Capacity Markets Once Again
Robert McCullough is principal of McCullough Research.
On December 19, 2019, FERC finally issued an order in the lengthy Minimum Offer Price Rule (MOPR) case. The debate concern was initiated by a filing by Calpine objecting to potentially low capacity bids in PJM's capacity market. December's order is unlikely to end the debate since FERC has already received over fifty rehearing requests.
In FERC's current order, FERC protects competition by placing a minimum bid requirement on resources receiving revenues under state sponsored Zero Emission Credit and Renewable Portfolio Standards programs. For example, a nuclear plant owner receiving state level energy subsidies would be prevented from offering low prices in the capacity market. Application of the new rule may well extend to a variety of other state sponsored programs as well.
The renowned American economist, Thorstein Veblen, once dryly remarked that theories often constrain the underlying facts. The proposed order plans to keep capacity prices high in the face of new technologies and climate change policies. The order is based on a fundamental theory that capacity prices are lower when energy revenues increase. The theory is so self-evident that it is not addressed in the order and is unsupported in either the economic literature or the facts of PJM's capacity markets.