Commissioner James Danly Statement
June 17, 2021
On June 2, 2021, PJM announced the results of its 2022/2023 RPM Base Residual Auction, conducted in May. This was the first PJM capacity auction applying the extended minimum offer price rule (MOPR) established by the Commission in Docket Nos. EL16-49-000 and EL18-178-000. As such, the results provide an important test of the effects of PJM’s MOPR (and MOPRs in general). This white paper discusses the implications of the PJM results, based on public information provided by PJM.
The most striking result of this auction is that the market clearing prices are significantly lower than those in previous auctions. The RTO-wide price of $50 is approximately 36% of the $140 RTO-wide price from the previous auction for the 2021/2022 delivery year. This is the lowest RTO-wide price since the 2013/2014 auction, conducted more than ten years ago, and the fourth lowest RTO-wide price ever. The constrained local delivery area (LDA) prices were higher than $50, but nevertheless lower than the constrained LDA prices in the 2021/2022 delivery-year auction and on the low side of constrained LDA prices in all previous auctions.
One of the criticisms of the Commission’s extended MOPR requirement for PJM (and of MOPRs in general) is that the MOPR was expected to prop up capacity prices to benefit incumbent owners of fossil-fueled generation resources. This did not happen in the 2022/2023 delivery-year auction, as demonstrated by the low capacity prices.
PJM offered a number of explanations (unrelated to the extended MOPR) for the lower prices in this auction. These include a lower demand forecast, a shift to the left in the Variable Resource Requirement Curve, and a reduction in Net Cone. PJM also noted that “[i]n general, offer prices from supply resources were lower in this auction compared to the prior auction.” With respect to this last point, there has been speculation that the lower offers were a consequence of the delay in conducting the auction. Suppliers may have entered into bilateral supply commitments for the 2022/2023 delivery year prior to the May 2021 auction and, once they made commitments requiring them to operate, offered in at low prices in order to ensure the receipt of a capacity award. If the auction had been conducted earlier, as is typically the case, suppliers would have entered into bilateral supply obligations only after learning whether they received a capacity award in the auction, rather than vice versa.
Regardless of the reason for the low auction prices, it is clear that the extended MOPR did not result in increased market clearing prices. A combined 3,239 MW of wind and solar resources cleared the auction, which represents 11,760 MW of installed wind and solar capacity. This was a combined 62% increase (1,254 MW) over the wind and solar capacity awards in the previous auction for the 2021/2022 delivery year. PJM has not released public data reflecting the number of such resources that failed to clear because of the application of the MOPR to their offers. However, we understand from PJM that only a minimal number of subsidized wind and solar resources that offered into the auction at their required minimum offer price failed to clear. In other words, almost all renewable resources that offered into the auction at their minimum offer price received capacity awards.
It is important that PJM’s MOPR had very little effect either on the capacity clearing price or on the ability of state supported renewable resources to clear the market. This means that PJM’s administration of the extended MOPR approved by the Commission has not caused renewable resources (existing or new) to be unable to compete with conventional resources. This past auction shows that the extended MOPR, as presently implemented, allows renewable resources to be competitive even when capacity prices are at historic lows. Consequently, widely raised concerns that PJM’s extended MOPR would increase capacity prices and unduly interfere with state policy choices were substantially unjustified and needlessly alarmist.
The eastern RTOs have indicated that they intend to revise their capacity market design in short order to eliminate their MOPRs. PJM has announced an intention to file a revised capacity market design proposal this summer to eliminate the expanded MOPR. ISO-NE likewise has stated an intent to make a filing in early 2022 that would eliminate its MOPR. Both RTOs have acknowledged, however, that to do so raises a number of difficult issues related to resource adequacy and would call into doubt the ability of the markets to ensure competitive results in the face of state subsidies. As I have previously written, and the Commission has previously held, that is a necessary prerequisite to finding that the capacity markets are just and reasonable.
The results of PJM’s auction suggest we reconsider the need to act so quickly. It is now apparent that, as presently implemented, the extended MOPR approved by the Commission did not exclude renewable resources, which in this auction proved to be cost competitive and were not priced out of the market by the application of a MOPR. There is little reason for RTOs to consider the elimination of their MOPRs before thoroughly and deliberately addressing the consequences attendant to their elimination. Nor do the RTOs face any urgent need, as some have suggested, to immediately eliminate their MOPRs, leaving it to later to address the resource adequacy and competitive consequences of their elimination. Indeed, the price competitiveness of renewable resources suggests that it may not be necessary to eliminate MOPRs at all in order to achieve state policy objectives. Instead, we should retain the use of MOPRs to mitigate the price-suppressive effects of state subsidies while finding alternative ways to accommodate state public policy choices.
 Calpine Corp. v. PJM Interconnection, L.L.C., 169 FERC ¶ 61,239 (2019).
 Specifically, the conclusions in this white paper are based on PJM, 2022/2023 RPM Base Residual Auction Results, https://www.pjm.com/-/media/markets-ops/rpm/rpm-auction-info/2022-2023/2022-2023-base-residual-auction-report.ashx (PJM Report).
 The capacity prices reported by PJM, and used in this white paper, are expressed in dollars/MW-day. Each dollar of the capacity price reported by PJM results in an annual payment of $365, the $50 RTO-wide price reported by PJM would result in an annual payment of $18,250 for each MW of capacity awarded by PJM in the auction.
 PJM Report at 6, Tbl. 1—RPM Base Residual Auction Resource Clearing Price Results in the RTO.
 Id. at 16, Fig. 2—Base Residual Auction Resource Clearing Prices.
 Id. at 26.
 Id. at 27.
 Id. at 13-14. Wind and solar resources are intermittent resources that cannot produce their full rated capacity at all times; therefore, PJM calculates Unforced Capacity (UCAP) values for these intermittent resources that are lower than the intermittent resources’ installed capacity values and by different means than it does for conventional resources. The UCAP value for conventional resources’ offers into PJM’s capacity auction is based upon their net tested capacity times EFORD, the probability that a generator will not be available due to a forced outage or a forced derating when there is a demand on the unit to generate. In contrast, PJM calculates the value of intermittent resources based upon their average output during 368 summer peak hours. The intermittent resources can offer up to the lesser of either their qualified Capacity Interconnection Rights or summer peak average.
 In addition, it appears that Exelon’s Quad City unit located in Illinois also failed to clear because of the MOPR. See Abbie Bennett, 3 Exelon Nuclear Plants Fail to Clear PJM Capacity Auction, S&P Global (June 3, 2021), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/3-exelon-nuclear-plants-fail-to-clear-pjm-capacity-auction-64835071.
 See Danly Office White Paper: The Requirement that Competitive Markets be Protected from the Exercise of Market Power Applied to RTO Capacity Markets, (May 20, 2021), https://www.ferc.gov/news-events/news/danly-office-white-paper-requirement-competitive-markets-be-protected-exercise (May 20 White Paper). We have supplemented the May 20 White Paper with an additional posting today.