Policymakers combating climate change often look to support clean energy technology that can decarbonize the electricity sector. However, complicated energy markets determine which electricity generators are profitable, and regulatory obstacles can lead to unintended consequences. Minimum offer price rules (MOPRs) in electricity capacity markets present a prime example.
When first adopted in 2006–2008, MOPRs were relatively insignificant regulations aimed narrowly at the concern that “net buyers”—utility companies that buy more capacity than they sell—might leverage their role as sellers to suppress prices in the capacity market. This strategy would lead to greater savings in purchases than the reduced revenues from selling capacity at lower prices. To prevent price suppression, MOPRs set floors on net buyers’ price offers in capacity markets.
In the mid-2010s, however, the Federal Energy Regulatory Commission (FERC) aggressively expanded MOPRs to prevent state-subsidized renewable and nuclear resources from offering their capacity in markets at prices below the full, unsubsidized cost. FERC’s MOPR expansion culminated in a series of orders in 2018 and 2019 to impose offer floors on new state-subsidized resources in the three northeastern regional transmission organizations (RTOs)—the New York Independent System Operator (NYISO); ISO New England; and the Pennsylvania, New Jersey, and Maryland (PJM) Interconnection, which covers parts of 13 states and the District of Columbia. FERC Commissioner Richard Glick wrote a series of blistering dissents to the MOPR orders, arguing that the commission’s directives would impose unnecessary costs on electricity consumers and that the order contravened the allocation of federal and state authority under the Federal Power Act.
FERC’s expansion of MOPRs also raised hackles among stakeholders and observers. Environmental organizations, clean energy advocates, and many analysts and scholars critiqued the expanded MOPRs, echoing Glick’s concerns and highlighting how expanded MOPRs would adversely affect clean energy resources and reduce the effectiveness of many state subsidies put in place to support clean energy.
The election of President Joe Biden abruptly halted the MOPR expansion. Commissioner Glick became Chairman Glick and pushed for reversing prior FERC orders that expanded the MOPRs. In July 2021, PJM proposed to narrow its MOPR to focus on net buyers that would profit from price suppression. In September 2021, an evenly divided FERC deadlocked on the proposal, which then defaulted to taking effect based on FERC procedures. In January 2022, NYISO proposed to exempt most clean energy resources from its MOPR. ISO New England proposed in March 2022 to eliminate its MOPR in 2025—a move that disappointed clean energy advocates, who urged more rapid action. FERC approved both the NYISO proposal and the ISO New England proposal in May 2022.
The MOPRs are thus now in full retreat. The occasion calls for considering the lessons we can learn from the MOPR controversy for future debates over electricity markets. We propose three observations, which we describe in detail below.
(1) Energy Federalism Can Be Constructive or Destructive