Energy

The story starts with PJM Interconnection, a grid operator responsible for balancing power in a region spanning 13 states, from Illinois to Delaware. PJM runs a capacity market, with annual auctions to secure enough generation to cover peak demand several years into the future. Utilities bid on these contracts based on their cost to provide power.

However, some generators in recent years have complained that they were losing to lower bids from renewables and nuclear in some places, on the basis that those sources can benefit from state subsidies. Renewables only claimed a very small slice of the pie in the last auction, but generators were concerned this would grow.

A mechanism existed in the capacity market design to account for the possibility of artificially low bids—the “minimum offer price rule,” or MOPR. In the case of an artificially low bid, an alternative higher bid would be calculated and used in its stead. The FERC took up the issue of deciding whether all generators subject to a subsidy from states should get the MOPR treatment.