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Amicus Brief in Support of Upholding PJM’s Focused Minimum Offer Price Rule

Last July, PJM Interconnection (the electricity grid operator for 13 states and the District of Columbia) submitted revisions to its Minimum Offer Price Rule (MOPR) for its capacity market to the Federal Energy Regulatory Commission (FERC) for approval. The new rule (the “Focused MOPR”) was motivated in part by a recognition that generation-based externality payments for clean electricity resources (like renewable energy credits and zero emissions credits) could be welfare-enhancing. Given this recognition, PJM decided to change course from past policy and remove an artificial barrier to market entry for resources that receive such externality payments under state climate and clean energy policies.

After the rule change went into effect by operation of law in September 2021, several generator associations and two state public utility commissions petitioned for review in the U.S. Court of Appeals for the Third Circuit. They contend, among other things, that the Focused MOPR is unjust and unreasonable because externality payments suppress capacity market prices, threaten resource adequacy and reliability, and fail to prevent the uneconomic entry of resources receiving state payments.

Policy Integrity filed an amicus brief in support of FERC and PJM’s Focused MOPR. Policy Integrity’s brief explains how energy and capacity markets work and interact and draws on work from Policy Integrity’s economists, including a report and peer-reviewed economic analysis, to explain that state programs like RECs and ZECs are unlikely to reduce capacity market prices under foreseeable market conditions, contrary to Petitioners’ arguments. In addition, the brief demonstrates that the Focused MOPR will not threaten resource adequacy or reliability even if prices decline because the market is designed to adjust, and that well-designed externality payments are welfare-enhancing, all of which further undermines Petitioners’ challenge to the Focused MOPR.