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DC Circuit upholds ISO-NE MOPR exemption

The D.C. Circuit Court of Appeals on Tuesday denied a petition by NextEra Energy and other industry players to review FERC orders allowing ISO-NE to exempt a limited volume of state-sponsored renewable resources from its capacity market’s minimum offer price rule.

A three-judge panel concluded that the commission “engaged in reasoned decision-making to find that the renewable exemption to the minimum offer price rule results in a just and reasonable rate” and that “FERC did not abuse its discretion by denying the petitioners’ request for a hearing” (17-1110).

The judges heard oral arguments on the case in April. (See Court Questions FERC Change on ISO-NE Renewable Exemption.)

Changing Circumstances

ISO-NE revised its Tariff in 2014 to allow up to 200 MW of qualifying new entrant renewable capacity to be exempt from the MOPR, beginning with the ninth Forward Capacity Auction covering the 2018/19 commitment period. The Tariff change included a carry-over rule allowing any unused portion of the 200 MW to carry forward for two additional auctions, up to a total of 600 MW.

Citing “changing market conditions,” ISO-NE phased out its MOPR exemption in March 2018 while the case was under review.

Generators argued that the renewable exemption was unjust and unreasonable because it would undermine competitive entry and result in significant price suppression, an argument the commission rejected.

The court disagreed. “We defer to the commission’s determination that the renewable exemption effectuates the market’s primary purpose by sending the correct demand signals to new entrants and by protecting consumers from excessive rates.”

Petitioners also argued that the commission’s approval of the MOPR exemption conflicted with a previous decision to reject a categorical exemption to the rule, which was upheld by the D.C. Circuit.

But the court noted that in this case, the commission considered the price suppression associated with the uneconomic entry of a small quantity of renewable resources, rather than a categorical exemption, and in doing so “has performed an updated balancing of competing interests in the New England market.”

The court also found that the commission explained how ISO-NE’s sloped demand curve mitigates the price suppression and why its view on the renewables exemption had evolved.

The commission is not required to show that a previous rate was unjust and unreasonable in order to demonstrate that the revised rate is just and reasonable, the court said.

FERC has considered several MOPR exemptions in other markets, accepting some and rejecting others.

“This type of balancing requires an expert understanding of the market, which is well within the commission’s realm of expertise. We see no reason to disturb the commission’s balancing just because it came out in favor of the renewable exemption despite the potential for price suppression,” the court said.

The petitioners also argued that the commission did not rationally link the magnitude of the exemption to any particular prediction of load growth or retirement. However, FERC explained that the 200-MW exemption was based on the best estimate of expected retirements and load growth, which was “estimated at 189 MW annually, plus an adjustment for the reserve margin required to meet the installed capacity requirement.”

They further contended that FERC inappropriately raised its retirement rationale on remand, that uneconomic entry would continue after retirements are complete and that its experts found price suppression would occur even with retirements.

“But the commission is not required to protect against all price suppression … [and] acted reasonably in concluding that retirements would help mitigate any price suppression,” the court said.

“Accordingly, we defer to the commission’s conclusion that the renewable energy exemption had only a limited potential for price suppression because of the implementation of the sloped demand curve, the prediction of a flatter supply curve, and predicted load growth and retirements.”