Court Rejects FERC Decision on PJM Pricing Rule
A federal appeals court has ruled the Federal Energy Regulatory Commission (FERC) should not have denied a 2012 proposal by PJM in which the regional power operator sought to revise its minimum offer price rule (MOPR).
The D.C. Circuit Court of Appeals on July 7 said FERC went beyond its “passive and reactive role” under Section 205 of the Federal Power Act when it ruled against PJM’s proposal. PJM had reached a stakeholder compromise on its market power rules; while FERC denied that compromise, it suggested other revisions to the MOPR that FERC said it would accept. The court said FERC overstepped its role because Section 205 requires the agency to accept proposed rate changes that are just and reasonable, and to suggest only “minor” changes.
“Section 205 does not allow FERC to suggest modifications that result in an entirely different rate design than the utility’s original proposal or the utility’s prior rate scheme,” said the opinion written by Judge Brett Kavanaugh. The court ordered FERC to review its decisions.
PJM’s original proposal would have replaced its unit-specific MOPR exemption with two new ones. It also would have extended the mitigation period from one to three years before a unit could bid below the price floor.
The change was prompted after power producers expressed concerns about the unit-specific review, specifically because it allowed units to prove confidentially to PJM that its costs were below the required minimum offer. Generators said that process lacked transparency and allowed below-cost bids.
In the compromise, the load-serving entities—in exchange for eliminating the unit-specific exemption—brokered a deal for two new exemptions: a competitive-entry exemption for unsubsidized units, or for units subsidized in a state-sponsored, non-discriminatory procurement process; and a self-supply exemption, intended for units that would meet a portion of a load-serving entity’s needs.
Support for the Compromise
PJM said the compromise proposal received widespread support from stakeholders. The court noted that it was the first time a large MOPR revision had garnered at least two-thirds of a sector-weighted vote.