FERC’s Minimum Offer Price Rule: Appropriate Regulation or Federal Overreach?

By Cory Bernard.

The country’s largest competitive wholesale electricity market recently filed a request for rehearing in response to a December 2019 order of the Federal Energy Regulatory Commission (FERC) setting a price floor for new entrants to the market. The Minimum Offer Price Rule (MOPR) prevents any market entrants that receive “out-of-market” payments from bidding their power below an administratively determined price floor.

Background

The PJM Interconnection (PJM), which provides a market for more than 1,000 companies serving 65 million people to buy and sell electricity, argues the MOPR unnecessarily interfered with the market. Renewable energy advocates, several of whom also recently requested a rehearing, argue that the MOPR oversteps FERC’s jurisdiction because it unreasonably raises rates and effectively negates state-level renewable energy policies.

Via the Federal Power Act (FPA), Congress delegated to FERC the power to regulate wholesale electricity transactions. Thus, FERC has the ability to regulate entities like PJM. To fix rates in a wholesale market, FERC must show that the existing rate it wants to change is “unjust, unreasonable, unduly discriminatory or preferential.”

In the case of FERC’s December order, it found that state-level subsidies meant to encourage renewable energy generation gave these power producers an unjust advantage over non-renewable power producers who lack state support. While FERC has previously conceded that federal law does not preempt state policies encouraging renewable energy generation, it has also reinforced its authority to “confront” any effects such policies have on wholesale markets.

Effect on States Moving Forward

Because PJM has 90 days from the December 19 MOPR to comply (and because FERC recently issued similar market-altering orders in another electricity market), expect some state-supported renewable energy generators to struggle to compete in the near future.

Based on the Commission’s power under the FPA and the legal precedent supporting FERC’s order, it’s unclear how a court would handle a challenge to the MOPR. Plus, FERC has delayed its response to the rehearing requests—before FERC responds, parties cannot challenge the order in court. This means that state policymakers, PJM, renewable energy producers, and other stakeholders must adopt a wait-and-see approach.

FERC Chairman Neil Chatterjee, a self-proclaimed proponent of renewable energy, has expressed confidence that renewables are mature enough to compete without subsidies. This opinion runs parallel to FERC’s orders, and seems to suggest that FERC will seek to neutralize state-level funding propping up renewables.

States whose utilities do not participate in wholesale markets (including Arizona) need not worry about FERC’s eagerness to counteract these subsidies. And any private initiatives to move toward clean energy, such as the one Arizona’s largest utility announced late last year, are of course outside FERC’s jurisdiction. But in the many states that rely on power from competitive markets, lawmakers may need to adjust their policies—or pull out of competitive markets altogether—if they want to achieve their renewable energy goals.

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Cory Bernard

J.D. Candidate, 2021

Cory is a second-year law student and staff writer for the Arizona State Law Journal. A Southern California native, he earned his Bachelor of Arts in American Studies from the University of Notre Dame, where he was a writer and editor for the daily newspaper. In his free time, find him playing his drums or yelling loudly about Notre Dame sports.

The opinions expressed herein are those of the individual contributors to the ASLJ Blog and should not be construed as the opinions of the Arizona State Law Journal or the Sandra Day O’Connor College of Law at Arizona State University.