Saying it was acting "to protect the competitive capacity market" administered by PJM Interconnection, FERC Thursday directed the grid operator to expand its current minimum offer price rule (MOPR) to address state-subsidized electric generation resources.

"I want to emphasize that the reasoning behind our action is simple: PJM's organized capacity market is the mechanism for ensuring resource adequacy at just and reasonable rates; it's our obligation to safeguard the competitiveness of that market," said Neil Chattterjee, chairman of the Federal Energy Regulatory Commission. "I believe fundamentally that competition works. Our goal is to ensure that the markets remain competitive by establishing a level playing field and being resource neutral. In this way we can help promote competition that will benefit consumers."

FERC directed PJM to expand its MOPR "to apply to any new or existing resources that receives, or is entitled to receive, a state subsidy," with exemptions for existing renewable resources participating in state renewable portfolio programs, and existing demand response, energy efficiency, storage and self-supply resources [EL16-49]. Resources with federal subsidies are not subject to the MOPR.

The order, FERC said, reaffirms and builds on a commission order in June 2018 which found that out-of-market payments provided by PJM states to support operation of certain generation resources "threaten the competitiveness of PJM's capacity market." That decision came after a leaked memo showed that the Department of Energy was considering using its authority under two federal laws to compel the nation's grid operators to purchase electricity or power generation capacity from faltering coal and nuclear plants at the expense of other resources, including natural gas.

Independent natural gas-fired electricity generators had urged FERC to weigh the “potential for enormous damage” to competitive wholesale markets deciding on state subsidies for nuclear and renewable energy facilities. The merchant generators said the Commission’s choice was stark: to preserve or kill competitive power markets.

Fossil fuel generators have argued that state subsidy programs allow nuclear and renewable sources to bid below cost during capacity auctions, which they claim suppresses energy prices and undermines the competitive power markets.

The Natural Gas Supply Association (NGSA) said gas is "a strong partner" with renewable fuels to attain a clean energy future.

"We believe FERC’s actions today recognize the importance of protecting consumers and the benefits they have derived from competitive energy markets, such as greater choice, affordability and  sufficient investment in energy resources over the long-term," said Patricia Jagtiana, NGSA executive vice president. "As states contemplate their future course in light of today’s actions, we encourage them to recognize the tremendous benefits that incorporating a price on carbon can bring and to give that approach serious consideration. Pricing carbon is the best means to accomplish a state’s carbon reduction goals in a manner that keeps the competitive market for power intact."

FERC's decision Thursday "could force customers to pay billions of dollars more to gas and coal power plants," according to Tom Rutigliano of the Natural Resources Defense Council.

"We are confident the courts will overturn this misguided decision, which represents federal overreach into the authority of states to determine their energy priorities. Until the courts act, however, this action will make it harder and more expensive for states to meet their clean-energy goals."

PJM has 90 days to comply with the order.

PJM is the nation’s largest grid operator, serving 65 million people in all or parts of 13 states and the District of Columbia, including shale-rich Ohio, Pennsylvania and West Virginia.