Thread by @AriPeskoe

An overview of arguments against FERC’s PJM capacity order–Many claims in rehearing filings fall into these groups:
1.FERC invades state authority
2.FERC’s rate isnt just and reasonable
3.FERC makes a policy change w/o explaining
4.FERC is inconsistent/illogical/unresponsive

About 50 parties filed. Many filings argue broadly against the Order, finding numerous legal problems. Some take issue with only specific points that apply to their business. Five filings from EPSA and its members largely support the order.

(For background, see my post from a couple of weeks ago explaining why PJM has a capacity auction, what the MOPR is, what FERC’s December 19 order says, and how it re-writes 20 years of FERC regulation - eelp.law.harvard.edu/2020/01/fercs-…)

Some arguments fall into more than one category. For instance, one party may argue FERC’s decision to ignore the costs to consumers means the rate is not just and reasonable. Others argue that FERC’s failure to consider costs is arbitrary and capricious (category 4).

1. Invading state authority – The Federal Power Act gives FERC authority over wholesale rates. By effectively blocking resources supported by states (through RECs, ZECs, vertical integration) from clearing the auction, FERC is regulating state policies/generation facilities.

These state entities make this (or a similar) jurisdictional argument: NJ BPU, MD PSC, MD AG, WV PSC, Illinois Commission, Ohio PUC, NJ+MD+DC Ratepayer Advocates, OPSI (Org of PJM state PUCs).

Here’s how some parties frame this objection:

MD PSC: FERC “intrudes improperly into an area of traditional, and exclusive, state jurisdiction—the valuation of the environmental attributes of generation for state health and public welfare purposes[and] undermines the resource preference (and valuation) states have made…”

NJ BPU: “The Commission’s decades-long precedent has been to leave environmental regulation largely to the states. This Order, however, effectively ousts the states from their traditional role as environmental stewards without filling the regulatory gap that the Order creates.”

NJ BPU: FERC “sets no discernable limit [on how far it can encroach on states]…Under the logic of the Order, FERC could bar clean energy resources from participating in the energy market or even deny them access to transmission– all in the name of ‘remedying’ price suppression.”

NJ BPU: “New Jersey’s lawful exercise of its jurisdiction over generation is not a problem for the Commission to solve….Forcing a state to fundamentally alter its regulatory framework to avoid the bite of a rabid MOPR is hardly a viable solution, let alone an accommodation.”

Enviros: “by directly targeting state policies, including regulations designed to address the health and environmental consequences of electricity generation, the Commission exceeds its role under the FPA and invades states’ sovereign authority to protect their citizens.”

Enviros: “State policies that regulate the [] externalities of power generation…fall squarely within states’ inherent power to protect the health and welfare of their citizens, and its sovereignty over those [] powers is independent of its authority under the Federal Power Act.”

Exelon: just as states may not adjust wholesale rates by making side payments linked to clearing the wholesale market, so too FERC may not override state choices concerning the generation mix by refusing to count or compensate the capacity provided of state-subsidized resources

A number of parties point to FERC’s decision not to MOPR resources getting federal subsidies b/c doing so would impermissibly “nullify” Congress’s decisions as evidence that FERC is impermissibly nullifying state policy. Some examples:

NJ BPU: FERC “admits its true intentions when the Order addresses federal subsidies . . . If the MOPR disregards or nullifies federal policy, it must have the same effect on state policy.”

Exelon: “cannot invoke respect for Congress to justify exempting federal subsidies from the MOPR, while at the same time applying the MOPR to 'disregard or nullify the effect' of state decisions that Congress wanted the states to have full power to make.”

Duke+AEP have another jurisdictional claim, about FERC’s decision to MOPR resources supported by retail riders: FERC’s definition of a MOPRable subsidy “encompasses retail ratemaking and retail cost allocation decisions that are squarely within the state’s jurisdiction.”

I realize that HB6 and its support through the retail riders of utility contracts for shares of 65+ yr old OVEC plants is all deeply problematic. Nonetheless, Duke+AEP, PUCO, AES all make interesting arguments on this issue.

They point out that about a dozen parties co-own the plants, and since only a few receive the retail rider support while the rest pay through other retail rate mechanisms, owners are treated differently.

Issue 2 – FERC’s rate isn’t just and reasonable (J&R). In general, it’s tough to beat FERC in federal court with this claim. Courts very deferential to J&R decisions.

There’s a lot of overlap here bt J&R claims and arbitrary and capricious claims.

Successful J&R claims often focus on procedure.

AEE and AEMA make such a claim. They take issue w FERC’s conclusion that participation in the capacity auction by DR/EE/storage that receives state support results in unJ&R rates.

AEE+AEMA point out that FERC’s June 2018 finding that rates are unJ&R was based explicitly about power generation. In the new order, FERC cites no additional evidence to sweep in DR/EE/storage. Hence, the remedy (MOPR) may not include DR/EE/storage.

Other J&R claims:

AMP+APPA+NJPPA: no “evidence drawing a connection between alleged price suppression attributable to State Subsidies and any failure of RPM to send appropriate price signals to attract generation needed to ensure resource adequacy.”

Clean Energy Trades: “rate is unjust and unreasonable because it replaces the interaction of supply and demand with a broad administrative intervention that raises costs for consumers, with no associated benefits or connection to any identified market failure.”

Enviros: FERC “abandons the core rationale for approving the RPM in the first place: attracting adequate generation at a just and reasonable price…the broad MOPR would grossly overshoot the installed reserve margin needed to meet reliability standards.... (cont.)

Enviros (cont): “The Federal Power Act’s requirement that rates be just and reasonable prohibits setting rules in such a manner that misses the mark by design.”

Enviros: “By refusing to articulate how certain policies more or less directly affect market efficiency or its ability to ensure reliability at lowest cost, FERC is advancing ‘competition’ in name without accountability to its statutory north star: an actual impact on rates.”

OPSI:” Where, as here, the Commission has neglected to conduct such a balancing and fails to consider costs, the resulting rate is not just and reasonable.”

Exelon: “The Order violates Section 206 insofar as it finds capacity market prices to be too low to be just or reasonable, when supply remains plentiful and new entry robust, while adopting a market rule change that will increase prices and exacerbate over-supply.”

Related, parties also make claims about undue discrimination, another core FERC ratemaking principle.

FESolutions: The Order “is unduly discriminatory because it concocts a byzantine scheme of exemptions from the MOPR that is divorced from any coherent logic or principle.”

PJM Industrials: “the December 19 Order establishes differential treatment among existing resources and discriminates based on fuel type.”

IL Commission: "By granting exemptions to existing renewables and existing resources of self-supply entities, but not to existing nuclear, FERC unduly discriminates against existing nuclear resources."

Enviros: “the MOPR Order discriminates on its face between generators who receive out-of-market payments based on both the source and type of payment.” A few parties argue that FERC’s decision to MOPR REC-selling resources but not coal ash sales (as an example) is discriminatory.

Issue 3 – Unexplained policy changes. The general legal standard, as outlined by AEE+AEMA: FERC must “display awareness that it is changing position and not depart from a prior policy sub silentio or simply disregard rules that are still on the books.”

Many filings highlight this deficiency --

APPA: FERC “did not provide a reasoned explanation for its departure from its prior rulings acknowledging the merits of accommodating the public power business model.”

Similiarly -

NC Coops: “eviscerating the self-supply option” is an “unexplained…change to the design of RPM…especially considering the long history of FERC cases accepting the premise that PJM’s capacity market is an alternative to, and not a substitution for, self-supply.”

NRECA: FERC "erred in its unexplained departure from its precedent encouraging and facilitating long-term power supply arrangements in RTO regions… [and in] holding that coops cannot subsidize their wholesale market operations through charges on their members.”

ELCON: FERC “abandoned nearly 30 years of FERC policy and court decisions on what constitutes a just and reasonable rate in a market context.” (cont.)

ELCON (cont): "Most market-based sales over the history of wholesale power markets have been from units that have their capital costs recovered from retail customers under state policy actions… Financial support from state action…has been the dominant arrangement.” (cont.)

ELCON (cont.): FERC "failed to provide sufficient evidence or explanation for this radical shift in FERC ratemaking.”

Clean Energy Trades make precisely the same argument.

Filings find many unexplained details in the Order. I won't include any more here. Suffice it to say, the Order's tendency to make conclusory statements without citing evidence is legally problematic.

Issue 4 –In general, agencies must explain their decisions, decisions must be based on the record, and they have to be logical. In addition, agencies must respond meaningfully to comments. Failure to do these things renders the decision arbitrary and capricious.

This from Clean Energy Trades could apply to many issues: "Despite the host of information presented on this issue during the Paper Hearing, the Order does not analyze, discuss, cite, or even mention the existence of any of the record, or similar arguments made by other parties”

A lot of parties complained that FERC’s abandonment of the resource-specific FRR, a solution FERC itself proposed in its June 2018 order, without any explanation, is arbitrary and capricious.

NJ BPU: "The whole purpose of the paper hearing process was to provide the Commission with a record for its decision to adopt some form of the two-pronged approach. In rejecting that entirely, the Order failed to address any of the record evidence supporting these various ideas.”

Cost is a big issue FERC ignored.

Exelon: FERC “has not considered the costs, has not acknowledged the cost increase, has not identified any concrete benefit in the form of increased system reliability, and has not justified the costs in light of the benefits.”

FERC’s core finding is arbitrary and capricious -

Clean Energy Trades: "Without further explanation, a bare conclusion that an existing rate is unjust and unreasonable is nothing more than ‘a talismanic phrase that does not advance reasoned decision making.’”

More on self-supply -

NC Coops – “To the extent the definition of State Subsidies rests on a finding that co-ops self-supply resources receive subsidies, and that those subsidies stem from state action, there is no evidence to justify that finding.”

SMECO: The Order rejects PJM’s self-supply exemption without any analysis or evaluation of data in the record….FERC adduces no data, such as sell-offer data of utilities or public power entities or provides no evidence in support of its finding…”

APPA: FERC "did not respond meaningfully to arguments and evidence that public power self-supply resources should not be subject to the MOPR.”

Ill. Munis: FERC "declined to wrestle with this evidence or to address its import to this proceeding. Instead, the Commission merely lumps into the 'State Subsidy' definition all commercial activity by municipalities.”

MOPR exemptions are arb. and cap. --

Ratepayer Adovcates: "The Order wrongly treats resources’ receipt of some revenues as market-distorting and requiring mitigation, some revenues as market-distorting but not triggering mitigation, and other revenues as not market distorting.”

AEE+AEMA: FERC "failed to reasonably explain its decision to reject PJM’s proposal to adopt materiality thresholds that would exempt from the MOPR smaller resources and resources that receive only a small portion of their revenues from the PJM markets.”

DC AG: "The Order’s exclusion of economic development and local siting support is arbitrary and capricious.” Contradicting FERC, The AG offers examples of state incentives that are targeted at power plant development. Enviros have examples too.

Applying the MOPR to new categories of resources is arb. and cap. -

PJM Industrials: FERC’s "finding that the MOPR should apply to Demand Response Resources is not supported by substantial evidence.”

OTHER ISSUES

Many (many) parties dispute FERC’s decision to MOPR resources selling voluntary RECs.

Even EPSA and its members ask FERC to reconsider this. Member LSPower asks FERC to reconsider demand response.

The IL AG focuses on market power, an issue not many filings take on – "The Order erroneously established a broadly-applicable MOPR that will exacerbate the exercise of market power and facilitate gaming of auction clearing prices."

Some argue that the order permissibly delegates authority to PJM/IMM -

Enviros: “The vague definition of State Subsidy unconstitutionally delegates to PJM and the independent market monitor authority to make judgments that are core governmental functions.”

Dominion: “PJM should not be the entity charged with determining whether state and local laws are intended to provide a financial benefit of the type that might incent price suppression.”

FE Utilities stay consistent and continues to argue for an explicit payment to “fuel-secure” generation facilities.

FESolutions, meanwhile, hits on a not uncommon theme: "FERC is attempting to ‘fix’ one market at the expense of virtually every other value in the markets, including the energy and ancillary services markets as well as the private and public demand for clean power.”

The filings include a fair amount of criticism of the PJM capacity construct, apart from the recent MOPR expansion (called Broad MOPR by AEE+AEMA, but I prefer Big MOPR).

No one is better than the co-ops and public power at this line of attack.

APPA+AMP: "The Commission’s most fundamental error in the December 2019 Order is assuming the RPM resource adequacy construct is actually a market and that competitive markets require administrative interference to determine price outcomes.”

APPA+AMP: "RPM is a mandatory resource adequacy construct that offers a single product and ‘competitive’ prices are determined by PJM applying cost development guidelines with no empirical link to actual market conditions or consumer decisions.”

APPA+AMP: "Ironically, by its latest action, the Commission has removed any remaining genuine market component of RPM by requiring all ‘competitive’ offers to be determined administratively in Valley Forge, Pennsylvania.”

APPA+AMP: "In suggesting that public power self-supply resources ‘reject the premise of the capacity market and circumvent competitive outcomes,’ FERC begs the questions of what the ‘premise’ of the capacity market is and what constitutes a ‘competitive outcome.’"

NRECA: "RPM is a construct, not a market, where the economics and competitiveness of sell offers are based on a single-year, administratively-determined clearing price for a three-year forward capacity commitment.”

NRECA: "As a component of this myopic and unrealistic view of ‘competition’, FERC has forced an upward price ‘mitigation’ tool to be applied…in order to meet the revenue expectations…of some merchant generation owners at the cost of load and true competitive outcomes.”

NRECA: “The December 19 Order hamstrings wholesale competition, wreaks havoc with planning for generation investment, and broadly attacks state generation resource policy, all purportedly to preserve a bland simulacrum of competition in RPM.”

FINALLY...

Parties take issue with FERC's 90-day deadline for PJM to file proposed tariff changes.

Enviros: “The Commission’s haste to put in place new market rules is confounding in light of the length of time it took the Commission to establish a replacement rate.” ZING!

This thread is (somehow) not comprehensive, although I've tried to capture the big-picture themes.

There’s more in the docket (EL18-178-002).

Enjoy.