEL C. PETERSON
Deputy Solicitor General
30 E. Broad St., 17th Floor
Columbus, Ohio 43215
614-466-8980
michael.hendershot@ohioago.gov
Counsel for Petitioner
TABLE OF CONTENTS
Page
Appendix A: Opinion, United States Court of
Appeals for the Third Circuit, December 1,
2023 ........................................................................... 1a
Appendix B: Statement of Chairman Glick
and Commissioner Clements, Federal Energy
Regulatory Commission, October 19, 2021 ............ 47a
Appendix C: Statement of Commissioner
Christie, Federal Energy Regulatory
Commission, October 19, 2021 ............................. 188a
Appendix D: Statement of James P. Danly,
Federal Energy Regulatory Commission,
October 27, 2021 ................................................... 200a
Appendix E: Select Statutes ................................ 254a
1a
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________________________
Nos. 21-3068, 21-3205 & 21-3243
______________________________
PJM POWER PROVIDERS GROUP,
Petitioner in 21-3068,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
______________________________
ELECTRICAL POWER SUPPLY ASSOCIATION,
Petitioner in 21-3205,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
______________________________
PENNSYLVANIA PUBLIC UTILITY
COMMISSION; PUBLIC UTILITIES
COMMISSION OF OHIO
Petitioners in 21-3243,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
______________________________
2a
On Petition for Review of an Order of the
Federal Energy Regulatory Commission
(FERC No. ER21-2582-000)
______________________________
Argued on January 10, 2023
Before: JORDAN, PHIPPS and
ROTH, Circuit Judges
(Opinion filed: December 1, 2023)
Elbert Lin
Charles D. Wallace, III
Hunton Andrews Kurth
951 East Byrd Street
Riverfront Plaza East Tower
Richmond, VA 23219
John L. Shepherd, Jr.
(ARGUED)
Hunton Andrews Kurth
2200 Pennsylvania Avenue, NW
Washington, DC 20037
Counsel for Petitioner PJM
Power Providers Group
Paul W. Hughes
McDermott Will & Emery
500 N Capitol Street, NW
Washington, DC 20001
Counsel for Petitioner Electric Power Supply
Association
3a
Kriss E. Brown
(ARGUED)
Christian A. McDewell
Pennsylvania Public Utility Commission
Commonwealth Keystone Building
400 N Street
PO Box 3265
Harrisburg, PA 17120
Counsel for Petitioner Pennsylvania Public Utility
Commission
Thomas G. Lindgren
Werner L. Margard, III
Office of Attorney General of Ohio
30 East Broad Street
26th Floor
Columbus, OH 43215
Counsel for Petitioner Public Utilities Commission of
Ohio
Jeffrey W. Mayes
Monitoring Analytics
2621 Van Buren Avenue
Suite 160
Eagleville, PA 19403
Counsel for Intervenor Petitioner Monitoring
Analytics LLC
Denise C. Goulet
McCarter & English
1301 K Street, NW
Suite 1000 West
Washington, DC 20005
(ARGUED)
Counsel for Intervenor Petitioner Office of the
Consumer Counsel State of Ohio OCC
4a
Jared B. Fish
(ARGUED)
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, DC 20426
Counsel for Respondent
Danielle C. Fidler
Earthjustice Legal Defense Fund
1001 G Street, NW
Suite 1000
Washington, DC 20001
Counsel for Intervenor Respondents Union of
Concerned Scientists and Sierra Club
Peter Hopkins
Amber L. Martin Stone
Jeffrey A. Schwartz
Scott H. Strauss
Spiegel & McDiarmid
1875 Eye Street, NW
Suite 700
Washington, DC 20006
(ARGUED)
Counsel for Intervenor Respondents Delaware
Division of Public Advocate; Maryland Office of
Peoples Counsel; New Jersey Division of Rate
Counsel and Office of Peoples Counsel for the District
of Columbia
5a
Matthew Price
(ARGUED)
Jenner & Block
1099 New York Avenue, NW
Suite 900
Washington, DC 20001
Counsel for Intervenor Respondents Constellation
Energy Corp and Constellation Energy Generation
LLC
Miles H. Mitchell
Maryland Public Service Commission
6 St. Paul Street
6 St. Paul Centre, 16th Floor
Baltimore, MD 21202
Counsel for Intervenor Respondent Maryland Public
Service Commission
David C. Apy
Office of Attorney General of New Jersey
Division of Law
25 Market Street
Hughes Justice Complex
Trenton, NJ 08625
Counsel for Intervenor Respondent New Jersey
Board of Public Utilities
Robert A. Weishaar, Jr.
McNees Wallace & Nurick
1200 G Street, NW
Suite 800
Washington, DC 20005
Counsel for Intervenor Respondent PJM Industrial
Customer Coalition
6a
Ryan J. Collins
Paul M. Flynn
Wright & Talisman
1200 G Street, NW
Suite 600
Washington, DC 20005
Counsel for Intervenor respondent PJM
Interconnection LLC
Caroline Reiser
Natural Resources Defense Council
1152 15th Street, NW
Site 300
Washington, DC 20005
Counsel for Intervenor Respondent Natural Resource
Defense Council
Casey Roberts
Sierra Club
1536 Wynkoop Street
Suite 200
Denver, CO 80202
Megan C. Wachspress
Sierra Club Environmental law Program
2101 Webster Street
13th Floor
Oakland, CA 94612
Counsel for Intervenor Respondent Sierra Club
7a
Sarah A. Hunger
Office of Attorney General of Illinois
100 West Randolph Street
12th Floor
Chicago, IL 60601
Counsel for Intervenor Respondents Illinois
Commerce Commission and People of the State of
Illinois
Cynthia Bogorad
Lauren L. Springett
Spiegel & McDiarmid
1875 Eye Street NW
Suite 700
Washington, DC 20006
Counsel for Intervenor Respondent Buckeye Power,
Inc.
Adrienne E. Clair
Thompson Coburn
1909 K Street, NW
Suite 600
Washington, DC 2006
Counsel for Intervenor Respondent Old Dominion
Electric Cooperative; National Rural Electric
Cooperative Association
Daniel E. Frank
Allison Speaker
Eversheds Sutherland
700 Sixth Street, NW
Suite 700
Washington, DC 20001
Counsel for Intervenor Respondent East Kentucky
Power Cooperative Inc.
8a
Andrew D. Cordo
Shannon E. German
Wilson Sonsini Goodrich & Rosati
222 Delaware Avenue
Suite 800
Wilmington, DE 19801
Counsel for Intervenor Respondent Advanced Energy
Economy
Gerit Hull
American Municipal Power
1111 Schrock Road
Suite 100
Columbus, OH 43229
Counsel for Intervenor Respondent American
Municipal Power Inc.
John E. McCaffrey, III
American Public Power Association
2451 Crystal Drive
Suite 1000
Arlington, VA 22202
Counsel for Intervenor Respondent American Public
Power Association
Anthony J. Corino
PSEG Corporation
80 Park Plaza
Newark, NJ 07102
Counsel for Intervenor Respondents PSEG; PSEG
Power LLC and PSEG ER&T
9a
Donald R. Goodson
Institute for Policy Integrity
139 MacDougal Street
Third Floor
New York, NY 10012
Counsel for Amicus Appellee Institute for Policy
Integrity at New York University School of Law
Christopher R. Nestor
Overstreet & Nestor
461 Cochran Road
P.O. Box 237
Pittsburgh, PA 15228
Counsel for Amicus Petitioner Pennsylvania Senate
Republican Caucus
Michael E. Rowan
Office of Attorney General of Maryland
Higher Education Div.
200 St Paul Place
20th Floor
Baltimore, MD 21202
Counsel for Amicus Respondents District of
Columbia, State of Delaware and State of Maryland
Ari Peskoe
Harvard Electricity Law Initiative
6 Everett Street
Suite 4119
Cambridge, MA 02138
Counsel for Amicus Respondent Electricity
Regulation Scholars
10a
______________________________
OPINION
______________________________
ROTH, Circuit Judge:
This consolidated action represents the latest salvo
in a years-long battle over whether, and to what
extent, state-subsidized energy resources should be
subject to price mitigation in interstate capacity
auctions. The focal point of the dispute is a tariff filed
by PJM Interconnection, L.L.C. (PJM), which took
effect by operation of law in 2021.1
Three separate petitions now ask us to exercise, for
the first time, our authority to review this “action by
inaction” pursuant to Section 205(g) of the Federal
Power Act (FPA),2 a 2018 provision expressly
articulating the right to review under these
circumstances. PJM Power Providers Group (P3) and
Electric
Power
Supply
Association
(EPSA)
(collectively, Generators), two nonprofit associations
representing energy generators, filed separate
petitions. Pennsylvania Public Utility Commission
and Public Utilities Commission of Ohio (State
Entities) jointly filed the third.3
1 16 U.S.C. § 824d(g).
2 Id. §§ 791 et seq.
3 More than two dozen intervenors and amici also
filed briefs.
Intervenor Petitioners include: Monitoring Analytics LLC and
the Ohio Office of the Consumers Counsel. Amicus for Petitioners
is the Pennsylvania Senate Republican Caucus. Intervenor
Respondents include: Union of Concerned Scientists, Delaware
Division of the Public Advocate, Maryland Office of Peoples
Counsel, Maryland Public Service Commission, New Jersey
Board of Public Utilities, New Jersey Division of Rate Counsel,
Natural Resources Defense Council, Natural Rural Electric
11a
The Petitioners, Federal Energy Regulatory
Commission (FERC), and numerous intervenors and
amici dispute the proper scope of our review pursuant
to § 205(g). We hold that our review of FERC “action,”
whether actual or constructive, proceeds under the
same deferential standards set forth in the FPA and
Administrative Procedure Act.4 Consistent with
Congress’s directive in § 205(g), we further hold that
our review properly encompasses the Commissioners’
mandatory statements setting forth their reasons for
approving or denying the filing.
Reviewing the petitions accordingly, we will deny
all three because FERC’s acceptance of PJM’s tariff
was not arbitrary or capricious and was supported by
substantial evidence in the record.
I. Background
To frame the issues presented by the parties, we
begin by reviewing the key statutory provisions
governing this action, with a particular focus on §
205(g), the 2018 amendment to the FPA concerning
Cooperative, Office of Peoples Counsel for the District of
Columbia, PJM Industrial Customer Coalition, PJM
Interconnection LLC, Sierra Club, Illinois Commerce
Commission, People of the State of Illinois, Buckeye Power Inc.,
Old Dominion Electric Cooperative, East Kentucky Power
Cooperative Inc., Advanced Energy Economy, American
Municipal Power Inc., American Public Power Association,
PSEG, PSEG Power LLC, PSEG ER&T, Constellation Energy
Corp, Constellation Energy Generation LLC, and Exelon
Generation Co LLC. Amici on behalf of FERC include: the
Institute for Policy Integrity at New York University School of
Law, the District of Columbia, the State of Delaware, the State
of Maryland, and Electricity Regulation Scholars.
4 5 U.S.C. §§ 551 et seq.
12a
judicial review of FERC action by operation of law. We
then turn to the factual and procedural context for
their claims.
A. The Federal Power Act and Judicial
Review
FERC is the independent agency to which
Congress, in the FPA, granted exclusive jurisdiction
to ensure “rates charged by public utilities for the
transmission and sale of energy in interstate
commerce, and the ‘rules and regulations affecting or
pertaining to such rates’, [sic] are ‘just and
reasonable.’”5 While the FPA empowers FERC to
regulate “all facilities for such transmission or sale of
electric energy,” it reserves jurisdiction over “facilities
used for the generation of electric energy” to state and
local authorities.6
Sections 205 and 206 of the FPA set forth the
means by which FERC may “fulfill its statutory
charge of ensuring the justness and reasonableness of
rates.”7 Together, they comprise part of “a single
statutory scheme under which all rates are
established initially by the [public utilities] . . . and all
rates are subject to being modified by the Commission
5 New Jersey Bd. of Pub. Utils. v. FERC, 744 F.3d 74, 79 (3d Cir.
2014) (quoting 16 U.S.C. § 824d) (hereinafter NJBPU).
6 NJBPU, 744 F.3d at 80 (quotations omitted) (quoting §
824(b)(1)); FERC v. Elec. Power Supply Ass’n, 577 U.S. 260, 264,
136 S. Ct. 760, 193 L. Ed. 2d 661 (2016) (noting that the FPA
“authorizes [FERC] to regulate ‘the sale of electric energy at
wholesale in interstate commerce,’” but “leaves to the States
alone, the regulation of ‘any other sale’ ... of electricity”).
7 Pub. Citizen, Inc. v. FERC, 839 F.3d 1165, 1167, 426 U.S. App.
D.C. 172 (D.C. Cir. 2016).
13a
upon a finding that they are unlawful.”8 Section 205
provides that “public utilities may change their rates
unilaterally, upon 60 days’ notice to FERC, which
then reviews the changed rates to ensure that they are
‘just and reasonable.’”9 “It is not necessary, in a filing
pursuant to § 205, that FERC find that the previous
rate was unjust or unreasonable.”10 Rather, here
FERC “plays ‘an essentially passive and reactive
role.’”11 Section 206, in contrast, provides that FERC
may proactively initiate rate changes, either on its
own motion or in response to a complaint, if the
moving party demonstrates that the existing rate is
unjust and unreasonable and the proposed alternative
is just and reasonable.12 Notably, § 206 does not “give[]
FERC the power to deny a utility the right to file
changes” unilaterally under § 205.13
Our jurisdiction to review FERC orders arises
under the FPA and Administrative Procedure Act.14
Specifically, the FPA provides that a party aggrieved
by a FERC order must first seek rehearing by the
Commission, which may grant or deny rehearing,
8 Atl. City Elec. Co. v. FERC, 295 F.3d 1, 10, 353 U.S. App. D.C.
1 (D.C. Cir. 2002) (alteration in original) (quoting United Gas
Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 341, 76 S.
Ct. 373, 100 L. Ed. 373 (1956)).
9 NJBPU, 744 F.3d at 94; see 16 U.S.C. § 824d(d).
10 NJBPU, 744 F.3d at 94 (citing Atl. City Elec. Co., 295 F.3d at
9-10); see 16 U.S.C. § 824d(a)-(d).
11 NJBPU, 744 F.3d at 94 (quoting Atl. City Elec. Co., 295 F.3d at
9-10).
12 16 U.S.C. § 824e(a).
13 Atl. City Elec. Co., 295 F.3d at 10.
14 See 16 U.S.C. § 825l(b); 5 U.S.C. § 702 (waiving sovereign
immunity for claims for relief “other than money damages”); 28
U.S.C. § 1331.
14a
abrogate or modify its order without rehearing, or
constructively deny rehearing by failing to act within
thirty days.15 Within sixty days of the Commission’s
order on the application for rehearing, an aggrieved
party may seek review of “order[s] issued by the
Commission” in the courts of appeals.16 The FPA
provides that we “shall have jurisdiction, which upon
the filing of the record with it shall be exclusive, to
affirm, modify, or set aside such order in whole or in
part.”17 Finally, the FPA makes clear that, absent
orders to the contrary, neither the filing of an
application for rehearing before the Commission nor
the start of proceedings before the court of appeals
shall “operate as a stay of the Commission’s order.”18
The question of what constitutes a reviewable
Commission order is central to this dispute. FERC’s
enabling statute establishes that “[a]ctions of the
Commission shall be determined by a majority vote of
the members present.”19 While FERC comprises five
commissioners, a quorum requires just three, making
it possible for four commissioners to deadlock two-totwo.20 In Public Citizen, Inc. v. FERC, the Court of
Appeals for the D.C. Circuit considered whether
judicial review was available for a § 205 rate filing
that took effect after the four sitting Commissioners
deadlocked and failed to act within sixty days.21 The
15 16 U.S.C. § 825l(a).
16 Id. § 825l(b)
17 Id. (“The finding of the Commission as to the facts, if supported
by substantial evidence, shall be conclusive.”).
18 Id. § 825l(c).
19 42 U.S.C. § 7171(e).
20 Id. § 7171(b)(1), (e).
21 839 F.3d at 1170.
15a
court determined that it lacked jurisdiction.22 With
regard to the FPA, the court held that the secretarial
notice issued by the Commission to “describ[e] the
effects of the deadlock are not reviewable orders”23
because “FERC did not engage in collective,
institutional action when it deadlocked.”24 The court
held that it also lacked jurisdiction under the APA
because that statute only makes inaction reviewable
“where the agency fails to take a ‘discrete’ action it is
legally required to take,”25 and the FPA does not
“compel” FERC to act on a § 205 filing.26 Accordingly,
the court held that it lacked jurisdiction to review
FERC inaction resulting in an order by operation of
law. The court concluded that “[a]ny unfairness
associated with this outcome inheres in the very text
of the FPA. Accordingly, it lies with Congress, not this
Court, to provide the remedy.”27
Congress did so in 2018. Rather than compelling
FERC to act on a § 205 filing, Congress added a
provision to clarify how agency inaction should be
construed to permit judicial review. The new
provision, § 205(g),28 stated that if FERC “permits the
60-day period . . . to expire without issuing an order
accepting or denying the change because the
22 Id.
23 Id. at 1172.
24 Id. at 1170.
25 Id. at 1172 (quoting Norton v. S. Utah Wilderness All., 542 U.S.
55, 62-63, 124 S. Ct. 2373, 159 L. Ed. 2d 137 (2004)).
26 Id. at 1174 (explaining that the FPA does “not compel FERC to
either set the disputed rates for hearing or affirmatively
disapprove any unjust or unreasonable rates through the Section
205 process”).
27 Id.
28 16 U.S.C. § 824d(g).
16a
Commissioners are divided two against two as to the
lawfulness of the change . . . or if the Commission
lacks a quorum” then:
(A) the failure to issue an order accepting or
denying the change by the Commission shall be
considered to be an order issued by the
Commission accepting the change for purposes of
section 825l(a) of this title [FPA § 313(a)]; and
(B) each Commissioner shall add to the record of
the Commission a written statement explaining the
views of the Commissioner with respect to the
change.29
Section 205(g) further established that if “a person
seeks a rehearing . . . and the Commission fails to act
on the merits of the rehearing request” within 30 days
because the deadlock continues, “such person may
appeal under section 825l(b) [FPA § 313(b)].”30
B. Factual and Procedural Context
“Since the FPA’s passage, electricity has
increasingly become a competitive interstate
business, and FERC’s role has evolved accordingly.”31
Today, “[i]ndependent power plants now abound, and
almost all electricity flows not through ‘the local power
networks of the past,’ but instead through an
interconnected ‘grid’ of near-nationwide scope.”32 To
ensure the reliable transmission of electricity from
independent generators to “load serving entities”
29 Id. (emphasis added).
30 Id. § 824d(g)(2).
31 Elec. Power Supply Ass’n, 577 U.S. at 267.
32 Id. (quoting New York v. FERC, 535 U.S. 1, 7, 122 S. Ct. 1012,
152 L. Ed. 2d 47 (2002)).
17a
(LSEs)—the organizations that deliver electricity to
retail consumers—FERC has empowered nonprofit
entities,
including
Regional
Transmission
Organizations (RTOs), to manage segments of the
grid.33 RTOs constitute “public utilities” under the
FPA, subject to FERC’s regulation.34
Intervenor PJM is one such RTO, managing a
system that serves approximately fifty million
consumers in thirteen mid-Atlantic and Midwestern
states and the District of Columbia.35 Like other
RTOs, PJM fulfills important functions that include
ensuring the grid maintains sufficient electrical
supply to meet demand during peak periods.36 To
accomplish this, PJM manages a capacity market that
essentially “pay[s] participants for a promise to
produce electricity when called by PJM to do so.”37
In 2006, the Commission found the existing
capacity market was unjust and unreasonable
because it maintained insufficient capacity to keep the
system reliable.38 To remedy this, FERC issued an
order accepting a negotiated settlement among power
providers, utility companies, and state and local
authorities, which provided for the adoption of the
33 Hughes v. Talen Energy Mktg., LLC, 578 U.S. 150, 155, 136 S.
Ct. 1288, 194 L. Ed. 2d 414 (2016).
34 NJBPU, 744 F.3d at 82.
35 PJM Br. 3; see Hughes, 578 U.S. at 155.
36 NJBPU, 744 F.3d at 82.
37 PJM Br. 4 (citing NJBPU, 744 F.3d at 82 (explaining that the
capacity market ensures that “there are enough . . . generators
connected to the transmission grid for the system to function at
peak load.”)).
38 See PJM Interconnection, L.L.C., 135 FERC ¶ 61,022 (2011)
(hereinafter 2011 Order) at ¶ 4.
18a
Reliability Pricing Model.39
essentially as follows:
This
model
works
PJM predicts electricity demand three years ahead
of time, and assigns a share of that demand to each
participating LSE. Owners of capacity to produce
electricity in three years’ time bid to sell that capacity
to PJM at proposed rates. PJM accepts bids, beginning
with the lowest proposed rate, until it has purchased
enough capacity to satisfy projected demand. . . . [A]ll
accepted capacity sellers receive the highest accepted
rate, which is called the “clearing price.” LSEs then
must purchase from PJM, at the clearing price,
enough electricity to satisfy their PJM-assigned share
of overall projected demand.40
Besides allowing LSEs to satisfy their obligations
to provide a share of projected demand, this forwardlooking capacity auction serves another purpose, at
least in theory: sending market signals to suppliers to
incentivize resource development.41 “A high clearing
price in the capacity auction encourages new
generators to enter the market, increasing supply and
thereby lowering the [future] clearing price . . . [while]
a low clearing price discourages new entry and
39 2006 Settlement Order at ¶ 104, NJBPU, 744 F.3d at 79; see
PJM Interconnection, L.L.C., 117 FERC ¶ 61,331 (hereinafter
2006 Settlement Order).
40 Hughes, 578 U.S. at 155-56; see PPL Energyplus, LLC v.
Solomon, 766 F.3d 241, 251 (3d Cir. 2014); NJBPU, 744 F.3d at
83-84. Technically, PJM operates multiple capacity auctions. The
one at issue in this appeal, and described here, is the Base
Residual Auction.
41 Hughes, 578 U.S. at 155-56; see NJBPU, 744 F.3d at 84.
19a
encourages retirement
generators.”42
of
existing
high-cost
Because some participants both buy and sell
capacity in the auction, the auctions are theoretically
vulnerable to manipulation by exercise of monopsony
power.43 That is, net-buyers—those who buy more
capacity than they sell—could artificially depress
prices by selling capacity below its true cost, skewing
the market signals produced by the auction.44 “[T]o
address the concern that some market participants
might have an incentive to depress market clearing
prices by offering supply at less than a competitive
level,” the 2006 Settlement Order approved the
implementation of the Minimum Offer Price Rule
(MOPR).45
The MOPR established in the 2006 Settlement
Order (2006 MOPR) was designed to detect bids
suppressed through monopsony power. An offer that
failed a multilevel screening process would be
“mitigated,” or administratively raised to a
competitive level.46 The 2006 MOPR applied only to
new market entrants, excluding nuclear, coal, and
hydroelectric resources as well as state-mandated
resources.47 In approving this mechanism, FERC
concluded that the MOPR was a “reasonable method
42 Hughes, 578 U.S. at 155-56; see NJBPU, 744 F.3d at 84.
43 NJBPU, 744 F.3d at 85.
44 See FERC Br. 14-15; PJM Br. 6; NJBPU, 744 F.3d at 88-89.
45 2011 Order at ¶ 6 (citing 2006 Settlement Order at ¶ 103).
46 NJBPU, 744 F.3d at 85.
47 Id. at 86 (explaining that state-mandated resources consisted
of “any planned resource being developed in response to a state
regulatory or legislative mandate to resolve a projected capacity
shortfall”).
20a
of assuring that net buyers do not exercise monopsony
power by seeking to lower prices through self
supply.”48 Moreover, FERC determined that the
MOPR’s exception for “reliability projects built under
state mandate is reasonable because it enables states
to meet their responsibilities to ensure local
reliability.”49
Within a few years, consistent with that
responsibility, New Jersey and Maryland launched
initiatives to develop new generation resources to
address reliability and capacity concerns in their
states.50 Both initiatives required new generation
resources to sell capacity in the PJM markets, and
both intended to offer the capacity a price below cost
to ensure the new resources would clear.51
P3, who is also one of the Petitioners in this action,
responded by filing a § 206 complaint with FERC,
calling for an end to the state-mandated resources
exception in addition to other modifications.52 PJM
then filed a revised tariff pursuant to § 205, which
FERC approved in 2011 with some alterations (2011
Order). The 2011 MOPR eliminated the statemandated resources exemption, “declin[ing] to accord
states an opportunity to justify their initiatives on
policy grounds, instead . . . requiring them to submit
cost-based offers like other entrants or suffer the
consequences of mitigation.”53 At the same time, the
48 2006 Settlement Order at ¶ 104; see NJBPU, 744 F.3d at 85.
49 2006 Settlement Order at ¶ 104.
50 NJBPU, 744 F.3d at 87.
51 Id.
52 Id.
53 Id. at 91 (“FERC . . . conclud[ed] that the exemption needed to
be eliminated due to ‘mounting evidence of risk from what was
21a
new MOPR added exemptions for wind and solar
resources, with the result that after 2011, only natural
gas facilities were subject to mitigation.54
Several parties petitioned this Court for review of
the 2011 Orders, which we denied in 2014.55 With
respect to FERC’s elimination of the state-mandated
resources exemption on the grounds that they would
suppress auction prices, we observed that while “it
could easily be argued that this danger was
foreseeable in 2006 when the MOPR was first
approved, FERC has adequately advanced a rationale
for its about-face . . . . As such, it cannot be said that
FERC acted without substantial evidence.”56
In 2016, power suppliers filed a § 206 complaint
with FERC, challenging the MOPR’s exclusive
application to new market entrants. They argued that
such a limitation was unjust and unreasonable
because it “allowed below-cost offers from existing
resources under newly-enacted state subsidy
programs to unjustly displace non-subsidized
resources.”57 A three-year process culminated with
FERC’s two-to-one vote in December 2019, ordering
PJM to extend the MOPR to mitigate offers from “both
previously only a theoretical weakness in the MOPR rules,’
namely, that state-subsidized resources would suppress auction
prices.”).
54 Id. at 106.
55 Id. at 112. During the pendency of this Court’s decision in
NJBPU, aspects of the 2011 tariff not relevant to the instant
matter were amended in a compromise approved by FERC order
in 2013. See id. at 93-94.
56 Id. at 102.
57 P3 Br. 15; see Calpine Corp. v. PJM Interconnection, L.L.C., 169
FERC ¶ 61,239 (hereinafter 2019 Order).
22a
new and existing resources” and any resource either
receiving or eligible to receive a state subsidy (2019
MOPR).58 The goal, FERC said, of this dramatic
expansion was to “protect PJM’s capacity market from
the price-suppressive effects of resources receiving
out-of-market support by ensuring that such
resources are not able to offer below a competitive
price.”59 The sole opposing Commissioner issued a
dissent, arguing, among other things, that while “the
MOPR once targeted efforts to exercise market power
on behalf of load and directly reduce the capacity
market price, it now targets state resource
decisionmaking, and particularly state efforts to
address the externalities of electricity generation.”60
The 2019 MOPR prompted swift opposition.61
Dozens of parties sought to overturn the 2019 MOPR,
including “consumer advocate groups, state public
utility
agencies,
electric
cooperatives
[and]
generators, clean energy organizations, and
environmental groups.”62 These appeals were
consolidated in the Seventh Circuit and remain in
abeyance pending this action.63
On July 30, 2021, PJM made another § 205 filing,
setting forth a revised MOPR (2021 MOPR) to replace
the expansive one it set forth in 2019. PJM
acknowledged that, over the previous three years,
state investments in renewable and nuclear resources
58 2019 Order at ¶¶ 1-2, 5; see EPSA Br. 8; FERC Br. 18-19.
59 2019 Order ¶ 5.
60 2019 Order (Glick, dissenting), ¶ 16.
61 FERC Br. 20.
62 FERC Br. 20.
63 FERC Br. 20-21; see Ill. Commerce Comm’n v. FERC, Nos. 20-
1645, et al. (7th Cir.).
23a
had proliferated, in part because of states’ unabated
and legitimate interest in “address[ing] externalities
that are not accounted for in PJM’s wholesale
markets.”64 By “pricing out resources from the
capacity market” and failing to account for those
resources when committing capacity, PJM stated, the
2019 MOPR was distorting market signals by
“incentiv[izing] resources to be built that are not
needed to maintain reliability” in light of those
investments.65 Moreover, the 2019 MOPR was
incenting market participants to exit the capacity
market to “meet their policy and business
objectives,”66
a
shift
that
threatened
to
“exacerbate[]the very price suppression issue [that the
2019 MOPR] seeks to mitigate.”67 The result for
consumers, PJM concluded, would be that those in
states providing subsidies would “pay[] twice, i.e., for
both the excluded resources and the resource
committed through the auction because the excluded
resource did not clear” while those in other states
would see “a capacity cost increase, when . . . the
auction commits a resource that had a higher Sell
Offer than the excluded resource’s original offer.”68
PJM concluded:
[W]hile state policies favoring certain generation
resources may ultimately cause a reduction in
capacity clearing prices, such an outcome “should not
be interpreted as a harmful secondary impact of one
state’s policies on other states. Rather, the reduction
64 JA0178.
65 JA0178, 181.
66 JA0182.
67 JA0185.
68 JA0179-80.
24a
in prices is a natural consequence of the PJM market
appropriately reflecting state policies and consumer
preferences for certain types of resources. Such state
subsidies only lower total costs for consumers in other
states.”69
PJM explained that the 2021 MOPR would return
to “its original purpose by focusing on prohibiting and
mitigating the exercise of buyer-side market power.”70
The 2021 “focused” MOPR would “generally
accommodate both state policies regarding generation
resource mix and the long-standing business models
of public power entities,”71 while nonetheless barring
state action, such as those that New Jersey and
Maryland had pursued in 2011, that would “directly
interfere with the auction clearing outcomes.”72 To
this end, the 2021 MOPR would mitigate offers in just
two situations: “(1) where a capacity resource has the
ability and incentive to exercise buyer-side market
power, and (2) where a capacity resource receives
state subsidies under a state program that is likely
preempted by the Federal Power Act.”73
When the 2021 MOPR was filed, FERC had four
sitting commissioners. The commissioners deadlocked
two-to-two on the new tariff, failing to issue an order
accepting or denying the change within sixty days. On
September 29, 2021, the Commission issued a
secretarial notice stating that the new 2021 MOPR
was in effect by operation of law. Consistent with §
69 JA0180.
70 JA0171.
71 JA0194.
72 JA0190.
73 JA0173; see FERC Br. 22; PJM Br. 23.
25a
205(g)(1)(B), two commissioners (including the chair)
filed a Joint Statement articulating their reasons for
supporting the new tariff, while the other
commissioners filed separate statements explaining
their opposition.
All rehearing requests were denied without an
order on November 29, 2021. This petition followed.
II. Standing
An organization suing on its members’ behalf must
establish associational standing, demonstrating that
“(1) at least one of its members would have standing
to sue in his or her own right; (2) ‘the interests it seeks
to protect are germane to the organization’s purpose’;
and (3) ‘neither the claim asserted nor the relief
requested requires the participation of [its] individual
members.’”74 To meet the first element of associational
standing, the organization must establish the three
familiar components that form “the irreducible
constitutional minimum of standing”: injury-in-fact,
causation, and redressability.75
74 See Sierra Club v. FERC, 827 F.3d 59, 65, 423 U.S. App. D.C.
417 (D.C. Cir. 2016); see also Belmont Mun. Light Dep’t v. FERC,
38 F.4th 173, 185, 457 U.S. App. D.C. 182 (D.C. Cir. 2022)
(“Where there are multiple plaintiffs who assert overlapping
arguments, at least one petitioner must have standing to seek
each form of relief requested in the petitions for review.” (citing
Nat’l Ass’n of Regul. Util. Commissioners v. FERC, 964 F.3d
1177, 1184, 448 U.S. App. D.C. 133 (D.C. Cir. 2020))).
75 Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130,
119 L. Ed. 2d 351 (1992); see Friends of the Earth, Inc. v. Laidlaw
Env’t Servs. (TOC), Inc., 528 U.S. 167, 180-81, 120 S. Ct. 693, 145
L. Ed. 2d 610 (2000); Kansas Corp. Comm’n v. FERC, 881 F.3d
924, 929, 434 U.S. App. D.C. 256 (D.C. Cir. 2018) (quoting Sierra
26a
The Petitioners have met their burden. FERC
observes that the Generators do not articulate any
injuries in their opening briefs.76 Nevertheless, the
Joint Appendix incorporates records from the
Generators’ protest before FERC that demonstrate
that their members suffered economic losses as a
result of the 2021 MOPR. An affidavit attached to P3’s
reply brief elaborates on these harms.77 We find that
the Generators have met their burden to articulate a
concrete and particularized injury, and that the cause
of their injuries is traceable to FERC’s approval, by
operation of law, of the 2021 MOPR.78 We also hold
that the State Entities have met their burden to
establish a cognizable injury, having demonstrated
that they “represent the interests of the states in
protecting their citizens and electric ratepayers in the
traditional government field of utility regulation.”79
FERC also argues that the Petitioners failed to
establish that their purported injuries are redressable
in this action. Specifically, FERC argues that even if
we were to vacate the order by operation of law that
allowed the 2021 MOPR to go into effect, the 2021
MOPR would remain in effect until a new tariff could
be established upon remand.80 We disagree. Contrary
to FERC’s assertion, “[v]acating or rescinding
Club v. EPA, 292 F.3d 895, 899-900, 352 U.S. App. D.C. 191 (D.C.
Cir. 2002) (citations omitted)).
76 FERC Br. 35.
77 P3 Reply Br. 3, Attachment A (Decl. Glen Thomas).
78 See Belmont Mun. Light Dep’t, 38 F.4th at 185.
79 Id. at 186 (citing Maryland People’s Counsel v. FERC, 760 F.2d
318, 321, 245 U.S. App. D.C. 248 (D.C. Cir. 1985)); see State
Entities Reply Br. 5-6.
80 FERC Br. 39.
27a
invalidly promulgated regulations has the effect of
reinstating prior regulations.”81 While these
potentially “disruptive consequences”82 may militate
toward less drastic solutions,83 such a remedy is
nonetheless within the scope of our statutory
authority.
III. Standard of Review
81 Abington Mem’l Hosp. v. Heckler, 750 F.2d 242, 244 (3d Cir.
1984); Prometheus Radio Project v. F.C.C. (Prometheus I), 652
F.3d 431, 453 n.25 (3d Cir. 2011) (“Because we vacate the NBCO
rule in the 2008 Order, the rule in existence prior to that order
will remain in effect until the FCC promulgates new crossownership regulations.”); see Council Tree Commc’ns, Inc. v.
F.C.C., 619 F.3d 235, 258 (3d Cir. 2010) (“vacating [an FCC] rule
will mean that” the prior rule “will once again” govern the
regulated activity); Paulsen v. Daniels, 413 F.3d 999, 1008 (9th
Cir. 2005) (“The effect of invalidating an agency rule is to
reinstate the rule previously in force.”); Action on Smoking and
Health v. CAB, 713 F.2d 795, 797, 230 U.S. App. D.C. 1 (D.C. Cir.
1983) (per curiam) (“To ‘vacate,’ as the parties should well know,
means ‘to annul; to cancel or rescind; to declare, to make, or to
render, void; to defeat; to deprive of force; to make of no authority
or validity; to set aside.’ . . . . [T]he judgment of this court had the
effect of reinstating the rules previously in force.”).
82 Ameren Servs. Co. v. FERC, 880 F.3d 571, 584, 434 U.S. App.
D.C. 67 (D.C. Cir. 2018) (quoting Black Oak Energy, LLC v.
FERC, 725 F.3d 230, 244, 406 U.S. App. D.C. 357 (D.C. Cir.
2013)); see Prometheus Radio Project v. Fed. Commc’ns Comm’n
(Prometheus II), 824 F.3d 33, 52 (3d Cir. 2016).
83 See, e.g., Black Oak Energy, 725 F.3d at 244 (“Although we
remand, we do so without vacating . . . [after performing the
disruption analysis] we deem it better to preserve the status quo
as FERC reconsiders”); Ameren Servs. Co., 880 F.3d at 584
(vacating because “we are troubled by the prospect of allowing
the orders to continue”); see Belmont Mun. Light Dep’t v. FERC,
38 F.4th 173, 187-88, 457 U.S. App. D.C. 182 (D.C. Cir. 2022)
(determining that a FERC order is severable and vacating only
one component).
28a
At the threshold, the parties dispute the applicable
standard and scope of judicial review upon a petition
proceeding under § 205(g).
We review FERC orders under § 313(b) of the FPA
and § 10(e) of the APA.84 The FPA directs that FERC’s
factual findings, “if supported by substantial evidence,
shall be conclusive.”85 Substantial evidence exists
where the administrative record contains “more than
a scintilla, but . . . something less than a
preponderance of the evidence.”86 Under the APA, we
must “hold unlawful and set aside” agency action that
is deficient for reasons including that it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law,” or “in excess of statutory
jurisdiction, authority, or limitations, or short of
statutory right.”87 In short, we affirm FERC orders as
long as the administrative record shows the
84 16 U.S.C. § 825l(b); 5 U.S.C. § 706(2).
85 16 U.S.C. § 825l(b).
86 NJBPU, 744 F. 3d at 94 (quoting La. PSC v. FERC, 522 F.3d
378, 395, 380 U.S. App. D.C. 353 (D.C. Cir. 2008)); accord Mars
Home for Youth v. NLRB, 666 F.3d 850, 853 (3d Cir. 2011)
(“Substantial evidence is more than a mere scintilla. It means
such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.” (citations and quotations
omitted)). See also NJBPU, 744 F.3d at 94 (“The question we
must answer ... is not whether record evidence supports
[petitioner]’s version of events, but whether it supports FERC’s.”
(quoting Fla. Mun. Power Agency v. FERC, 315 F.3d 362, 368,
354 U.S. App. D.C. 281 (D.C. Cir. 2003))).
87 5 U.S.C. § 706(2); see Newark, New Castle & Seaford v. Federal
Energy Regulatory Com., 763 F.2d 533, 545 (3d Cir. 1985) (court
must determine “whether a rational basis exists for [FERC’s]
conclusion, whether there has been an abuse of discretion, or . . .
whether the Commission’s order is arbitrary or capricious or not
in accordance with the purpose of the [FPA].”).
29a
Commission “examined the relevant data and
articulated a rational connection between the facts
found and the choice made.”88
FERC urges, and we agree, that § 205(g) did not
alter these familiar standards.89 Rather, the provision
clarified the universe of action subject to our review.
Prior to its enactment, the plain text of the FPA did
not convey Congress’s intent to allow our review of
rate filings enacted by operation of law pursuant to §
205(d). Congress addressed this deficiency with §
205(g), which unambiguously instructed that we
construe FERC’s inaction as an affirmative order “for
the purposes of § [313](a).”90 Notably, Congress here
referred to the very provision setting forth a party’s
right to seek the Commission’s rehearing of an order
by majority vote, which in turn provides the basis for
88 NJBPU, 744 F.3d at 94 (quoting Sacramento Mun. Util. Dist.
v. FERC, 616 F.3d 520, 528, 392 U.S. App. D.C. 339 (D.C. Cir.
2010)); see also Morgan Stanley Capital Grp. Inc. v. Pub. Util.
Dist. No. 1 of Snohomish Cnty., 554 U.S. 527, 532, 128 S. Ct.
2733, 171 L. Ed. 2d 607 (2008) (“The statutory requirement that
rates be ‘just and reasonable’ is obviously incapable of precise
judicial definition, and we afford great deference to the
Commission in its rate decisions.”); North Penn Gas Co. v.
Federal Energy Regulatory Com., 707 F.2d 763, 766 (3d Cir. 1983)
(FERC’s exercise of its expertise carries “a presumption of
validity”).
89 See FERC Br. 34-35, 49. While we generally defer to an
agency’s reasonable interpretation of ambiguity in a statute it
administers “through application of its expertise,” no deference
doctrine controls the scope of a court’s jurisdiction. See Allegheny
Def. Project v. FERC, 964 F.3d 1, 11, 448 U.S. App. D.C. 1 (D.C.
Cir. 2020).
90 § 205(g) (emphasis added); see 16 U.S.C. § 825l(a).
30a
judicial review.91 Indeed, § 205(g) specifies that if the
“Commission fails to act on the merits of the rehearing
request” within 30 days because the deadlock
continues, “such person may appeal under §
[313](b).”92 Thus, by reference, the standard of review
set forth in the FPA93 applies to FERC orders issued
by operation of law pursuant to § 205(d).94
We reject the State Entities’ argument that we
must review “on a de novo basis, whether the tariff
change is just and reasonable as a predicate to
deciding whether [FERC’s] discretion to approve was
properly exercised.”95 This reading contradicts the
well-settled administrative law principle, reflected in
both the FPA and APA, that “‘a court is not to
substitute its judgment for that of the agency.’”96
Moreover, the sole authority cited by the State
Entities to support its reading concerns an inapposite
statute (the Indian Gaming Regulatory Act or IGRA),
which at least one sister court has rejected as an
appropriate analog for the FPA because the IGRA
91 See 16 U.S.C. § 825l(b) (“Any party to a proceeding under this
chapter aggrieved by an order issued by the Commission in such
proceeding may obtain a review of such order in the United
States court of appeals . . . .”).
92 Id. § 824d(g)(2); see id. § 825l(b).
93 See id. § 825l(b).
94 § 205(g).
95 State Entities Br. 21-22 (citing Amador County, Cal. v.
Salazar, 640 F.3d 373, 375, 395 U.S. App. D.C. 110 (D.C. Cir.
2011)).
96 Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43, 103 S. Ct. 2856, 77 L. Ed. 2d 443 (1983).
31a
requires agency action while the FPA gives the agency
discretion to act.97
To carry out Congress’s directive to construe FERC
inaction as an affirmative order, we must next
determine what constitutes evidence of the agency’s
reasoning for the purposes of § 205(g).98 The
Generators insist that nothing does, arguing that a
deadlocked Commission can produce “no institutional
findings of fact or conclusions of law to which this
Court might defer.”99 While they acknowledge
Congress’s mandate in § 205(g)(1)(B) that the
members of a deadlocked Commission must enter
their reasoning into the record, they argue that these
statements are unattributable to the agency and are
intended only to “facilitate compromises” and promote
transparency and good government.100 Because any
order arising by operation of law would, by the
Generators’ logic, lack any agency rationale, they
conclude that any petition for rehearing pursuant to §
97 Compare State Entities Br. 22, with Public Citizen, 839 F.3d at
1173 (“Section 205(a)’s statement concerning the unlawfulness of
unjust and unreasonable rates does not rise to an inexorable
command like that found in IGRA”).
98 See Sprint Nextel Corp. v. F.C.C., 508 F.3d 1129, 1132, 378 U.S.
App. D.C. 432 (D.C. Cir. 2007) (“When the Commission failed to
[act] within the statutory period, Congress’s decision—not the
agency’s—took effect.”).
99 P3 Br. 29, 34-36 (“[a]ctions of the Commission shall be
determined by a majority vote of the members present” (citing 42
U.S.C. § 7171(e)); accord EPSA Br. 18, 21, 23; State Entities Br.
29-30 (citing Public Citizen, 839 F.3d at 1169).
100 P3 Br. 36-37; see EPSA Br. 18, 23, 27 (quoting F.C.C. v.
Prometheus Radio Project (Prometheus III), 141 S. Ct. 1150,
1158, 209 L. Ed. 2d 287 (2021)); see State Entities Br. 29.
32a
205(g) must “inevitably”101 lead us to find such an
order arbitrary and capricious.102
The Generators’ argument is inconsistent with our
responsibility to avoid interpreting statutory
provisions in ways that “render statutory language a
nullity and leave entire operative clauses with ‘no job
to do.’”103 Congress established in § 205(d), and
underscored in § 205(g), that a tariff may change by
operation of law,104 consistent with the principle that
101 EPSA Br. 19-20; P3 Br. 33-35.
102 The Generators also wrongly contend that because orders by
operation of law are necessarily arbitrary and capricious, they
must be set aside. See P3 Br. 29, 35 (“[J]udicial review of
deadlocked FERC proceedings would inevitably end in vacatur.”
(emphasis added)); EPSA Br. 15 n. 3 (incorporating by reference
P3’s arguments concerning vacatur); EPSA Br. 16, 25, 43. But
vacatur is never a foregone conclusion. First, the plain text of the
FPA authorizes us not only to vacate, but also to modify an
improper order. 16 U.S.C. § 825l(b). Second, to determine the
appropriateness of vacatur, we conduct a fact-sensitive analysis
accounting for “the gravity of the orders’ flaws, and the
‘disruptive consequences’ that may result.” Ameren Servs. Co.,
880 F.3d at 584 (quoting Black Oak Energy, LLC, 725 F.3d at
244; see Prometheus II, 824 F.3d at 52; Belmont Mun. Light Dep’t,
38 F.4th at 187-88 (determining that a FERC order is severable
and vacating only one component). We further observe that while
vacatur is the Generators’ preferred remedy here, to adopt their
theory globally risks hampering the claims of future litigants
seeking redress by modification, and not vacatur. Accordingly,
we reject the Generators’ reading.
103 Allegheny, 964 F.3d at 15 (quoting Doe v. Chao, 540 U.S. 614,
623, 124 S. Ct. 1204, 157 L. Ed. 2d 1122 (2004)).
104 § 824d(d) (“No change shall be made by any public utility in
any such rate, . . . rule, regulation, or contract relating thereto,
except after sixty days’ notice to the Commission and to the
public.” (emphasis added)); § 824d(g) (“With respect to a change
described in subsection (d), if the Commission permits the 60-day
period established therein to expire without issuing an order
33a
the “power to initiate rate changes rests with the
utility and cannot be appropriated by FERC in the
absence of a finding that the existing rate was
unlawful.”105 The Generators’ theory would flip §
205(d)’s protective intent on its head, enabling any
aggrieved party to invalidate any rate change by
operation of law simply by virtue of requesting judicial
review—a process the Generators’ theory reduces to a
mechanical exercise with only one possible outcome.
This cannot be right. If Congress’s purpose were
indeed to strip utilities of the protections afforded by
§ 205(d), or to otherwise invalidate orders by operation
of law, it would have amended that portion of the
statute accordingly, not created a cumbersome
workaround via § 205(g).
Moreover, the Generators’ reading would sap §
205(g)(1)(B) of purpose. It is a “fundamental canon of
statutory construction that the words of a statute
must be read in their context and with a view to their
place in the overall statutory scheme.”106 Here, §
205(g)(1)(B) appears as part of an enumerated list of
provisions concerning aggrieved parties’ right to seek
rehearing and judicial review of a change arising from
agency inaction. It makes little sense to argue, as P3
does, that Congress’s purpose in requiring the
Commissioners to add statements explaining their
reasoning to the administrative record could have
accepting or denying the change . . . the failure . . . shall be
considered to be an order issued by the Commission accepting the
change for purposes of” judicial review (emphasis added)).
105 Atl. City Elec. Co., 295 F.3d at 10.
106 King v. Burwell, 576 U.S. 473, 492, 135 S. Ct. 2480, 192 L. Ed.
2d 483 (2015) (quoting Util. Air Reg. Grp. V. EPA., 573 U.S. 302,
320, 134 S. Ct. 2427, 189 L. Ed. 2d 372 (2014)).
34a
been to “facilitate compromises” and promote
transparency and good government only.107 The right
to judicial review accrues after a party has been
aggrieved by a change, and therefore after the time for
compromise has passed.108
We agree with FERC that Congress intended “the
Commissioners’ statements [to] play an integral role
in the Court’s review.”109 Here, the statements of the
deadlocked Commissioners do more than record each
person’s individual rationale for affirming or rejecting
the rate filing. Collectively, they illuminate the
agency’s reasons for inaction, which Congress has
instructed us to construe as an affirmative order.110
Because FERC must accept a § 205 rate filing absent
“a finding that the existing rate was unlawful,”111 our
thorough consideration of the entire record must
ensure that the Commissioners who did not find the
2021 MOPR unlawful engaged in “decisionmaking
107 P3 Br. 37.
108 Notably, in neither of § 205(g)’s two enumerated clauses did
Congress qualify “change” with any adjective (e.g., “proposed” or
“potential”) to indicate that such change was pending, and not
already in effect. Rather, the text plainly refers to the change in
tariff effected by the agency’s inaction, pursuant to § 205(d).
109 FERC Br. 4.
110 P3 repeatedly asks us to vacate the September 29, 2021
Notice, treating that document as if it were a FERC order. P3
confuses the nature of that instrument, which does not itself
constitute reviewable FERC action but rather memorialized the
results, already in effect, of the Commission’s inaction.
111 Atl. City Elec. Co., 295 F.3d at 10; see Public Citizen, 839 F.3d
at 1174 (noting the FPA does “not compel FERC to either set the
disputed rates for hearing or affirmatively disapprove any unjust
or unreasonable rates through the Section 205 process.”).
35a
[that was] reasoned, principled, and based upon the
record.”112
While unusual, such a reading has precedent. In
the Federal Election Commission Act, Congress
similarly incorporated language making clear that a
party aggrieved “by a failure of the Commission to act”
may seek administrative appeal and judicial
review.113 As the D.C. Circuit Court of Appeals
explained in Public Citizen, when the Federal Election
Commission deadlocks over whether to exercise its
discretion to act, “[t]o make judicial review a
meaningful exercise,’ [the court must] treat the
statements of the Commissioners voting to dismiss the
complaint as the administrative record.”114 The court
in Public Citizen declined to follow this approach
because, at the time, the FPA did not contain “a
similar congressional indication” about how to
construe agency deadlock.115 With § 205(g), Congress
filled that gap.116
112 W. Res., Inc. v. FERC, 9 F.3d 1568, 1572, 304 U.S. App. D.C. 9
(D.C. Cir. 1993) (quoting Columbia Gas Transmission Corp. v.
FERC, 628 F.2d 578, 593, 202 U.S. App. D.C. 291 (D.C. Cir.
1979)); see Fed. Election Comm’n v. Nat’l Republican Senatorial
Comm., 966 F.2d 1471, 1476, 296 U.S. App. D.C. 190 (D.C. Cir.
1992) (these commissioners “constitute a controlling group for
purposes of the decision[ and] their rationale necessarily states
the agency’s reasons for acting as it did.”).
113 52 U.S.C. § 30109(a)(8)(A).
114 Public Citizen, 839 F.3d at 1170 (citing Fed. Election Comm’n,
966 F.2d at 1476); see Common Cause v. Fed. Election Comm’n,
842 F.2d 436, 450, 268 U.S. App. D.C. 440 (D.C. Cir. 1988).
115 Public Citizen, 839 F.3d at 1171.
116 For this reason, P3 errs by relying on Public Citizen, which
turned on the absence of such an indication, for the proposition
36a
We disagree that § 205(g) contradicts the
Commission’s enabling statute as codified at 42 U.S.C.
§ 7171(e), which states that “[a]ctions of the
Commission shall be determined by a majority vote of
the members present.”117 Section 205(g) concerns only
how agency inaction should be construed for the
limited purposes of rehearing and review but does not
illuminate what constitutes agency action per se.118
Even if § 205(g) did contradict § 7171(e), traditional
rules of statutory interpretation counsel that
“[s]pecific terms prevail over the general in the same
or another statute which otherwise might be
controlling.”119 Here, Congress identified narrow
circumstances under which to construe inaction, in a
particular way, for a specific purpose.120
that FERC inaction cannot be construed as action for the
purposes of judicial review.
117 P3 Br. 29, 34-36 (citing 42 U.S.C. § 7171(e) (“[a]ctions of the
Commission shall be determined by a majority vote of the
members present”); accord EPSA Br. 18, 21, 23; State Entities
Br. 29-30 (citing Public Citizen, 839 F.3d at 1169).
118 See 42 U.S.C. §7171(e).
119 Superior Oil Co. v. Andrus, 656 F.2d 33, 36 (3d Cir. 1981))
(quoting Fourco Glass Co. v. Transmirra Corp., 353 U.S. 222,
228-29, 77 S. Ct. 787, 1 L. Ed. 2d 786 (1957)).
120 We have no “grave constitutional concern” that a single
Commissioner’s views could stand for all when a rate filing takes
effect because the Commission has deadlocked. EPSA Br. 27.
Under the terms of the statute, this circumstance would always
result in two Commissioners’ views controlling—the same
number that would constitute an unobjectionable majority
among a quorum of three Commissioners. Nevertheless, we do
not decide today whether a constitutional concern might arise
when a rate filing goes into effect in the absence of a quorum, in
which case the “views of a single Commissioner [could] . . . gain
the force of law.” EPSA Br. 27, 28 (citing Seila Law LLC v.
37a
For the foregoing reasons, we hold first that where
a quorum of FERC Commissioners deadlocks two-totwo on a § 205 rate filing, our review of the resulting
order must adhere to the same standard that would
govern our review of an order approved by a FERC
majority.121 Second, we hold that our review properly
encompasses the entire record, including the four
Commissioners’ § 205(g)(1)(B) statements.
IV. Merits
We now reach the substance of the parties’ dispute.
Construing the agency’s deadlocked vote on the 2021
MOPR as an affirmative order consistent with §
205(g), and considering the Commissioners’ recorded
statements, we conclude that the rationale set forth in
the Joint Statement for approving the 2021 MOPR
was neither arbitrary nor capricious and was
supported by substantial evidence in the record. We
are not persuaded otherwise by the arguments set
forth in the other Commissioners’ statements.
Accordingly, we will deny the Generators’ petitions on
the merits.122
Consumer Fin. Prot. Bureau, 140 S. Ct. 2183, 2201, 207 L. Ed. 2d
494 (2020)).
121 NJBPU, 744 F.3d at 94 (citing Sacramento Mun. Util. Dist.,
616 F.3d at 528).
122 P3 suggests that FERC’s order by operation of law pursuant
to § 205 was facially improper because it overturned a tariff
ordered by FERC under § 206, professing to be “unaware of any
authority that permits a public utility to change rates imposed
on that utility by FERC under FPA section 206.” P3 Br. 31, 33
(“[T]he Notice must be vacated because it disregards the text and
structure of the FPA by elevating a mere filing under section 205
above FERC orders under section 206.”). The State Entities
similarly suggest the existence of a “higher Section 206
38a
In reviewing FERC’s orders, we consider only
“whether a rational basis exists for a conclusion,
whether there has been an abuse of discretion, or . . .
whether the Commission’s order is arbitrary or
capricious or not in accordance with the purpose of the
[FPA].”123 “[B]ecause issues of rate design . . . involve
policy judgments that lie at the core of the regulatory
mission, our review of whether a particular rate
design is just and reasonable is highly deferential.”124
The MOPR dispute concerns precisely such a
judgment: How best to protect the integrity of the
capacity market, in view of the diverse and legitimate
interests of its myriad stakeholders and the
innumerable factors that influence price.
standard,” State Entities Br. 28, insisting that as a per se matter,
“FERC cannot overturn its prior precedent through inaction,”
State Entities Br. 28. Both parties are incorrect. It is well-settled
that “[n]othing in section 206 sanctions denying petitioners their
right to unilaterally file rate and term changes.” Atl. City Elec.
Co., 295 F.3d at 10 (collecting cases). Indeed, “courts have
repeatedly held that FERC has no power to force public utilities
to file particular rates unless it first finds the existing filed rates
unlawful . . . . Nor may FERC prohibit public utilities from filing
changes in the first instance.” Id. As intervenors for the
respondent note, P3’s interpretation would erode the careful
balance that Congress has achieved in the statute by “gradually
eliminat[ing] the utility’s rights under Section 205 . . . to set the
rates it will charge prospective customers, and change them at
will, subject to review by the Commission.” RespondentIntervenors Br. 29 (quoting Atl. City Elec. Co., 295 F.3d at 10)
(cleaned up). Accordingly, we reject P3’s suggestion that a § 205
filing cannot displace a tariff set by § 206.
123 City of Newark, 763 F.2d at 545.
124 Md. Pub. Serv. Comm’n v. FERC, 632 F.3d 1283, 1286, 394
U.S. App. D.C. 187 (D.C. Cir. 2011).
39a
FERC has approved various approaches to this
conundrum since 2006. We have previously observed
that “FERC is permitted to weigh the danger of price
suppression against the counter-danger of overmitigation, and determine where it wishes to strike
the balance.”125 Here, the 2021 MOPR reflected a shift
away from the regime embraced in the 2019 MOPR,
at least arguably toward the purpose of “address[ing]
the concern that some market participants might have
an incentive to depress market clearing prices by
offering supply at less than a competitive level.”126
Such shifts are permissible. An agency may alter
its “view of what is in the public interest.”127 The fact
that contrary agency precedent exists “gives us no
more power than usual to question the Commission’s
substantive determinations.”128 The agency need not
establish that “the reasons for the new policy are
better than the reasons for the old one; it suffices that
the new policy is permissible under the statute, that
125 NJBPU, 744 F.3d at 109.
126 2011 Order at ¶ 6 (citing 2006 Settlement Order at ¶ 103).
127 Motor Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 57, 103 S. Ct. 2856, 77 L. Ed. 2d
443 (1983) (quoting Greater Bos. Television Corp. v. F.C.C., 444
F.2d 841, 852, 143 U.S. App. D.C. 383 (D.C. Cir. 1970)); see
NJPBU, 744 F.3d at 100.
128 NJPBU, 744 F.3d at 100 (quoting Nat’l Cable & Telecomms.
Ass’n v. F.C.C., 567 F.3d 659, 669, 386 U.S. App. D.C. 131 (D.C.
Cir. 2009)); see also Elec. Consumers Res. Council v. FERC, 407
F.3d 1232, 1239, 366 U.S. App. D.C. 36 (D.C. Cir. 2005) (stating
that a court’s deference to FERC on complex rate market design
“is based on the understanding that the Commission will monitor
its experiment and review it accordingly”).
40a
there are good reasons for it, and that the agency
believes it to be better.”129
We hold that FERC met these criteria in
constructively approving the 2021 MOPR. The eightysix-page Joint Statement acknowledged that the 2021
MOPR reflects a change in policy and identified
reasons for finding the change just and reasonable.130
Specifically, the authoring Commissioners asserted
that a more narrowly targeted MOPR would benefit
“investors and consumers alike” by “more accurately
reflect[ing] the facts and realities on the ground,”131
while “provid[ing] a sufficient opportunity for
resources to recover their costs.”132 The Joint
129 F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129
S. Ct. 1800, 173 L. Ed. 2d 738 (2009).
130 The two commissioners who concluded the 2021 MOPR was
not just and reasonable issued separate statements articulating
their views. While non-identical, the commissioners reached the
same core conclusion: The 2021 MOPR did not meet the just and
reasonable standard because it was anti-competitive. See JA0129
(Christie Statement) (“[T]he PJM MOPR Proposal, now in effect
by operation of law, forfeits any remaining credibility to the claim
that the PJM capacity market is based on actual competition or
is run for the benefit of consumers”); JA0169 (Danly Statement)
(“PJM’s proposal eliminating all mitigation of the pricesuppressive effects of state subsidies is irredeemably
inconsistent with FPA section 205’s requirement that proposed
rates must be just and reasonable.”). As discussed herein, these
policy concerns are addressed in the Joint Statement, along with
the authoring commissioners’ reasons for not adopting them,
reasons which are neither arbitrary nor capricious and are based
on substantial evidence in the record. Because it may not, our
conclusion in this regard does not derive from our own policy
preferences. Rather, it accepts and reflects our role here as
circumscribed by statute and precedent.
131 JA0060 ¶ 44.
132 JA0060 ¶ 45.
41a
Statement noted that its policy might result in lower
prices on the capacity market than under the
expanded 2019 MOPR but concluded that such a
result is “just and reasonable because the market will
reflect supply and demand fundamentals,”133 which
include state policies alongside federal policies,
“[s]iting policies, tax rules, and labor regulations,”
among others.134 According to the Joint Statement,
the 2019 MOPR allowed for an “artificially inflated
price [that] will falsely signal that new entry is needed
or that existing resources should forestall retirement,”
with potentially “detrimental effects on PJM’s energy
and ancillary services markets.”135
The Joint Statement identified specific changed
circumstances to support these conclusions, including
a proliferation of state policies to shape the resource
mix that had occurred over the prior three years,
largely to “address externalities that are neither
accounted for nor compensated in PJM’s wholesale
markets.”136 The Joint Statement noted that “[s]tates
are playing a more active role in shaping the resource
mix—including both entry and exit—than they were
at the time the Commission issued previous orders
addressing the scope and purpose of PJM’s MOPR.”137
Policies passed since 2018 alone could together
“support the entry of more than 44,000 MW of capacity
into PJM’s capacity market over the next” fifteen
years, the Joint Statement noted.138 The authoring
133 JA0067 ¶ 55.
134 JA0068 ¶¶ 56, 57.
135 JA0067 ¶ 54.
136 JA0057 ¶ 36.
137 JA0070 ¶ 59.
138 JA0084 ¶ 80.
42a
Commissioners observed that failing to account for the
contributions of these resources to capacity could cost
consumers a total of $3.4 billion by 2030.139
The Joint Statement also analyzed the results of
the first base residual auction held under the 2019
MOPR. The authoring Commissioners noted that a
generating station benefitting from one state’s zeroemission credit failed to clear, and that “capacity
prices likely increased by over $10/MW-day, or an
additional $90 million in the ComEd zone, as a
result”—harms that “can be expected to increase
significantly as states continue to support resources
that will not benefit from the [2019] MOPR’s”
exclusions.140 The Joint Statement also pointed to
evidence that “several states have considered
abandoning the capacity market altogether rather
than have the resources needed to meet their public
policy goals be subjected to mitigation,” an outcome
that would threaten the purpose and structure of the
market itself.141
Petitioner EPSA contends that the Joint
Statement failed to address the validity of any
potential reliance interests, arguing the “parties
demonstrated that investors have sunk many billions
of dollars into constructing new power plants and
maintaining existing ones, all in reliance on the
139 JA0064 ¶ 50. See Constellation Energy Commodities Grp., Inc.
v. FERC, 457 F.3d 14, 24, 372 U.S. App. D.C. 368 (D.C. Cir. 2006)
(“[I]t is within the scope of the agency’s expertise to make . . . a
prediction about the market it regulates, and a reasonable
prediction deserves our deference notwithstanding that there
might also be another reasonable view.”) (cleaned up).
140 JA0066 ¶ 52.
141 JA0070 ¶ 58.
43a
existence of PJM market mechanisms that ensure a
competitive marketplace, rather than a marketplace
skewed by the participation of un-economic
resources.”142 But an agency not “writing on a blank
slate” is required only to “assess whether there were
reliance interests, determine whether they were
significant, and weigh any such interests against
competing
policy
concerns.”143
Here,
the
Commissioners considered “arguments that the
Expanded [2019] MOPR must be preserved because
investors relied on it” but determined these did not
“tilt the balance” against their articulated policy
concerns, in light of the fact that the 2019 MOPR had
been in place for a relatively short period during which
it was “well-publicized” that “PJM was exploring the
possibility of replacing the Expanded MOPR.”144 As
we concluded in 2014, responding to similar
arguments, “we are not unsympathetic to [investor’s]
arguments that they reasonably relied” on the terms
of the prior MOPR, but nevertheless “find no fault
with FERC’s ability to, and reasons for” constructively
approving the new one.145
P3 challenges various technical provisions of the
2021 MOPR, devised by PJM to accomplish its twin
policy objectives of mitigating offers resulting from the
exercise of buy-side market power and conditioned
state support. From these objections,146 P3 concludes
142 EPSA Br. 30.
143 Dep’t of Homeland Sec. v. Regents of the Univ. of California,
140 S. Ct. 1891, 1915, 207 L. Ed. 2d 353 (2020).
144 JA0071 ¶ 61.
145 NJBPU, 744 F.3d at 100.
146 P3
generally alleges that both prongs are “unjust,
unreasonable, and unduly discriminatory,” without articulating
44a
that because PJM’s proposed mechanism fails to
ensure adequately that “neither buyer nor seller have
market power, ‘the prevailing price in the marketplace
cannot be the final measure of “just and reasonable”
rates mandated by the Act.’”147
We disagree. “The statutory requirement that
rates be ‘just and reasonable’ is obviously incapable of
precise judicial definition,”148 and “FERC’s authority
to determine whether wholesale rates are ‘just and
precisely how. With respect to the Buyer Side Market Power and
Conditioned State Support provisions, including that (1) PJM’s
proposed self-certification process is insufficiently robust, (2)
that its requirement that sellers self-certify their intent is “easily
evaded” and runs counter to prior policy approved by FERC; (3)
the tests required upon review by the PJM and/or Independent
Market Monitor are evadable and rely on concepts rejected, with
FERC approval, in earlier MOPRs; and (4) the test is
insufficiently transparent and affords too much discretion to
PJM and the Independent Market Monitor. See P3 Br. 51-54.
With respect to the provisions related to Conditioned State
Support, P3 argues that these are “riddled with practical
defects,” improperly exempts existing policies, and only mitigates
state actions are already unlawful under the Supreme Court’s
decision in Hughes v. Talen Energy Mktg, LLC, 578 U.S. 150, 136
S. Ct. 1288, 194 L. Ed. 2d 414 (2016). P3 Br. 49-50.
147 P3 Br. 47 (quoting FPC v. Texaco Inc., 417 U.S. 380, 397, 94 S.
Ct. 2315, 41 L. Ed. 2d 141 (1974)); see P3 Br. 47-48 (stating that
the new rules “do virtually nothing to prevent the exercise of
state-sponsored market power. Instead, they establish an opaque
and toothless process of exclusions and exceptions that ‘is even
worse than having no MOPR at all.’”) (quoting Comm’r Christie
Statement, JA0125-26 ¶ 3).
148 Morgan Stanley Cap. Grp. Inc. v. Pub. Util. Dist. No. 1 of
Snohomish Cnty., Wash., 554 U.S. 527, 532, 128 S. Ct. 2733, 171
L. Ed. 2d 607 (2008).
45a
reasonable’ is exclusive.”149 We “properly defer[] to
policy determinations invoking the Commission’s
expertise in evaluating complex market conditions.”150
Although “courts have never given regulators carte
blanche,”151 our review is “limited to ensuring that the
Commission has made a principled and reasoned
decision supported by the evidentiary record.”152 Here,
the Joint Statement responds to both the technical
and policy criticisms levelled by P3, concluding that
the mechanisms proposed by PJM were sufficient to
mitigate anti-competitive offers while “appropriately
balanc[ing] the risk of under-and over-mitigation.”153
We cannot conclude on this record that the
Commission’s constructive acceptance of PJM’s § 205
filing as just and reasonable was arbitrary or
capricious.
Finally, we reject P3’s argument that the 2021
MOPR “unlawfully discriminates against competitive
power suppliers,” as compared to state-sponsored
resources, by “reduc[ing] market prices below just and
reasonable levels.”154 As discussed above in depth, the
Joint Statement set forth an adequate rationale for
permitting PJM to implement a less expansive
149 California ex rel. Lockyer v. FERC, 383 F.3d 1006, 1011 (9th
Cir. 2004) (quoting Miss. Power & Light Co. v. Mississippi, 487
U.S. 354, 371, 108 S. Ct. 2428, 101 L. Ed. 2d 322 (1988)).
150 Tenn. Gas Pipeline Co. v. FERC, 400 F.3d 23, 27, 365 U.S. App.
D.C. 143 (D.C. Cir. 2005).
151 Emera Maine v. FERC, 854 F.3d 9, 22, 428 U.S. App. D.C. 251
(D.C. Cir. 2017) (quoting Elec. Consumers Res. Council v. FERC,
747 F.2d 1511, 1514, 241 U.S. App. D.C. 397 (D.C. Cir. 1984)).
152 Id. (quoting S. Cal. Edison Co. v. FERC, 717 F.3d 177, 181,
405 U.S. App. D.C. 118 (D.C. Cir. 2013)).
153 JA0096 ¶¶ 103, 105-06); see generally JA0100 ¶¶ 85-163.
154 P3 Br. 39.
46a
MOPR.155 Moreover, as FERC argues, the FPA
unambiguously authorizes the agency to take state
policies into account to the extent that such policies
affect its statutorily prescribed area of focus: the
justness and reasonableness of wholesale rates.
V. Conclusion
For the forgoing reasons, we conclude that FERC’s
constructive acceptance of the 2021 MOPR was
neither arbitrary nor capricious and was supported by
substantial evidence in the record. We will accordingly
deny the petitions for review.
155 Judge
Roth also disagrees with the Generators’ contention
that the 2021 MOPR is unlawfully discriminatory because it
allows states to “‘impose [their] own policy choice on neighboring
States’ or otherwise intrude upon the ‘autonomy of [other] States
within their respective spheres.’” P3 Br. 42-43 (quoting BMW of
N. Am. v. Gore, 517 U.S. 559, 571, 116 S. Ct. 1589, 134 L. Ed. 2d
809 (1996)) (quotations omitted); EPSA Br. 34-47. Rather, Judge
Roth would conclude, consistent with New Jersey Board of Public
Utilities v. FERC, “what FERC has actually done here is permit
states to develop whatever capacity resources they wish, and to
use those resources to any extent that they wish, while approving
rules that prevent the state’s choices from adversely affecting
wholesale capacity rates.” NJBPU, 744 F.3d at 98; accord
Hughes, 578 U.S. at 166 (“Nothing in this opinion should be read
to foreclose . . . States from encouraging production of new or
clean generation through measures ‘untethered to a generator’s
wholesale market participation.’”); see Energy & Env’t Legal Inst.
v. Epel, 793 F.3d 1169, 1173 (10th Cir. 2015) (rejecting a dormant
Commerce Clause challenge to a state’s renewable energy
mandate). Judge Roth particularly disapproves of EPSA’s
assertion, citing no relevant authority, that “FERC must
therefore play the role of federal referee for state intrusions into
other States’ jurisdiction,” EPSA Br. 42.
47a
APPENDIX B
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
PJM Interconnection, L.L.C.
Docket No. ER21-2582-000
STATEMENT OF CHAIRMAN GLICK AND
COMMISSIONER CLEMENTS
(October 19, 2021)
1.
We believe that PJM Interconnection, L.L.C.’s
(PJM) filing—the “Focused MOPR1“—is just and
reasonable and not unduly discriminatory or
preferential, consistent with the requirements of
section 205 of the Federal Power Act (FPA).2 It
provides PJM’s capacity market with appropriate
protection against anti-competitive conduct without
stymying competition or interfering with the
authority that Congress reserved for the states when
it enacted the FPA. In so doing, the Focused MOPR
will help PJM’s capacity market achieve its purpose of
ensuring resource adequacy, and, thus, reliability, at
just and reasonable rates.
2.
The Focused MOPR also rights the wrongs
created by the Commission’s most recent orders on the
topic, which imposed on PJM an “Expanded
MOPR.”
Those
orders
were
fundamentally
flawed. They created a Byzantine system of
1 A “MOPR” is a “minimum offer price rule”—essentially a floor
below which a resource is not permitted to offer to sell its service
in wholesale electricity markets. More on this below. See
infra PP 6-7.
2 16 U.S.C. § 824d.
48a
administrative pricing—unprecedented in both scope
and complexity—that would have imposed on
consumers billions of dollars in unjustified costs, all
based on the flawed notion that states’ exercise of
their undisputed authority over generation resources
interfered with what the Commission called “market
integrity.”
3.
The Focused MOPR puts an end to all that. It
restores PJM’s MOPR to its original purpose:
eliminating the incentive that large net buyers of
capacity may have to take uneconomic action to
decrease capacity prices. Equally important, it
abandons the Commission’s deeply misguided
campaign to “nullify” the effects of legitimate state
policies.3 As a result of those changes, PJM’s capacity
market will better reflect the forces actually shaping
supply and demand and do so at a far lower cost to
customers.
4.
Which is not to say that the Focused MOPR is
perfect. Indeed, certain aspects of the Focused MOPR
strike us as unnecessary and are not the choices we
would have made. But our statutory role when
considering a filing under section 205 of the FPA does
not permit the perfect to be the enemy of the good and
those imperfections do not preclude us from
concluding that the Focused MOPR is a just and
reasonable rate.
5.
In the balance of this statement, we lay out our
“views . . . with respect to the change” submitted by
PJM, as section 205(g) of the FPA requires when a
Though we refer to “state” policies, programs, and support
throughout, we also intend for this term to capture “localities.”
3
49a
filing goes into effect by operation of law following a 22 vote of the Commission.4 We begin by first outlining
our shared perspective on the Commission’s use of
MOPRs generally. We then turn to discuss the
principal issues raised in the record of this proceeding
and why we believe PJM has met its burden with
respect to each issue to show that the Focused MOPR
is just and reasonable and not unduly discriminatory
or preferential.
*
*
*
6.
When first introduced in the 2000s, MOPRs
were justified as a means to protect the nascent
capacity markets from the exercise of buyer-side
market power.5 In the context of capacity markets,
16 U.S.C. § 824d(g); PJM Interconnection, L.L.C., Notice,
Docket No. ER21-2582-000 (issued Sept. 29, 2021) (taking effect
by operation of law). This statement reflects and responds to
Commissioner Danly’s arguments as of Tuesday, October
19th. The FPA requires that parties seeking judicial review have
made their arguments to the Commission in rehearing requests,
which are due 30 days after the Commission order in
question. 16 U.S.C. § 825l(a) (FPA section 313(a)). The parties
to this proceeding are entitled to a full and fair opportunity to
consider and respond to the arguments made in the
Commissioners’ section 205(g) statements in any rehearing
request they may file. Given this need, it would not be fair to
further withhold our statement, even though we recognize that
our colleague’s arguments may evolve. For that reason, we are
not providing direct quotes or pin cites to Commissioner Danly’s
anticipated statement, and have attempted to describe what we
understand to be his concerns in more general terms where
possible.
5 See PJM Interconnection, L.L.C., 117 FERC ¶ 61,331, at
PP 103-104 (2006) (2006 RPM Settlement Order) (finding that
the MOPR was “a reasonable method” of addressing the concern
that net buyers might have an incentive to depress market
4
50a
buyer-side market power is used to refer to a net buyer
of capacity that has the ability to take an otherwise
uneconomic action to depress the capacity price,
thereby benefitting its net-short position.6 The
exercise of buyer-side market power in a capacity
market is “possible in part because many utility
companies are both buyers and sellers of capacity in
the capacity auctions,” meaning that net buyers
frequently own or contract with resources that offer to
clearing prices by offering some self-supply at less than a
competitive level); PJM Interconnection, L.L.C., 143 FERC
¶ 61,090, at P 20 (2013) (2013 MOPR Order) (stating that “PJM’s
MOPR is a mechanism that seeks to prevent the exercise of
buyer-side market power in the forward capacity market”), order
on reh’g & compliance, 153 FERC ¶ 61,066 (2015), vacated on
other grounds, NRG Power Mktg., LLC v. FERC, 862 F.3d 108
(D.C. Cir. 2017) (NRG); Consol. Edison Co. of N.Y. v. N.Y. Sys.
Operator, Inc., 150 FERC ¶ 61,139, at P 2 (ConEd v. NYISO)
(stating that “[t]he original purpose of buyer-side mitigation
rules—and minimum offer price rules (MOPR) generally—was to
address buyer-side market power”), order on reh’g & compliance,
152 FERC ¶ 61,110 (2015); ISO New England Inc., 135 FERC
¶ 61,029, at P 166 (2011) (finding that “offer-floor mitigation
would deter the exercise of buyer-side market power and the
resulting suppression of capacity market prices associated with
uneconomic entry”), reh’g denied, 138 FERC ¶ 61,027
(2012), aff’d sub nom. New Eng. Power Generators Ass’n v. FERC,
757 F.3d 283 (D.C. Cir. 2014) (NEPGA).
6 See N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d 74, 85 n.7 (3d Cir.
2014) (NJBPU) (describing the “imprecise usage” of the term
“monopsony” as applied by the parties to the MOPR “to mean netbuyers in the auction who sell into the auction at artificially low
prices in order to depress the clearing price”). “Net buyer” refers
to a seller with a net-short position, meaning it purchases more
capacity from the capacity market than it sells into it. Net
buyers have an incentive to depress the capacity price to benefit
their purchases.
51a
sell capacity.7 Largely because sellers that clear the
capacity market generally receive the same market
clearing price, it is at least theoretically possible that
a net buyer could direct a resource that it owns or with
which it contracts to submit an uneconomic capacity
offer that would so depress the capacity price that the
net buyer would more than recover any loss on the
uneconomic capacity offer through the savings
realized by reducing its total cost of capacity.
7.
A MOPR can address the exercise of buyer-side
market power by setting a minimum offer level that
prevents an uneconomically low capacity offer from a
net buyer from depressing the capacity price below the
competitive level, thereby benefitting a seller’s netshort position. So deployed, a MOPR can effectively
mitigate anti-competitive efforts to depress the
capacity price. But, as discussed further below, an
overly broad MOPR can do more harm than
good. Where a capacity offer is low for legitimate
rather than anti-competitive reasons, artificially
raising that offer hurts competition, potentially
pushing the offeror out of the market and forcing
capacity prices above the competitive level. Moreover,
by producing high capacity prices notwithstanding an
abundance of low-cost supply, an overly broad MOPR
can lead to uneconomic price signals that falsely
suggest that new capacity is needed or that existing
capacity should be retained.
8.
Cognizant of the costs of over-mitigation, the
Commission has traditionally approached MOPRs by
balancing the need to mitigate the exercise of buyerside market power against the harms that can come
7 Id. at 85.
52a
from over-mitigation.8 For example, the Commission
has in many instances limited the reach of the MOPR,
by applying it only to resources that are the most
likely to be used by buyers that have both the
incentive and ability to exercise buyer-side market
power to depress capacity prices,9 or to only those
classes of resources that could be used effectively for
the purpose of depressing capacity prices.10 That said,
in other instances, the Commission sanctioned a
certain degree of MOPR mission creep by extending
the MOPR to address what it called “price
suppression,” even where there was no evidence or
reason to believe that the MOPR was addressing the
8 See, e.g., 2013 MOPR Order, 143 FERC ¶ 61,090 at P 26 (finding
that PJM’s MOPR “appropriately balances the need for
mitigation of buyer-side market power against the risk of overmitigation”); N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys.
Operator, Inc., 154 FERC ¶ 61,088, at PP 18, 31 (2016) (stating
that the Commission’s “focus on incentive and ability
appropriately balances the need to mitigate the exercise of buyerside market power to ensure just and reasonable . . . market
prices with the risk of over-mitigating new entrants”).
9 See ConEd v. NYISO, 150 FERC ¶ 61,139 at P 50 (stating that
the “fundamental objective of NYISO’s buyer-side mitigation
rules . . . is to protect against new entrants that have the ability
and incentive to suppress capacity market prices through the
exercise of buyer-side market power”); N.Y. Pub. Serv. Comm’n
v. N.Y. Indep. Sys. Operator, Inc., 153 FERC ¶ 61,022, at P 10
(2015) (requiring NYISO to exempt from its MOPR “renewable
and self-supply resources that have limited or no incentive and
ability to exercise buyer-side market power”).
10 See, e.g., 2006 RPM Settlement Order, 117 FERC ¶ 61,331 at
PP 34, 103-04 (discussing the buyer-side market power
mitigation provisions imposed as part of the settlement that
created PJM’s capacity market).
53a
exercise of buyer-side market power.11 And while that
precedent has not been a model of consistency, the
Commission consistently attempted to balance the
application of the MOPR against the harms of overmitigation.12
9.
At least until recently. Over the last few years,
the Commission cast aside its traditional balancing
and adopted sweeping MOPR rules in all three
Eastern RTOs/ISOs13 that made no effort to tailor
11 ISO New England Inc., 135 FERC ¶ 61,029 at PP 170-171 (in
determining whether state-supported resources should be
subject to the MOPR, stating that out-of-market support
“suppresses prices regardless of intent”); PJM Interconnection,
L.L.C., 135 FERC ¶ 61,022, at PP 141, 142 (2011 MOPR Order)
(accepting PJM’s proposal to remove the MOPR exemption for
state-mandated resources because “uneconomic entry can
produce unjust and unreasonable wholesale rates by artificially
depressing capacity prices”), order granting reh’g for further
consideration & establishing tech. conf., 135 FERC
¶ 61,228, order on compliance, reh’g, & tech. conf., 137 FERC
¶ 61,145 (2011) (2011 MOPR Rehearing Order), reh’g denied, 138
FERC ¶ 61,194 (2012), aff’d sub nom. NJBPU, 744 F.3d at 74.
12 E.g., 2011 MOPR Order, 135 FERC ¶ 61,022 at PP 66, 70
(accepting PJM’s proposal to change conduct screen because it
reasonably balanced the need to prevent uneconomic entry with
the administrative burden of justifying generator specific
cost); see also ISO New England Inc., 147 FERC ¶ 61,173, at P 83
(2014) (accepting ISO-NE’s proposal to exempt a set amount of
state-supported renewable resources from the MOPR because
there were limited price suppression concerns); 2013 MOPR
Order, 143 FERC ¶ 61,090 at P 26 (stating that the MOPR
appropriately balanced need for buyer-side market power
mitigation measures against the risk of over-mitigation in
adopting competitive entry and self-supply exemptions and
retaining unit specific review).
13 Eastern RTOs/ISOs refers to the three regional transmission
organizations (RTOs) and independent system operators (ISOs)
in the Eastern portion of the United States: PJM; ISO New
54a
mitigation to the risk of buyer-side market
power,14 thereby abandoning its duty to weigh
whether the benefits of mitigation outweigh the
harms.15 As a result, MOPRs have transitioned from
a rarely invoked tool for addressing a particular form
of anti-competitive conduct to a comprehensive regime
that mitigates the capacity offer of most new
resources—regardless
of
market
power—
fundamentally distorting the market that it is
nominally supposed to protect.
England Inc. (ISO-NE); and New York Independent System
Operator, Inc. (NYISO).
14 ISO New England Inc., 162 FERC ¶ 61,205 (2018) (CASPR);
Calpine Corp. v. PJM Interconnection, L.L.C., 169 FERC ¶
61,239 (2019) (December 2019 Order), order on reh’g, 171 FERC
¶ 61,035 (2020) (December 2019 Rehearing Order I), order on
reh’g & clarification, 173 FERC ¶ 61,061 (2020) (December 2019
Rehearing Order II), order setting aside prior order, in part, 174
FERC ¶ 61,109 (2021) (vacating note 134), review pending sub
nom. Ill. Com. Comm’n v. FERC, Case Nos. 20-1645, et al. (7th
Cir. Apr. 20, 2020).
15 Md. People’s Counsel v. FERC, 761 F.2d 768, 779 (D.C. Cir.
1985) (stating that the law “demand[s] an articulation, in
response to serious objections, of the Commission’s reasons for
believing that more good than harm will come of its action”
(emphasis added)); see Edison Mission Energy, Inc. v. FERC, 394
F.3d 964, 969 (D.C. Cir. 2005) (acknowledging that the seller-side
market power mechanism at issue “may well do some good by
protecting consumers and utilities against price increments
caused by the exercise of market power” but may “also wreak
substantial harm-in curtailing price increments attributable to
genuine scarcity”). Although this case involved seller-side
market power—which we explain later in this statement is
appropriately addressed in a distinct manner from buyer-side
market power—the discussion of the Commission’s required
balancing of potential benefits and harms to come from its
actions is no less relevant in the buyer-side market power
context.
55a
10.
PJM is the most extreme example of this
shift. Beginning in 2018, the Commission rewrote
PJM’s MOPR rules in an apparent effort to
“nullify”16 the effects of disfavored state policies17—
explicitly abandoning any link to actual buyer-side
market power and, at best, disregarding the harms
caused by its actions.18 To achieve that end, the
16 The Commission, while targeting resources that receive state
support, specifically declined to do the same with regard to
federal support (such as tax credits), even though they
concededly present exactly the same dynamics that the
Commission claimed to be concerned about when it came to state
policies. The Commission stated that application of the MOPR
to resources supported by federal policies would “disregard or
nullify the effect” of the relevant federal policy under which the
support was being provided. December 2019 Order, 169 FERC
¶ 61,239 at PP 10, 89.
17 The relevant orders focused exclusively on state policies that
might reduce capacity prices, ignoring all state policies that
might instead increase those prices. See, e.g., December 2019
Rehearing Order I, 171 FERC ¶ 61,035 at P 390 (clarifying that
the Regional Greenhouse Gas Initiative is not a State Subsidy
subject to mitigation under the Expanded MOPR); id. (not
applying the Expanded MOPR to carbon pricing programs that
require generators to pay fees to a state); Hollow Rd. Solar LLC,
174 FERC ¶ 61,200, at P 20 (2021) (finding that a Virginia
pollution control statute was not a State Subsidy for purposes of
the Expanded MOPR).
18 As the Commission succinctly stated in response to arguments
that the Expanded MOPR imposed buyer-side market power
mitigation rules in the absence of anti-competitive concerns, “the
[E]xpanded MOPR does not focus on buyer-side market power
mitigation, but rather addresses the impact of State Subsidies on
the market.” December 2019 Rehearing Order I, 171 FERC
¶ 61,035 at P 45; see Edison Mission Energy, 394 F.3d at 969
(describing “the Commission’s contradiction of its prior rulings
acknowledging the potential ill effects of forcing down prices
absent structural market distortions” as “the epitome of agency
capriciousness”).
56a
Commission created a convoluted system of overmitigation that would force resources that have
neither the incentive nor the ability to exercise buyerside market power to participate in PJM’s capacity
market based on the PJM independent market
monitor’s (IMM) assessment of what the resource
“should” cost rather than compete on the most
aggressive terms it was willing to accept. Ironically,
the
Commission
justified
this
system
of
administrative pricing on the basis that it would
promote market competition.19
11.
In reality, the Expanded MOPR imposed upon
PJM undermines competition in the capacity
market. A basic premise of competition is that sellers
should vie to offer the best terms, including price, to
provide a particular product or service. Competition
within
capacity
markets
should
be
no
different. Capacity markets were created to provide
the “missing money” that resources need to provide
capacity in a given delivery year, but are unable to
earn by providing energy and ancillary services
alone.20 In the context of capacity markets, that
19 See, e.g., December 2019 Order, 169 FERC ¶ 61,239 at P 38
(discussing the Commission’s finding on the need to maintain the
“integrity of competition”); id. P 17 n.38 (“This Commission
determined many years ago that the best way to ensure the most
cost-effective mix of resources is selected to serve the system’s
capacity needs was to rely on competition.”); CASPR, 162 FERC
¶ 61,205 at P 24 (asserting that states’ exercise of their authority
over generation facilities “raises a potential conflict with . . .
competitive wholesale electric markets”).
20 See, e.g., James F. Wilson, ”Missing Money” Revisited:
Evolution of PJM’s RPM Capacity Construct 1 (2016),
https://www.publicpower.org/system/files/documents/marketsrpm_missing_money_revisited_wilson.pdf
(discussing
the
57a
means that a competitive market is one where
resources compete with each other to submit capacity
offers that are as low as possible to cover their net
going forward costs, receive a capacity commitment,
and contribute to resource adequacy. To achieve an
efficient capacity market outcome along those lines,
resources’ capacity offers must reflect all relevant
costs minus all relevant revenues, including costs and
revenues that are not derived from Commissionjurisdictional markets.21 True competition along
concept of missing money and the origin of capacity markets);
Roy J. Shanker, Comments, Docket No. RM01-12-000 (filed Jan.
10, 2003) (discussing the idea of missing money).
21 The periodic demand curve resets that occur in the Eastern
RTOs/ISOs illustrate the variety of factors that go into
determining the missing money, or Cost of New Entry net of
energy and ancillary services revenues (Net CONE), of the
reference unit used to establish the demand curve. For example,
the development of CONE in NYISO’s most recent demand curve
reset addressed factors ranging from federal, state, and local
requirements related to environmental considerations, regional
differences in capital and labor costs, as well as differences
resulting from the impacts of the COVID-19 pandemic. See N.Y.
Indep. Sys. Operator, Inc., 175 FERC ¶ 61,012, at PP 63-66, 90,
161-62 (2021) (discussing emissions reduction requirements,
state renewable energy legislation, and labor costs); see
also NYISO, Tariff Filing, Docket No. ER21-502-000, Ex. E, at
41, 68 (filed Nov. 30, 2020) (discussing adjustments to labor costs
based on productivity changes resulting from “weather, union
rules, construction parking and laydown space limitations,”
among other factors, and the impacts of the COVID-19 pandemic
on return on equity calculations). Those factors affect not only
what resource gets built and where, but also how it is operated
and, therefore, what its resulting costs and revenues will
be. Considering all those factors is thus necessary to produce
efficient capacity price signals guiding when and where to site
new capacity resources, notwithstanding the fact that they are
not derived from Commission-jurisdictional markets.
58a
those lines can produce enormous benefits for
consumers by creating accurate capacity price signals
to inform investment decisions and thus facilitating
the entry of relatively efficient resources (and the
retirement of inefficient ones), and spurring the
development and deployment of new technologies and
business models—all while procuring capacity from
the lowest-cost set of resources needed to keep the
lights on. By contrast, if the capacity market ignores
some of a resource’s actual costs and revenues, then
the set of resources selected by the capacity market
may not actually reflect the lowest-cost or most
efficient means of ensuring resource adequacy.22
12.
And that is what the Expanded MOPR did. By
requiring PJM to ignore revenues received by a wide
swath of “state-supported” resources, the Expanded
MOPR divorced the PJM capacity market clearing
prices from the actual net going forward costs of
would-be capacity suppliers, which served only to prop
up
capacity
prices,
protect
incumbent
23
generators, and increase the costs of state
22 See, e.g., Policy Integrity Comments at 8-10 (explaining why
economic efficiency is reached when the external costs and
benefits, like taxes on carbon pollution or subsidies to carbon free
resources, are reflected in market prices).
23 The Commission’s orders extended PJM’s MOPR to existing
resources but made them subject to a different—and generally
more lenient—pricing regime than new resources. December
2019 Order, 169 FERC ¶ 61,239 at P 2 (“[T]he default offer price
floor for applicable new resources will be the [Net CONE] for
their resource class; the default offer price floor for applicable
existing resources will be the Net Avoidable Cost Rate (Net ACR)
for their resource class.” (footnotes omitted)); id. (Glick, Comm’r,
dissenting at PP 32-35) (criticizing the Commission for using
different offer floor formulae for existing and new resources).
59a
policies. Instead of promoting competition, the
Expanded MOPR was really an effort to strip away
any the influence of disfavored24 state policies on
capacity prices, notwithstanding the Commission’s
prior history of allowing the economic effects of
legitimate policies set by external regulators to flow
through organized wholesale markets.25
13.
But as former Commission Chairman Norman
Bay correctly observed, an “idealized vision of markets
free from the influence of public policies . . . does not
exist, and it is impossible to mitigate our way to its
creation.”26 Instead, public policy and electricity
markets are inextricably intertwined.27 Nearly every
aspect of the electricity market is affected by at least
one—and more often many—federal, state, or local
policies.28 Even if the Commission were successful in
ferreting out state efforts to shape the generation mix
through an ever more expansive application of the
24 See infra P 57.
25 See infra P 19.
26 N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 158
FERC ¶ 61,137 (2017) (Bay, Chairman, concurring at 2).
27 As the FPA itself recognizes, “the business of transmitting and
selling electric energy for ultimate distribution to the public is
affected with a public interest.” 16 U.S.C. § 824.
28 See December 2019 Order, 169 FERC ¶ 61,239 (Glick, Comm’r,
dissenting at PP 27-28) (discussing the scope of federal and state
subsidies affecting PJM’s capacity market); Calpine Corp. v.
PJM Interconnection, L.L.C., 163 FERC ¶ 61,236 (2018) (June
2018 Order) (Glick, Comm’r, dissenting at 6-9) (explaining how
“[g]overnment subsidies pervade the energy markets and have
for more than a century”); CASPR, 162 FERC ¶ 61,205 (Glick,
Comm’r, dissenting in part and concurring in part at 3) (“Our
federal, state, and local governments have long played a pivotal
role in shaping all aspects of the energy sector, including
electricity generation.”).
60a
MOPR to resources associated with state policies, the
result would not be a “competitive” capacity market,
even by the Commission’s definition, as it would
remain profoundly influenced by local, state, and
federal policies—the last of which the Commission
completely and unreasonably ignored in its Expanded
MOPR orders.
14.
Nor would the resulting capacity market be
even remotely efficient. As noted, the Expanded
MOPR causes PJM’s capacity market to ignore
resources that are required by state policies, meaning
that they will, in most cases, still be developed and
available to provide capacity. As a result, PJM’s
capacity market will procure redundant capacity that
is not actually needed to ensure resource
adequacy. That is doubly bad for consumers, as they
will be forced to pay for more capacity than is actually
needed, and to do so at a higher price than they
should, because the MOPR will allow a relatively
high-cost resource to set the capacity price for the
entire set of resources procured through PJM’s
capacity market.29
15.
In addition, over-mitigation undermines a
capacity market’s ability to establish price signals
that efficiently guide resource entry and exit. States
will continue to exercise their authority over the
resource mix no matter how hard the Commission
tries to frustrate those efforts, especially given the
ever-growing
threat
posed
by
climate
30
change. Where a MOPR causes a capacity construct
29 See infra PP 51-52.
30 See, e.g., December 2019 Order, 169 FERC
Comm’r, dissenting at P 55).
¶ 61,239 (Glick,
61a
to effectively ignore state policies, it will produce price
signals that do not reflect capacity supply
fundamentals or the factors that are actually
influencing
the
development
of
new
resources. Instead, it will send artificially inflated
capacity price signals that encourage the participation
of resources that are not needed to serve the region’s
capacity needs. It is hard for us to see how a price
signal that encourages redundant investment is a
“competitive” or desirable outcome, much less a just
and reasonable one.
16.
We got to this point largely because of the
Commission’s misguided belief that it must “protect”
capacity markets from the influence of state
policies.31 Not so. Although the cost and inefficiency
of over-mitigation is itself a more-than-sufficient
reason to change course, course correction is also
warranted because the Commission’s recent MOPR
orders undermine the jurisdictional balance that is at
the heart of the FPA.
17.
The FPA is clear. The states, not the
Commission, are responsible for shaping the
See, e.g., December 2019 Order, 169 FERC ¶ 61,239 at P 5
(explaining that the Commission is applying a MOPR to statesupported resources in order to “protect PJM’s capacity market
from the price-suppressive effects of resources receiving out-ofmarket support”); N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys.
Operator, Inc., 170 FERC ¶ 61,119, at P 37 (2020) (NYPSC v.
NYISO) (finding that applying the MOPR to electric storage
resources in NYISO “appropriately protects the capacity market
from the price suppressive effects of resources receiving out-ofmarket” state support), order on reh’g, 173 FERC ¶ 61,060
(2020); CASPR, 162 FERC ¶ 61,205 at P 24 (“It is . . . imperative
that such a market construct include rules that appropriately
manage the impact of out-of-market state support[.]”).
31
62a
generation mix. Although the FPA vests the
Commission with jurisdiction over wholesale sales of
electricity, as well as practices affecting those
wholesale sales,32 Congress expressly precluded the
Commission from regulating “facilities used for the
generation of electric energy.”33 Congress instead
reserved to the states exclusive jurisdiction to
regulate generation facilitates.34
Specifically, the FPA applies to “any rate, charges, or
classification demanded, observed, charged, or collected by any
public utility for any transmission or sale subject to the
jurisdiction of the Commission” and “any rule, regulation,
practice, or contract affecting such rate, charge, or
classification.” 16 U.S.C. § 824e(a); see also id. § 824d(a)
(similar).
33 See id. § 824(b)(1); Hughes v. Talen Energy Mktg., LLC, 136 S.
Ct. 1288, 1292 (2016) (Hughes) (describing the jurisdictional
divide set forth in the FPA); FERC v. Elec. Power Supply Ass’n,
577 U.S. 260, 266 (2016) (EPSA) (explaining that “the [FPA] also
limits FERC’s regulatory reach, and thereby maintains a zone of
exclusive state jurisdiction”); Panhandle E. Pipe Line Co. v. Pub.
Serv. Comm’n of Ind., 332 U.S. 507, 517-18 (1947) (recognizing
that the analogous provisions of the NGA were “drawn with
meticulous regard for the continued exercise of state
power”). Although these cases deal with the question of
preemption, which is of course different from the question of
whether a rate is just and reasonable under the FPA, the
Supreme Court’s discussion of the respective roles of the
Commission and the states remains instructive when it comes to
evaluating how the application of a MOPR squares with the
Commission’s role under the FPA.
34 16 U.S.C. § 824(b)(1); Hughes, 136 S. Ct. at 1292; see also Pac.
Gas & Elec. Co. v. State Energy Res. Conservation & Dev.
Comm’n, 461 U.S. 190, 205 (1983) (recognizing that issues
including the “[n]eed for new power facilities, their economic
feasibility, and rates and services, are areas that have been
characteristically governed by the States”).
32
63a
18.
But while those jurisdictional lines are clearly
drawn, the spheres of jurisdiction themselves are not
“hermetically sealed.”35 One sovereign’s exercise of its
authority will inevitably affect matters subject to the
other sovereign’s exclusive jurisdiction.36 For
example, any state regulation that increases or
decreases the number of generation facilities will,
through the law of supply and demand, inevitably
affect wholesale electricity rates.37 But the existence
of such cross-jurisdictional effects is not a “problem”
35 EPSA, 577 U.S. at 281; see Oneok, Inc. v. Learjet, Inc., 135 S.
Ct. 1591, 1601 (2015) (explaining that the natural gas sector does
not adhere to a “Platonic ideal” of the “clear division between
areas of state and federal authority” that undergirds both the
FPA and the Natural Gas Act).
36 See EPSA, 577 U.S. at 281; Oneok, 135 S. Ct. at 1601; Coal. for
Competitive Elec. v. Zibelman, 906 F.3d 41, 57 (2d Cir. 2018)
(Zibelman) (explaining that the Commission “uses auctions to set
wholesale prices and to promote efficiency with the background
assumption that the FPA establishes a dual regulatory system
between the states and federal government and that the states
engage in public policies that affect the wholesale markets”).
37 Zibelman, 906 F.3d at 57 (explaining how a state’s regulation
of generation facilities can have an “incidental effect” on the
wholesale rate through the basic principles of supply and
demand); id. at 53 (“[I]t would be ‘strange indeed’ to hold that
Congress intended to allow the states to regulate production, but
only if doing so did not affect interstate rates.” (quoting Nw. Cent.
Pipeline Corp. v. State Corp. Comm’n of Kan., 489 U.S. 493, 51213 (1989) (Northwest Central))); Elec. Power Supply Ass’n v. Star,
904 F.3d 518, 524 (7th Cir. 2018) (explaining that the subsidy at
issue in that proceeding “can influence the auction price only
indirectly, by keeping active a generation facility that otherwise
might close . . . . A larger supply of electricity means a lower
market-clearing price, holding demand constant. But because
states retain authority over power generation, a state policy that
affects price only by increasing the quantity of power available
for sale is not preempted by federal law.”).
64a
for purposes of the FPA. Rather, those crossjurisdictional effects are the product of the
“congressionally designed interplay between state and
federal regulation”38 and the natural result of a
system in which regulatory authority over a single
industry is divided between federal and state
government.39 Maintaining that interplay and
permitting each sovereign to carry out its designated
role without direct interference by the other sovereign
is essential to the cooperative federalism regime that
Congress made the foundation of the FPA.
19.
Consistent with this interplay, the Commission
has expressly recognized the valid economic effects of
state policies by, for example, accounting for the
opportunity costs of operating a generation facility
where state emissions limits restrict that facility to
running for only a small number of hours per
year.40 In using the MOPR to block the economic
Hughes, 136 S. Ct. at 1300 (Sotomayor, J., concurring)
(quoting Northwest Central, 489 U.S. at 518); id. (“recogniz[ing]
the importance of protecting the States’ ability to contribute,
within their regulatory domain, to the [FPA]’s goal of ensuring a
sustainable supply of efficient and price-effective energy”).
39 Cf. Star, 904 F.3d at 523 (“For decades the Supreme Court has
attempted to confine both the Commission and the states to their
proper roles, while acknowledging that each use of authorized
power necessarily affects tasks that have been assigned
elsewhere.”).
40 For example, the Commission instructed PJM that its Tariff
must “explicitly provide for the inclusion of opportunity costs,
especially for . . . environmentally-limited resources,” (i.e.,
resources whose operation is limited by state or federal
environmental regulations). PJM Interconnection, L.L.C., 126
FERC ¶ 61,145, at P 42 (2009). Similarly, NYISO’s Tariff,
approved by the Commission, includes within going-forward
costs “the costs . . . necessary to comply with federal or state
38
65a
effects of state policies from flowing through to the
capacity market, the Commission embarked on an
arbitrary and ultimately futile quest to neutralize the
indirect but inevitable effects of state policies,
arrogating to itself the role that Congress reserved for
the states. That is true even where the Commission
claims that its only “policy” is to block the effects of
state policies, not the state policies themselves. After
all, a federal policy of eliminating the effects of state
policies is itself a form of public policy—just not one
that Congress gave the Commission authority to
pursue.
20.
It is past time to abandon the misguided focus
on state policies and take the MOPR back to
basics. Instead of interfering with state policies, the
Commission’s buyer-side market power mitigation
regime should be all about—and only about—actual
buyers with market power. In the event that a
resource is not owned or controlled by a net buyer with
market power, its capacity offer generally should not
be
subject
to
buyer-side
market
power
mitigation.41 An approach along those lines is
necessary to ensure just and reasonable rates by
avoiding the harms of over-mitigation outlined
above. In addition, that result is both more consistent
with the Commission’s core responsibility as a
environmental . . . requirements that must be met in order to
supply Installed Capacity.” NYISO, NYISO Tariffs, NYISO
MST, Attach. H, § 23.2.1 (45.0.0).
41 State polices that exceed the states’ jurisdiction because they
set or aim at wholesale rates would, of course, remain
preempted. See, e.g., Hughes, 136 S. Ct. at 1298.
66a
regulator of actual monopoly/monopsony power42 as
well as the FPA’s federalist foundation and, in
particular, the authority that Congress reserved to the
states when it enacted the FPA. And finally, taking
the MOPR back to the core function of
addressing actual buyer-side market power also
provides a path for the Commission to get out of the
interminable disputes that have plagued the
Commission in recent years and cast a cloud of
uncertainty over the Eastern RTO/ISO capacity
markets—which, after all, is the last thing one should
want for a construct that is supposed to send
investment-guiding price signals.43
21.
“Actual” is an important distinction here. The
Commission has at times come close to justifying
mitigation of resources that receive state support on
the basis that the state itself is exercising buyer-side
market power because it looks out for the interests of
42 Cf. Nat’l Ass’n of Reg. Util. Comm’rs v. FERC, 475 F.3d 1277,
1280 (D.C. Cir. 2007) (noting that “FERC’s authority generally
rests on the public interest in constraining exercises of market
power”); Interstate Nat. Gas Ass’n of Am. v. FERC, 617 F.3d 504,
511 (D.C. Cir. 2010) (“FERC’s decision is consistent with the
NGA’s ‘fundamental purpose . . . to protect natural gas
consumers from the monopoly power of natural gas pipelines.’”
(quoting Nat’l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 833
(D.C. Cir. 2006)); Assoc. Gas Distribs. v. FERC, 824 F.2d 981,
1003 (D.C. Cir. 1987) (stating that the Commission has “broad
duties to assure consumers access to natural gas at prices such
as would prevail in the absence of pipeline market power”).
43 See infra PP 24-31; see also N.Y. Pub. Serv. Comm’n v. N.Y.
Indep. Sys. Operator, Inc., 170 FERC ¶ 61,120, at PP 3-7, 16-20
(2020) (detailing the history of application of NYISO’s MOPR to
certain demand response resources, including the Commission’s
numerous policy changes from 2008 to 2020, and granting
rehearing to once again change course).
67a
all consumers in the state.44 That notion never held
water. States regulate for a variety of reasons, and
treating all state regulation as anti-competitive or an
exercise
of
market
power
fundamentally
misunderstands and distorts the states’ central role in
electric power generation, as recognized explicitly in
the FPA. What is more, states are often concerned
with the interests of sellers within their borders and
yet the Commission has never found, to our
knowledge, that state efforts that benefit particular
sellers should be treated like seller-side market
power. But even if states could be said to exercise
something like “indirect buyer-side market power,”
the Draconian mitigation scheme created by the
Expanded MOPR is a “cure” far worse than the
“disease,” even assuming, for the sake of argument,
that it was correctly diagnosed.
22.
For all these reasons, we believe that PJM had
no choice but to return the MOPR’s focus to the core
problem of actual buyer-side market power, free from
the misguided notion that state resource decision
44 See, e.g., NYPSC v. NYISO, 170 FERC ¶ 61,119 at PP 37, 39
(rejecting complaint alleging that energy storage resources
developed to meet New York’s energy and environmental goals
should not be subject the NYISO’s MOPR, which requires the
incentive and ability to exercise buyer-side market power); see
also N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc.,
158 FERC ¶ 61,137 (Bay, Chairman, concurring at 3) (“The
MOPR is not applied to the state, which may not actually be a
buyer and which is acting on behalf of its citizenry, but to the
resource, which is offering to sell capacity to the market and
which may be a commercial entity. The theory, in other words,
assumes such a congruence of interests between the state and
the resource that the resource is mitigated for the conduct of the
state.”).
68a
making is inherently anti-competitive. PJM’s
Focused MOPR does just that. In the balance of this
statement, we address the principal issues raised by
the parties in this proceeding and explain why, in our
view, the Focused MOPR is just and reasonable and
not unduly discriminatory or preferential and we
therefore would have voted to approve it.
I. Background
23.
Before addressing PJM’s proposal, it is helpful
to briefly summarize the specific history of PJM’s
MOPR, to illustrate how significantly the
Commission’s most recent orders departed from
earlier precedent and how the Focused MOPR is, in
many respects, a return to the original premise of the
MOPR.
24.
PJM’s current capacity market regime, the
Reliability Pricing Model (RPM), was established in
2006.45 Under the RPM, load-serving entities (LSEs)
can meet their resource adequacy needs by
participating in the centralized capacity auction
(called the Base Residual Auction, or BRA), through
self-supply, or by meeting their own capacity needs
though the Fixed Resource Requirement (FRR)
alternative.46 Since its inception, PJM’s capacity
45 See PJM Interconnection, L.L.C., 115 FERC ¶ 61,079, at P 29
(2006) (finding PJM’s existing capacity market unjust and
unreasonable because it failed to ensure reliable service ); 2006
RPM Settlement Order, 117 FERC ¶ 61,331 at P 1 (accepting
settlement proposal establishing PJM’s capacity market rules).
46 The FRR Alternative is available to an LSE (i.e., investorowned utility, electric cooperative, or public power entity), at its
election, to satisfy its obligation to provide unforced capacity
outside of PJM’s capacity market auction. PJM, Intra-PJM
Tariffs, Reliability Assurance Agreement, §§ 7.4 (0.2.0) (FRR
69a
market has included a MOPR to protect against the
exercise of buyer-side market power. The rule was
originally justified based on the possibility that a net
buyer47 may have the incentive to depress capacity
prices below the competitive level, such as by offering
capacity that it owns or otherwise controls at below
competitive levels to benefit its purchases in the same
capacity market auction.48 With some exceptions,
offers for the sale of capacity by net buyers that could
lower capacity prices through self-supply were
mitigated to an estimate of a competitive offer, based
on the resource’s net cost of entry. The initial MOPR
applied only to new natural gas resources, as they
were relatively cheap, dispatchable, and quick to
build, making them the most efficient resources to be
used to attempt to exercise buyer-side market
Alternative), 8.1 (1.0.0) (Nature of Charges). The FRR
Alternative must be selected for a minimum term of five
consecutive years. Id. at Sched. 8.1.C.1 (4.0.0).
47 As discussed above, net buyer refers to a seller that purchases
more capacity from the capacity market than it sells into it. See
supra P 3 & n.6.
48 See 2006 RPM Settlement Order, 117 FERC ¶ 61,331 at
PP 103-04. For example, a buyer could contract with a seller
outside of PJM’s capacity market and direct the seller to submit
a capacity offer below the supplier’s net going-forward costs (e.g.,
at zero) in PJM’s capacity market auction to lower the capacity
market clearing price. Such a strategy could lower the buyer’s
total capacity procurement costs if the savings the buyer achieves
from the lower capacity market clearing price paid for the total
quantity of capacity the buyer purchased in PJM’s capacity
market auction exceeds the losses (excess costs in this example)
the buyer incurred from the out-of-market contract with the
seller. See, e.g., 2013 MOPR Order, 143 FERC ¶ 61,090 at P 20
& n.16.
70a
power.49 Nuclear, coal, and hydroelectric facilities
were exempt from the MOPR as they were not
considered to be the likely choice of a net buyer
seeking to reduce capacity prices. Additionally, the
initial MOPR included a state mandate exemption,
which exempted any new entry developed for
reliability projects built under state mandate on the
grounds that such an exemption “enable[d] states to
meet their responsibilities to ensure local
reliability.”50
25.
In 2011, PJM proposed several changes to the
MOPR. As relevant here, PJM proposed to eliminate
the state mandate exemption in light of certain state
programs, for example in New Jersey and Maryland,
that were designed to support the entry of new
generation into PJM’s capacity market. PJM
contended that it was not “well-suited” to either pass
on the adequacy of state administrative processes or
to determine whether an offer was intended to address
a projected capacity shortfall, which the existing rule
required.51 The Commission accepted PJM’s proposal
to eliminate the state exemption, but in doing so
acknowledged the rights of states to pursue legitimate
49 See, e.g., 2011 MOPR Order, 135 FERC ¶ 61,022 at PP 153, 155
(agreeing with PJM that new natural gas resources have the
shortest development time and are thus the more efficient
resources to suppress capacity prices).
50 2006 RPM Settlement Order, 117 FERC ¶ 61,331 at P 104.
51 2011 MOPR Order, 135 FERC ¶ 61,022 at PP 125-26; see
also NJBPU, 744 F.3d at 88 (explaining that Maryland and New
Jersey intended to offer the resources developed pursuant to
state initiatives into PJM’s capacity market at prices below the
resources’ actual costs to ensure that they would clear).
71a
state interests, including ensuring resource adequacy
and favoring particular generation resources.52
26.
The MOPR underwent further change in 2013
when the Commission conditionally accepted PJM’s
proposal to categorically exempt competitive entry
and self-supply LSEs, within net-short and net-long
thresholds,53 subject to PJM retaining the unitspecific review process.54 The Commission reasoned
that PJM’s proposed competitive entry and self-supply
exemptions were justified by the lack of incentive on
the part of competitive entrants and self-supply LSEs,
within net-short and net-long thresholds, to exercise
buyer-side market power, but required PJM to retain
the unit-specific review process to ensure that
resources ineligible for an exemption would have the
opportunity to demonstrate that their costs were
2011 MOPR Order, 135 FERC ¶ 61,022 at PP 139-43; see
also id. P 143, quoted with approval in NJBPU, 744 F.3d at
100, cited in Hughes, 136 S. Ct. at 1296; 2011 MOPR Rehearing
Order, 137 FERC ¶ 61,145 at P 3 (“Our intent is not to pass
judgment on state and local policies and objectives with regard
to the development of new capacity resources, or unreasonably
interfere with those objectives.”). PJM also proposed to add wind
and solar facilities to the list of resources permitted to make zeropriced offers. The Commission accepted PJM’s proposal, finding
these resources “a poor choice if a developer’s primary purpose is
to suppress capacity market prices.” 2011 MOPR Order, 135
FERC ¶ 61,022 at P 153.
53 “Being in a net-short position refers to the circumstance where
an LSE owns and/or contracts for an amount of capacity . . . that
is less than its capacity needs. Being in a [n]et-long position
refers to the circumstance where an LSE owns or contracts for
generation in excess of its capacity needs . . . .” 2013 MOPR
Order, 143 FERC ¶ 61,090 at P 25 n.19.
54 Id. PP 19, 24-26, 53. The Commission had accepted the unitspecific review process in 2011.
52
72a
lower than the default offer floor, and be allowed to
bid at that lower cost floor.55 In both 2011 and 2013,
the Commission sought to balance (1) the need to
address a particular form of what it viewed to be anticompetitive conduct with (2) a recognition of the
potential harms caused by over-mitigation.56
27.
That all changed beginning in 2018.57 After
Calpine Corporation filed a complaint arguing that so-
55 Id. PP 25-26, 107-108, 141.
In 2017, the U.S. Court of Appeals
for the District of Columbia Circuit found that the Commission
exceeded its FPA section 205 authority in modifying PJM’s
proposal and vacated and remanded the relevant Commission
orders. NRG, 862 F.3d at 117. On remand, the Commission
rejected PJM’s proposal to categorically exempt competitive
entry and self-supply without a unit-specific review
process. PJM Interconnection, L.L.C., 161 FERC ¶ 61,252, at
P 41 (2017).
56 2013 MOPR Order, 143 FERC ¶ 61,090 at P 26 (stating that
“[b]y targeting those resources most likely to raise price
suppression concerns (i.e., gas-fired resources), adopting
exemptions for competitive entry and self-supply, and retaining
the unit-specific review process for resources not eligible for the
exemptions,” the MOPR “appropriately balance[d] the need for
mitigation of buyer-side market power against the risk of overmitigation”); 2011 MOPR Order, 135 FERC ¶ 61,022 at P 70
(balancing protecting against “unreasonable exercises of market
power and recognizing the imperfection of administrative
estimates and the burden of the cost justification process” in
accepting PJM’s proposed percentage factor for its MOPR
conduct screen); 2011 MOPR Rehearing Order, 137 FERC
¶ 61,145 at P 209 (accepting unit-specific review as sufficiently
accommodating self-supply on the basis that such a process
“appropriately balances the need to protect against uneconomic
entry while also mitigating parties’ concerns about having to pay
twice for capacity as a result of failing to clear”).
57 See June 2018 Order, 163 FERC ¶ 61,236; June 2018
Rehearing Order, 171 FERC ¶ 61,034; December 2019 Order, 169
FERC ¶ 61,239; December 2019 Rehearing Order I, 171 FERC
73a
called “out-of-market” state support distorted capacity
prices, PJM made its own filing to expand the
MOPR. The Commission rejected PJM’s proposal as
unjust and unreasonable, but found PJM’s thenexisting Tariff unjust and unreasonable because it
failed to “protect the integrity of competition in the
wholesale capacity market against unreasonable price
distortions and cost shifts caused by out-of-market
support.”58 The Commission explained that these
“out-of-market payments by certain PJM states [had]
reached a level sufficient to significantly impact the
capacity market clearing prices and the integrity of
the resulting price signals on which investors and
consumers rely to guide the orderly entry and exit of
capacity resources.”59 The Commission therefore
instituted a sua sponte FPA section 206 proceeding to
establish the replacement rate.
28.
After a paper hearing, the Commission set forth
a replacement rate that expanded the MOPR to apply
to both new and existing resources that receive “State
Subsidies.” The Commission stated that “[t]he
replacement rate directed in this order will enable
PJM’s capacity market to send price signals on which
investors and consumers can rely to guide the orderly
entry and exit of economically efficient capacity
¶ 61,035; December 2019 Rehearing Order II, 173 FERC
¶ 61,061 (orders adopting the Expanded MOPR applicable to new
and existing resources with few exemptions).
58 June 2018 Order, 163 FERC ¶ 61,236 at P 150. We note that
the “out-of-market” in this context refers to revenues earned
outside organized wholesale electricity markets; such revenue
may include compensation earned via sales of non-FERC
jurisdictional products in other (non-FERC jurisdictional)
markets.
59 Id. P 156.
74a
resources.”60 In justifying that decision, the
Commission cast aside any remaining notion that the
MOPR was primarily an effort to address buyer-side
market power, rather than one aimed at propping up
wholesale market prices, explaining that “the
expanded MOPR does not focus on buyer-side market
power mitigation, but rather addresses the impact of
State Subsidies on the market.”61
29.
Fast forward to 2021. Even before PJM ran its
first capacity market auction with the Expanded
MOPR in place, commenters overwhelmingly
expressed serious concerns. The discussion at the
Commission’s
March
23,
2021
technical
62
conference on the role of capacity markets in the
Eastern RTOs/ISOs, as well as the majority of
comments filed thereafter, argued that the Expanded
MOPR was flawed. Several commenters generally
argued that the Expanded MOPR will send inefficient
price signals about the need for, and cost of, new
capacity and result in other inefficient market
outcomes.63
30.
PJM opened the 2022/2023 BRA on May 19,
2021, with the Expanded MOPR in place.
60 December 2019 Order, 169 FERC ¶ 61,239 at P 41.
61 December 2019 Rehearing Order I, 171 FERC ¶ 61,035 at P 45.
62 See Modernizing Electricity Market Design, Docket No. AD21-
10-000, Notice of Technical Conference on Resource Adequacy in
the Evolving Electricity Sector (Feb. 18, 2021).
63 See, e.g., PJM, Comments, Docket No. AD21-10-000, at 2 (filed
Apr. 26, 2021); Public Interest Organizations, Comments, Docket
No. AD21-10-000, at 2, 10 (filed Apr. 26, 2021); Public Interest
Organizations, Reply Comments, Docket No. AD21-10-000, at 2
(filed May 10, 2021).
75a
31.
On July 30, 2021, PJM submitted its Focused
MOPR proposal, describing the filing as an effort to go
back to basics by deploying the MOPR principally as a
means of mitigating buyer-side market power rather
than a scheme for blocking the effects of state policies.
II. PJM’s filing is just and reasonable and not
unduly discriminatory or preferential
32.
PJM filed its Focused MOPR proposal pursuant
to section 205 of the FPA, which places on the filing
utility—in this case PJM—the obligation to show that
its proposal is just and reasonable and not unduly
discriminatory or preferential.64 Under section 205, a
utility does not need to show that the existing tariff is
unjust and unreasonable,65 nor must it demonstrate
that its proposal is the best option.66 Rather, it must
show only that its proposed tariff is just and
reasonable.67 A utility may file to update its tariff at
any time by proposing what it believes to be a just and
reasonable rate even if it differs from past filings, as
64 16 U.S.C. § 824d; see New England Power Generators Ass’n,
Inc. v. FERC, 881 F.3d 202, 205 (D.C. Cir. 2018).
65 Emera Me. v. FERC, 854 F.3d 9, 21 (D.C. Cir. 2017) (citing Ala.
Power Co. v. FERC, 993 F.2d 1557, 1571 (D.C. Cir. 1993)).
66 PJM Interconnection, L.L.C., 170 FERC ¶ 61,243, at P 57
(2020) (citing Petal Gas Storage, L.L.C. v. FERC, 496 F.3d 695,
703 (D.C. Cir. 2007); City of Bethany v. FERC, 727 F.2d 1131,
1136 (D.C. Cir. 1984); Cal. Indep. Sys. Operator Corp., 128 FERC
¶ 61,282, at P 31 (2009)).
67 See City of Winnfield v. FERC, 744 F.2d 871, 874-75 (D.C. Cir.
1984). What is more, section 205 “is intended for the benefit of
the utility,” id. at 875, and the Commission plays “an essentially
passive and reactive role,” Atl. City Elec. Co. v. FERC, 295 F.3d
1, 10 (D.C. Cir. 2002) (internal quotations omitted) (quoting City
of Winnfield, 744 F.2d at 876).
76a
“[a] rate order is not res judicata. Every rate order
made may be superseded by another.”68
33.
For the reasons explained below, we believe
that PJM has met its burden to show that the Focused
MOPR is just and reasonable and not unduly
discriminatory or preferential. By returning the focus
of PJM’s MOPR to the problem of buyer-side market
power, ending the prior efforts to hermetically seal
PJM’s capacity market from the effects of state
policies, the Focused MOPR addresses the core
problems of over-mitigation, outlined above. In
addition, the specific choices that PJM made to
implement that course correction via its Focused
MOPR proposal amount to a just and reasonable and
not unduly discriminatory approach to these issues.
34.
That is not to say that the Focused MOPR is the
only just and reasonable mechanism for protecting
PJM’s capacity market against anti-competitive
conduct (in the form of the actual exercise of buyerside market power) without unreasonably interfering
with states’ exercise of their legitimate authority and
other legitimate commercial activity to the detriment
of consumers. To the contrary, as explained below, we
believe that certain elements of PJM’s filing,
particularly the certification requirement and the
application of the MOPR to resources receiving
Conditioned State Support, are not necessary
elements of a just and reasonable rate. Nevertheless,
those elements of PJM’s filing are not harmful and,
thus, do not preclude us from finding that the Focused
68 Tagg Bros. & Moorhead v. United States, 280 U.S. 420, 445
(1930).
77a
MOPR is just and reasonable and not unduly
discriminatory or preferential.
35.
In the balance of this statement, we review the
principal issues raised in the record and explain the
basis for our findings. In particular, we address the
following: PJM’s proposal to permit revenues earned
pursuant to state policies to be included in capacity
offers, which represents a change in policy from the
Commission’s recent PJM MOPR orders; the
application of the MOPR to capacity offers based on
the Exercise of Buyer-Side Market Power; the
application of the MOPR to resources receiving or
expecting to receive Conditioned State Support; and
exemptions from the application of the MOPR for
certain resources.
A. Inclusion of revenues earned under state
policies in capacity offers
36.
The principal dispute in this proceeding
concerns PJM’s proposal to allow capacity market
sellers to reflect all state support in their offers, except
for Conditioned State Support, which is discussed
further below. In supporting this change from the
Expanded MOPR, PJM noted that in the three years
since its 2018 MOPR filing, state policy support has
only been expanded and extended, and there is “scant
prospect” that states will discontinue those
programs.69 PJM explained that state policies are
69 Transmittal at 7 (citing Virginia Clean Economy Act, HB 1526,
2020 Sess. (Va. 2020); An Act to Amend Title 26 of the Delaware
Code Relating to Renewable Energy Standards, S.B. 33, 151st
Gen. Assembly (Del. 2021); Clean Energy DC Omnibus
Amendment Act of 2018, D.C. Act 22-583 (D.C. 2019); Maryland
Clean Energy Jobs Act of 2019, S.B. 516, 2019 Sess. (Md. 2019)).
78a
often designed to address externalities that are
neither accounted for nor compensated in PJM’s
wholesale markets.70 PJM also argued that the
Expanded MOPR has the potential to prevent statesupported resources from clearing the capacity
market, which would cause the market to effectively
ignore that capacity and send price signals that
incremental capacity is needed, when in fact it is
not.71 In addition to distorting capacity price signals,
PJM stated that this dynamic would result in
consumers overpaying for capacity because it would
lead to the procurement of more capacity than is
actually needed. PJM also argued that by excluding
resources that participate in the energy and ancillary
services markets from the capacity market, the
Expanded MOPR inappropriately puts downward
pressure on energy market prices, which are the
largest source of revenue.72 PJM asserted that the
Expanded MOPR amplifies the “missing money”
problem the capacity market was designed to solve
because capacity market clearing prices will no longer
reflect the cost of supplying energy during a
shortage.73
37.
PJM argued that although state policies
favoring certain generation resources may reduce
capacity prices, that does not amount to an
inappropriate secondary impact of one state’s policies
on other states. Rather, PJM contended, the
70 Id. at 8 (citing PJM, Filing, Attach. E, Affidavit of Dr. Walter
F. Graf (Graf Aff.) ¶ 17).
71 Id. at 9.
72 Id. at 15 (citing PJM, Filing, Attach. C, Affidavit of Peter
Cramton (Crampton Aff.) ¶¶ 25, 37).
73 Id. at 15-16 (citing Crampton Aff. ¶ 11).
79a
reduction in prices is a natural consequence of PJM’s
capacity market appropriately reflecting state policies
and customer preferences for certain types of
resources.74
1. Responsive pleadings
38.
Many commenters, including generators, LSEs,
consumer counsels, state regulators, and nongovernmental organizations, supported PJM’s
proposal.75 In general, these commenters argued that
including state support (with the exception of
Conditioned State Support) in price offers will result
in just and reasonable rates, and that the proposal
represents a more reasonable accommodation of the
conflicting policy objectives that were earlier
addressed with the Expanded MOPR.76
39.
Protesters broadly argued that PJM’s Focused
MOPR is unjust and unreasonable because it fails to
mitigate
so-called
“out-of-market”
state
77
support.
They claimed that state programs and
policies can be used to exercise buyer-side market
power, and that the Commission and appellate
precedent makes clear that the Commission cannot
74 Id. at 10 (citing Graf Aff. ¶ 17 n.3).
75 See Exelon and PSEG Comments at 5-7; DCPSC Comments at
2-3; CET Comments at 1; JCA Comments at 2; PIOs Comments
at 1; Maryland PSC Comments at 1-2.
76 See Exelon and PSEG Comments at 5-6; AMP Comments at 7;
CET Comments at 1-2; JCA Comments at 2; PIOs Comments at
5-7; Pine Gate Comments at 2-3; AEE Comments at 12-14; NEI
Comments at 4-5; NJBPU Comments at 3; Policy Integrity
Comments at 12.
77 Appendix 1 identifies entities that submitted comments,
protests, and/or answers and lists the abbreviated names for
entities.
80a
ignore the exercise of buyer-side market power by
states.78 Protesters also contended that PJM’s
proposal is so narrow that it will fail to address the
artificial price suppression caused by “out-of-market”
subsidies and other market behavior that unduly
discriminate against competitive, non-subsidized
capacity resources.79 These protesters argued that
the Commission has consistently acted to ensure that
the MOPR mitigates price-suppressive effects80 and
has explained that “all uneconomic entry has the
effect of depressing prices below the competitive level
and that this is the key element that mitigation of
uneconomic entry should address.”81
40.
Protesters continued by arguing that
acceptance of PJM’s proposal would be irreconcilable
with prior Commission orders on PJM’s MOPR, in
which the Commission found that the PJM Tariff was
unjust and unreasonable because the then-effective
MOPR failed to address the fact that “[state] subsidies
allow resources to suppress capacity market clearing
prices.”82 EPSA argued that absent a relevant change
in circumstances, the Commission cannot accept as
just and reasonable a section 205 filing that would put
78 See P3 Protest at 35; Vistra Protest at 7-9; Cogentrix Protest
at 7; NGSA Protest at 7-8; EPSA Protest at 42-43.
79 P3 Protest at 36.
80 See id. at 35; EPSA Protest at 31; NGSA Protest at 10; CalpineLS Power Protest at 15; CCE and SFE Protest at 3; Cogentrix
Protest at 13-14; NRG Protest at 8; IMM Protest at 4-5.
81 EPSA Protest at 32-34 (citing N.Y. Indep. Sys. Operator, Inc,
124 FERC ¶ 61,301, at P 29 (2008)); Calpine-LS Power Protest at
17.
82 EPSA Protest at 51 (quoting June 2018 Order, 163 FERC
¶ 61,236 at P 149); see also Cogentrix Protest at 15, 23; P3
Protest at 46-52; NRG Protest at 7, 9-10.
81a
in place a MOPR narrower than that in effect when it
made those section 206 findings.83 EPSA contended
that courts have rejected claims that the application
of a MOPR would prevent a state from using the
resources it has chosen to promote, and that the
Commission has acted within its jurisdiction when it
approved rules to prevent a state’s choice from
adversely affecting wholesale capacity rates.84
41.
Protesters also argued that PJM’s Focused
MOPR fails to balance consumer and investor
interests, and does not ensure that suppliers are
provided the opportunity to recover their
costs.85 Some parties also claimed that PJM’s
proposal, if adopted, would not protect the interests of
existing investors who made investment decisions in
reliance on the Expanded MOPR.86 Protesters argued
that a broadly applicable MOPR is necessary to
protect both states that have chosen not to subsidize
any
resources
and
unsubsidized
resources
themselves.87
42.
Protesters also attempted to dispute PJM’s
arguments in defense of its proposal. EPSA and NRG
challenged PJM’s contention that a narrower MOPR
83 EPSA Protest at 51.
Id. at 27-28 (quoting NJBPU, 744 F.3d at 97, citing Conn.
Dep’t Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir. 2009)
(Connecticut DPUC)).
85 Id. at 54-55; Calpine-LS Power Protest at 21-22.
86 CCE and SFE Protest at 3; see also Calpine-LS Power Protest
at 2; Cogentrix Protest at 16-17; P3 Protest at 54-60; NGSA
Protest at 9; EPSA Protest at 64-66; NRG Protest at 8-9.
87 See P3 Protest at 50; EPSA Protest at 17, 55-56; OCC
Comments at 4, 7; Calpine-LS Power Protest at 19-20; CCE and
SFE Protest at 3.
84
82a
is necessary to prevent customers from paying twice
for capacity. EPSA argued that consumers can only
even arguably be said to “pay twice” for capacity if the
subsidy involves a payment for capacity. EPSA
argued that if payments are for attributes separate
and distinct from capacity, then consumers are not
paying twice for anything.88 EPSA asserted that even
if customers are paying twice, the onus is on the
subsidizing state to address double payment
concerns.89 Cogentrix, NGSA, and P3 contended that
the results of the most recent BRA show that there is
no material impact from the application of the
Expanded MOPR on state-supported resources
because 93% of the capacity offers were not subject to
the Expanded MOPR, and 82% of the offers subject to
the Expanded MOPR cleared.90 Calpine and LS
Power took issue with PJM’s contention that the
Expanded MOPR puts downward pressure on energy
prices because drops (or increases) in energy prices
would be reflected in the Variable Resource
Requirement (VRR) demand curve, whereas there is
no guarantee that price suppression in the capacity
market would be reflected in higher energy rates, and
therefore, they claimed that PJM’s proposal will
aggravate the missing money problem.91
2. Analysis of PJM’s Proposal
43.
PJM’s proposal to allow capacity market sellers
to reflect all state support in their offers, except for the
88 EPSA Protest at 61-62.
89 Id. at 63.
90 See Cogentrix Protest at 11; NGSA Protest at 4; P3 Protest at
41.
91 Calpine-LS Power Protest at 24.
83a
limited instances of Conditioned State Support (as
discussed further below), is just and reasonable and
not unduly discriminatory or preferential. At bottom,
the Focused MOPR is an attempt to return the MOPR
to its original purpose by focusing on actual buyer-side
market power. Unsurprisingly, under the Focused
MOPR, resources will generally be able to reflect the
effects of state policies in their capacity offers, which
will allow resources to compete based on their actual
net going forward costs.
44.
That dynamic has several significant
benefits. For one, the Focused MOPR will allow
PJM’s capacity market to provide accurate price
signals to investors that reflect actual supply and
demand fundamentals by allowing capacity market
sellers to include state support in their
offers. Investors and consumers alike will benefit
from a market construct that more accurately reflects
the facts and realities on the ground, including the
existence and resource adequacy contributions of
state-supported resources that will be developed to
meet state policies, with or without a broadly
applicable MOPR.
45.
For another, under the Focused MOPR, PJM’s
capacity market will provide a sufficient opportunity
for resources to recover their costs. That is because
with the Focused MOPR, PJM’s capacity market
clearing price will generally equal the capacity offer of
the marginal resource (or resources), and that
marginal capacity offer will include the resource’s net
going forward costs and needed return on investment
to supply capacity in the given delivery year (whether
for a new or existing resource). As such, PJM’s
capacity market clearing price will cover the costs the
84a
marginal resource incurs to supply capacity and, by
definition, the costs of all of the inframarginal
capacity resources that clear the auction (i.e., the rate
will be non-confiscatory). While it is true that, under
the Focused MOPR, resources will be allowed to
reflect a more complete version of their net costs in
their offers and, as such, a different mix of resources
may clear the market, that fact does not render the
Focused MOPR unjust and unreasonable. After all, as
the Commission has explained, “suppliers in
competitive wholesale electricity markets are not
guaranteed full cost recovery, but only the opportunity
to recover their costs.”92
46.
But perhaps most important is the fact that the
Focused MOPR will avoid the significant drawbacks
of the Expanded MOPR. Before discussing those
specific harms, we pause to recognize that, as recently
as last year,93 the Commission supported the
Expanded MOPR, notwithstanding (and, in some
cases, because of) those harms. Allowing the Focused
MOPR to go into effect is a change from that prior
92 See CXA La Paloma v. Cal. Indep. Sys. Operator Corp., 165
FERC ¶ 61,148, at P 71 (2018) (citing Bridgeport Energy, LLC,
113 FERC ¶ 61,311, at P 29 (2005)); see also ISO New England
Inc., 135 FERC ¶ 61,029 at PP 251-254 (rejecting arguments that
participants in the ISO-NE capacity market were entitled to earn
a desired rate); ISO New England Inc., 135 FERC ¶ 61,029 at
P 254 (stating that “as in all markets, regardless of what
investment-backed expectations a resource may have had at the
time that it chose to enter the ISO-NE markets, each market
entrant was aware of the possibility that at some times, it might
earn substantially more than a traditional cost-based-rate, but
that at other times, it might earn less than its costs”).
93 See December 2019 Rehearing Order I, 171 FERC ¶ 61,035;
December 2019 Rehearing Order II, 173 FERC ¶ 61,061.
85a
policy. Nevertheless, the FPA and the Administrative
Procedure Act (APA) permit an administrative agency
to change course when faced with a record sufficient
to support its course correction.94 In our view, the
prior Commission orders on PJM’s MOPR were
wrongly decided.95 But whether or not those prior
orders were wrong, a change in policy is wellsupported by the record before us, which
demonstrates the substantial harms that the
Expanded MOPR would cause, that the changing role
of the capacity market undercuts the rationale for a
broad MOPR, and that PJM’s Focused MOPR is
consistent with the FPA and superior to the Expanded
MOPR.96 In light of these conclusions, it is not only
appropriate but past time to revise the Commission’s
prior policy.
47.
On that point, a majority of Commissioners
agree. Like Commissioner Christie, we believe “that
the current PJM MOPR structure needs to be replaced
or significantly modified” and that the Expanded
To do so, an agency must simply show its new policy “is
permissible under the statute, that there are good reasons for it,
and that the agency believes it to be better.” FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009) (emphasis
omitted); see also NJBPU, 744 F.3d at 102 (upholding the
Commission’s decision to change course and eliminate a MOPR
exception for state-mandated resources because the Commission
“adequately advanced a rationale for its about-face”).
95 See supra PP 10-22.
96 See Fox Television, 556 U.S. at 515 (emphasis omitted); see
also Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 42 (1983) (“[W]e fully recognize that
regulatory agencies do not establish rules of conduct to last
forever.”) (internal quotations omitted).
94
86a
MOPR is “simply unsustainable,”97 as it fails to
adequately account for capacity provided by state
supported resources and results in additional costs to
consumers.98 Accordingly, while we disagree about
whether PJM’s proposed replacement rate satisfies
the statutory standard, we agree that a change of
course is warranted and that a replacement rate of
some sort is necessary.99 Equally important, the
discussion of the need for that change in either this
statement or Commissioner Christie’s would be more
than sufficient to support a change of course under
established APA precedent.100
48.
For that reason, Commissioner Danly is wrong
to suggest that the Focused MOPR is inconsistent
with the APA. FPA section 205(g) indicates that the
Commission’s failure to act is an order for the
purposes of FPA section 313(a) and (b) and, as the
97 Comm’r Christie Statement at P 2.
Comm’r Christie Statement at PP 6-7 (stating that his
envisioned replacement rate would “ensure that each state could
fund its preferred policy resources and eliminate any potential
for its consumers ‘paying twice’”).
99 It is also important not to overstate the extent of our
disagreement. Removing load and reserve requirements
associated with the capacity of the designated public-policy
resources, as Commissioner Christie proposes, would result in a
clearing price similar to that which would result in retaining
such resources and load, as PJM proposed in its Focused
MOPR. This is because under both mechanisms, the same set of
resources would likely be procured to serve the same total
quantity of load. To be sure, the mechanics would look different,
and there might be incremental transparency benefits of
Commissioner Christie’s proposal, but the end result—i.e., the
impact on rates, the touchstone of Commission jurisdiction—
would be similar.
100 See supra P 46 nn.94 & 96.
98
87a
statements issued today make clear, three
Commissioners—a majority of those participating—in
their statements accompanying that “order” explicitly
support the conclusion that the Expanded MOPR is
unjust and unreasonable and that a change of course
is required. Commissioner Danly also introduces the
head-scratching argument that the Focused MOPR
must be invalidated because the Commission did not
respond to the various protests. But Commissioner’s
Danly’s interpretation would have the consequence of
ensuring that every filing that goes into effect by
operation of law under section 205(d) of the FPA
would be guaranteed to lose on appeal under section
205(g) because, by definition, the Commission could
not possibly address the relevant protests. Such an
absurd result—which would interpret section 205(g)
to sub silentio gut the operation-of-law provisions in
section 205(d)—finds no support in the text or history
of any part of section 205. In any case, we note that
the protests he describes are fully addressed in this
statement.
49.
With that, we start with the considerable set of
harms that are avoided by PJM’s adoption of the
Focused MOPR. First, the Focused MOPR prevents
the one-two punch of forcing customers to pay higher
capacity prices for resources that are not needed to
meet the system’s resource adequacy needs. Although
an appropriately targeted MOPR can deter the
exercise of buyer-side market power by eliminating
the financial reward for such conduct, there is no
compelling reason to believe that applying a MOPR to
state-supported resources will cause states to
abandon their public policy commitments. To meet
the requirements of state laws and policies, statesupported resources will, in most cases, still be
88a
developed even if application of the MOPR causes
them to be priced out of the capacity market. Because
state-supported resources are available to provide
resource adequacy, but those contributions are
effectively ignored by PJM when they are pushed out
of the market, applying a MOPR to state-supported
resources causes an RTO/ISO to procure redundant
capacity that is not needed to ensure resource
adequacy.101 The potential for redundant capacity
grows each year, as there is no mechanism in the
Expanded MOPR framework to ever recognize
capacity provided by state-supported resources where
the MOPR blocks that capacity from clearing in the
capacity market.
50.
Under the Focused MOPR, consumers not only
avoid paying for this redundant capacity, but also the
inflated prices that result from administratively
raising the offers of certain resources that receive
compensation from state programs. Applying the
MOPR to state-supported resources forces them to
submit capacity offers at prices higher than they
would otherwise be willing to accept to provide
capacity, which will likely result in artificially inflated
capacity prices. The record here reflects this dynamic:
States have continued to expand (not abandon) state
policies shaping the resource mix since the imposition
101 This over-procurement is distinguishable from procurements
in the PJM capacity auction that occur above the applicable
target reserve margin, as such results do not reflect an inefficient
over-procurement of capacity. Rather, they reflect the
intersection of capacity supply and capacity demand, with
demand being represented by the VRR demand curve.
89a
of the Expanded MOPR,102 and consumers face a
growing cost. Initial estimates indicated that the
102 Since 2018, states’ efforts to shape the resource mix within
their borders have increased significantly, both in their scope and
their ambition. In 2019, Maryland increased its RPS
requirements from 25% by 2020 to 50% by 2030, and the state
now requires the construction of at least 1.2 GW of offshore wind
projects. Maryland Clean Energy Jobs Act, MD PUB. UTIL § 7703,
S.B.
516,
2019
Reg.
Sess.
(Md.
2019),
https://mgaleg.maryland.gov/2019RS/bills/sb/sb0516E.pdf. Also
in 2019, New Jersey increased its offshore wind goal from 3,500
MW by 2030 to 7,500 MW by 2035 and awarded zero-emissions
credits to the Salem I, Salem II, and Hope Creek nuclear units,
which represent approximately 3,700 MW of capacity. Exec.
Order
No.
92
at
3
(N.J.
2019),
https://nj.gov/infobank/eo/056murphy/pdf/EO-92.pdf;
New
Jersey Board of Public Utilities Orders in Docket Nos.
EO18121338, EO18121339, EO18121337 (Apr. 18, 2019); PIOs
Comments at 63-64. The Virginia Clean Economy Act, passed in
2020, requires Dominion Energy Virginia (Dominion) and
American Electric Power (AEP) to produce their electricity from
100% renewable resources by 2045 and 2050, respectively, and to
comply with specific resource mix milestones, such as
constructing or acquiring 2,700 MW and 400 MW, respectively,
of energy storage capacity by 2035. It requires Dominion to
develop 5,200 MW of offshore wind by 2034. See H.B. 1526, 2020
Sess.
(VA
2020),
https://lis.virginia.gov/cgibin/legp604.exe?201+sum+HB1526. In 2021, Delaware similarly
increased the minimum percentage of electricity sales to
Delaware end-use customers from renewable energy resources
(i.e., offshore wind and solar) from 25% in 2025 to 40% in
2035. An Act to Amend Title 26 of the Delaware Code Relating
to Renewable Energy Portfolio Standards, S.B. 33, 151st Gen.
Assemb.
(DE
2021),
https://legis.delaware.gov/BillDetail?legislationId=48278. And
Illinois also recently passed a law that requires a transition to
100% clean energy by 2050, provides $700 million in subsidies for
nuclear resources, and provides $580 million in subsidies to
encourage growth of renewable resources. Climate and
90a
Expanded MOPR would increase costs by
approximately $1.0-2.6 billion annually and more
recent analyses that factor in the increasing state
support place the total annual costs at $3.4 billion by
2030.103
51.
While some protesters dispute these consumer
harms, arguing that the results from the most recent
BRA show that there is no material impact from the
application of the Expanded MOPR,104 they overlook
the fact that the Expanded MOPR grandfathered-in
most existing resources that receive support from
programs.105 It is reasonable to expect that the
impacts of the Expanded MOPR would be limited in
the first BRA to which it applied, since the vast
majority
of
state-supported
resources
were
Equitable Jobs Act, Ill. SB 2408 (Sept. 15, 2021),
https://ilga.gov/legislation/102/SB/PDF/10200SB2408enr.pdf.
103 PIOs Comments at 44-45 (citing Michael Goggin & Rob
Gramlich, A Moving Target: An Update on the Consumer Impacts
of FERC Interference with State Policies in the PJM Region, Grid
Strategies, LLC, 2-3, 5-6, 8-9 (May 2020), https://gridprogress
files.wordpress.com/2020/05/a-moving-target-paper.pdf;
PIOs
Comments, Ex. A, (Written Test. of Dr. Kathleen Spees and Dr.
Samuel A. Newell), at 26, 28-29 (Aug. 20, 2021) (Brattle Aff.)).
104 Even if the Expanded MOPR did not have an impact on
capacity market prices, our analysis would remain unchanged. If
that were the case, there would be no reason to implement the
Expanded MOPR, as it would only create needless
administrative burdens for PJM and capacity sellers alike. This
would increase uncertainty and create delays for market
participants without any tangible impact on the capacity market,
and there would be no reason to keep such a pointless construct
in place.
105 For example, renewable resources that had previously cleared
a PJM capacity auction were not subject to the Expanded MOPR.
91a
categorically exempted.106 The adverse impacts of the
Expanded MOPR would have grown over time as state
programs expand, and as the number of new resources
(and thus MW of capacity) subject to the Expanded
MOPR increased.107 For example, several states in
PJM have policies requiring the development of
offshore wind resources, which will be available to
provide capacity in the near future,108 and there is
Regardless, the Commission has also previously explained
that it is not required “to analyze the results of previous capacity
auctions” to support its findings and instead may rely on
economic theory. June 2018 Rehearing Order, 171 FERC
¶ 61,034 at PP 39-40; see also Cent. Hudson Gas & Elec. Corp. v.
FERC, 783 F.3d 92, 109 (2d Cir. 2015); Sacramento Mun. Util.
Dist. v. FERC, 616 F.3d 520, 531 (D.C. Cir. 2010) (stating that
the Commission may make findings “based on ‘generic factual
predictions’ derived from economic research and theory”).
107 See PIOs Comments at 17-18 (citing Brattle Aff. at 26)
(showing number of state-supported resources at risk of failing
to clear PJM’s capacity market due to the Expanded MOPR
growing from 3,500 MW in 2025 to 6,800 MW by 2030 as more
state policies take effect). Moreover, agencies “do not need to
conduct experiments in order to rely on the prediction that an
unsupported stone will fall.” S.C. Pub. Serv. Auth. v. FERC, 762
F.3d 41, 65 (D.C. Cir. 2014) (upholding Commission order
implementing transmission reforms where the Commission
reasoned that the prior transmission planning practices were
deficient and predicted that reforms would lead to better
planning).
108 For example, projects in New Jersey may be offered into the
2024/2025 Delivery Year auction, currently scheduled for June
2022, and Maryland projects may participate in the 2025/2026
Delivery Year auction, currently scheduled for January 2023. P3
Protest at 94. A Dominion project that will provide 2,600 MW of
offshore wind is expected to come online in the second half of
2026. AEE Comments at 14 n.46. Accordingly, this resource
may be available to offer into the 2026/2027 or 2027/2028 BRAs,
106
92a
every reason to believe that the Expanded MOPR
would prevent those resources from clearing the
market.109
52.
Moreover, the record suggests that the
Expanded MOPR did have an impact on the most
recent BRA, even if that impact was limited due to the
various exemptions for existing resources. As Exelon
and PSEG note, Exelon’s Quad Cities Generating
Station benefits from the Illinois’ zero-emission credit
and was subjected to the Expanded MOPR in the most
recent BRA.110 Quad Cities failed to clear, and
according to PJM’s post-auction scenario analysis,
capacity prices likely increased by over $10/MW-day,
or an additional $90 million in the ComEd zone, as a
result.111 Thus, despite the Expanded MOPR’s
relatively limited applicability for the first auction, its
harms have already materialized. These harms can
be expected to increase significantly as states continue
to support resources that will not benefit from the
Expanded MOPR’s grandfathering provision.
53.
PJM’s approach, by contrast, avoids overmitigation by re-focusing MOPR as a tool to deter anticompetitive conduct. Unlike state policies, which the
Commission cannot permissibly seek to deter, and
which have not been completely deterred in practice
via the MOPR, anti-competitive conduct is
which are currently scheduled to take place in 2023 and 2024,
respectively.
109 PIOs Comments at 18 (citing Brattle Aff. at 25).
110 Exelon and PSEG Comments at 12.
111 Id. (citing PJM Interconnection, L.L.C., Scenario Analysis for
Base Residual Auction (July 6, 2021), https://www2.pjm.com//media/markets-ops/rpm/rpm-auction-info/2022-2023/20222023-bra-scenario-analysis.ashx).
93a
appropriately deterred by the application of a
minimum offer price. By preventing buyer-side
market power mitigation from occurring in the first
instance, the Focused MOPR can be expected to
prevent consumers from unjustly paying for
redundant capacity. Given this sound basis in
economic theory, PJM’s decision to confine the scope
to anti-competitive conduct is reasonable.
54.
Second, the same dynamic that harms
consumers also impedes the basic purpose of the
capacity market, causing the capacity market to send
inaccurate signals to market participants about the
need for and price of additional capacity.112 In
particular, an artificially inflated price will falsely
signal that new entry is needed or that existing
resources should forestall retirement.
Such
inaccurate signals in the capacity market, in turn,
could have detrimental effects on PJM’s energy and
ancillary services markets. For example, scarcity
pricing is a part of PJM’s energy and ancillary services
markets intended to ensure resources have the proper
incentives to be available when supply is
tight. Carrying redundant capacity interferes with
the ability of scarcity pricing to send these
signals. Diminishing the opportunities for resources
to earn revenues from scarcity pricing prevents these
signals from more efficiently incenting the
appropriate amount and types of supply resources to
meet scarcity needs.113
112 Transmittal at 15-16 (citing Crampton Aff. ¶¶ 11, 25).
113 For this reason, we disagree with Calpine and LS Power that
lower energy prices caused by redundant capacity are not
problematic simply because the height of the VRR demand curve
94a
55.
We do not find persuasive protesters’
arguments that participation of state-supported
resources would cause capacity market prices to
become uncompetitive or unreasonably “suppressed”
in the absence of a construct such as the Expanded
MOPR. We recognize, as the protests pointed out,
that in some cases, participation of state-supported
resources under the Focused MOPR could result in a
lower price than under the Expanded MOPR, and that
the Commission has in previous orders described this
phenomenon as “price suppression” that must be
remedied. As we have explained, we believe that
those orders were wrong. Instead, offers that
incorporate the reality of state policies reflect the real
world economic decisions facing particular resources,
as opposed to those that they might face in a
theoretical world where states do not exercise the
authority that Congress reserved to them under FPA
section 201(b).114 As a result, the capacity price
resulting from an auction conducted with capacity
offers that reflect state policies will be just and
reasonable because the market will reflect supply and
demand fundamentals.115
will reflect this change. If redundant capacity lowers energy
prices, the VRR demand curve will shift upward because the
energy and ancillary services revenue offset will fall, inefficiently
signaling a need for even more capacity at a higher price, even as
there is already redundant capacity on the system.
114 See Transmittal at 11-12; PIOs Comments at 10 (quoting
Brattle Aff. at 19).
115 See Transmittal at 10 (citing PJM, Filing, Attach. D, Affidavit
of Adam J. Keech (Keech Aff.) ¶ 11); see also Promoting
Wholesale
Competition
Through
Open
Access
NonDiscriminatory Transmission Servs. by Public Utils.; Recovery of
Stranded Costs by Public Utils. & Transmitting Utils.,
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