FERC Order May Undermine New Jersey’s Ability to Foster Future Renewable Energy Projects
On December 19, 2019, the Federal Energy Regulatory Commission (“FERC”) directed the operator of the largest wholesale competitive electricity market in the United States, PJM Interconnection, L.L.C. (“PJM”), to expand its current Minimum Offer Price Rule (“MOPR”). The expanded MOPR specifically targets state-subsidized new electric generation resources from clearing PJM’s capacity auction. FERC’s order has been criticized by environmental advocates as a boost to fossil fuel generators because the order will force new renewable energy generators to raise their prices and thus, keeping fossil fuel generators, namely—coal, competitive on the wholesale market. Ultimately, this order has the potential to hijack state sovereignty by targeting Congressionally authorized state jurisdiction pursuant to the Federal Power Act (“FPA”) that provides states the authority to regulate electric generation facilities within their respective territories.
FERC’s order to expand the MOPR creates a “default offer price floor” used when electric generation resources are bidding on PJM’s competitive wholesale market. FERC found that an expanded MOPR will “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.” FERC 12/19/2019 Order. As such, FERC asserts that state-subsidized generation resources “distort prices in a capacity market that relies on competitive auctions to set just and reasonable rates.” Id.
FERC’s order has the potential to undermine New Jersey’s efforts to foster renewable energy in the State. FERC Commissioner Richard Glick stated in his dissent: “We all know what is going on here: The costs imposed by today’s order and the ubiquitous preferences given to existing resources are a transparent attempt to handicap those state actions [to mitigate anthropogenic climate change] and slow – or maybe even stop – the transition to a clean energy future.” FERC Commissioner Glick Dissent to 12/19/2019 Order. FERC takes aim at New Jersey and other PJM states’ exercise of their exclusive jurisdiction to regulate generation facilities through FERC’s broad definition of “State Subsidy,” which may in theory apply to any state effort to shape its generation mix.
PJM has 90 days as of December 19, 2019, to comply with FERC’s order. Davis Environmental Law will monitor developments.