A deadlocked Federal Energy Regulatory Commission failed to act Sept. 28 on the PJM Interconnection's proposed replacement for a contentious rule targeting state-subsidized clean energy resources, allowing the filing to become effective by operation of law.

The 13-state grid operator filed the replacement proposal (ER21-2582) July 30 in a long-running and contested proceeding dealing with how to account for the potential price impacts of states' varied clean energy policies in the wholesale power market.

Under the Federal Power Act, tariff filings go into effect by operation of law if FERC allows 60 days to pass without issuing an order accepting or denying the proposed changes. FERC was required to act on PJM's replacement proposal on or before Sept. 28.

But FERC said in a Sept. 29 notice that the commission failed to act with members split 2-2 "as to the lawfulness" of PJM's proposed changes.

Auction implications

PJM's replacement for its minimum offer price rule, or MOPR, effectively reverses a major capacity market overhaul (EL16-49, EL18-178) directed by FERC in December 2019. Citing alleged price suppression caused by state-level subsidies, the commission ordered PJM to expand its MOPR to all new and some existing resources receiving material state subsidies.

But PJM's latest three-year forward capacity auction for the 2022/2023 delivery year failed to produce high prices, raising questions about the durability of the market construct as low clearing prices spur gas- and coal-fired retirements amid an increase in renewable energy penetration.

PJM is currently seeking a 55-day delay (ER21-2877) for its upcoming Dec. 1 capacity auction covering the 2023/2024 delivery year after FERC issued an order this month requiring the grid operator's independent market monitor to perform a higher number of unit-specific reviews to guard against capacity market manipulation.

PJM's MOPR replacement effectively allows state-subsidized clean energy resources to escape market mitigation so long as they do not participate in a state program that is "conditioned" on capacity market participation or bidding into an auction at a certain price.

ClearView Energy Partners LLC predicted in a Sept. 29 research note that PJM's new market rule changes will likely cover the 2023/2024 capacity auction. The research firm also noted that FERC may require further changes through an order on rehearing or clarification.

Gas-fired power plant operators are contesting PJM's MOPR replacement, with one utility arguing the changes will "crater" the multi-billion-dollar market.

But S&P Global Platts analysts were more measured.

"Generally the change to MOPR rules should serve to limit upside to capacity prices as it removes offer price floors for renewable developers, though poses risks to utilities looking to develop larger renewable portfolios and capture capacity value," said Kieran Kemmerer, a power sector analyst with S&P Global Platts Analytics. "With that in mind, the 2022/23 [capacity auction] demonstrated the impacts to renewables were somewhat overstated and as a result the ongoing impacts to capacity prices in the near term due to MOPR alone are likely to be limited."

Potential for more deadlocks

Changes to the Federal Power Act made in 2018 require FERC commissioners to issue statements in proceedings where rate filing become effective by operation of law. Interested parties can also seek rehearing or clarification and eventually challenge any final FERC determinations in federal appeals court.

"Given the potential delay to the next auction, we cannot rule out the commission acting more substantively in an order on rehearing of what we expect will be the notice that the Focused MOPR has gone into effect by operation of law," ClearView said in a note to clients.

On a call with reporters following FERC's Sept. 23 monthly open meeting, commission Chairman Richard Glick acknowledged that more rate filings made under Section 205 of the Federal Power Act could become automatically effective with the four-member commission evenly divided along party lines.

District of Columbia Public Service Commission Chairman Willie Phillips, a Democrat nominated by U.S. President Joe Biden to serve as FERC's fifth commissioner, is still awaiting a confirmation hearing before the U.S. Senate Committee on Energy and Natural Resources.

"There's no doubt that if you have five members and all five members are voting, you're not going to get a tie," Glick told reporters. "That's why I'm very hopeful, and I would urge the Senate in particular to expedite, to the extent they can, the nomination process and confirm Chairman Phillips as quickly as possible."

Ellie Potter is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.