Time to Repeal New England’s Anti-Consumer Dirty Energy Rule

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Originally published on the NRDC Expert Blog.
By Bruce Ho

Within the arcane rules that govern New England’s regional power grid, there’s a ticking time bomb that threatens to frustrate the region’s efforts to tackle the climate crisis while raising electricity bills by $3 billion over 10 years. Known as the Minimum Offer Price Rule or MOPR (pronounced “mo-per”), this provision has already locked in hundreds of millions of dollars in excess charges to households and businesses from Nashua, New Hampshire, to New Haven, Connecticut, by preventing inefficient, polluting power plants from being replaced by cleaner ones. Unless changed, this rule will force the region to pay even more for dirty power it neither wants nor needs. Repealing or significantly reforming the costly, outdated Minimum Offer Price Rule is in the best interests of New England’s consumers, their health, and our climate.

For years, the organization that operates New England’s grid — ISO New England — has resisted meaningful MOPR reforms. In 2018, the ISO proposed an updated rule that reinforced the existing MOPR, prioritizing fossil fuel generators’ profits over consumers.

But there’s hope for change. The new chairman of the Federal Energy Regulatory Commission, or FERC, which oversees ISO New England, has made MOPR repeal or reform a top priority. In response, ISO New England has publicly committed to reform the rule, though what the grid operator has in mind — and whether this aligns with consumer and clean energy interests — remains to be seen.

New England states also are pushing ISO New England and FERC to act. As several groups (Acadia Center, Conservation Law Foundation, NRDC, and Sierra Club) that are members of the Sustainable FERC Project coalition recently commented to state leaders, continued pressure from the states will be critical to address the MOPR and build a reliable, clean, and consumer-centric grid.

How We Got Here: The MOPR’s Origin and Evolution

The MOPR, which was first developed in the PJM grid region and only later exported to ISO New England, wasn’t always an anti-consumer, pro-dirty-energy rule. Originally, the rule sensibly was intended to prevent a form of market manipulation known as “buyer-side market power,” where a utility or other entity would create new supply and bid it in the electricity market at an artificially low price for the purpose of lowering the price for the remainder of the power it purchases. In theory, the exercise of buyer-side market power could force competitors out of business. The original MOPR, by being designed only for this rare occasion, was actually never used.

Yet over time, the MOPR lost its way. As a result of pressure from owners of older fossil-fuel generators, ISO New England and FERC undertook an ill-conceived expansion of the rule. The MOPR was redefined as a tool to prop up prices for existing generation by preventing small utilities from saving money by building their own power plants and impeding state implementation of public policies, such as clean air and climate laws. Because those state policies would result in an expansion of the supply of clean energy, market prices would drop, potentially spurring the retirement of older, polluting power plants. But the owners of such power plants advocated for significant revisions to the MOPR to restrict clean energy’s access to the market, artificially inflate prices, and protect the conventional generators’ profits.

Federal law reserves to states the ability to make decisions on power generation. But rather than seeing state laws for their public benefits and respecting these laws as an exercise of protected state authority, FERC and ISO New England saw them as a threat to the status quo and the ability of conventional fossil fuel power plants to “compete” to produce power. So FERC and the grid operator decided to counteract state laws by expanding the MOPR to erect barriers to clean energy’s participation in New England’s electricity market. By making clean energy appear artificially expensive in the market, the expanded MOPR has helped protect the market share and profits of polluting sources of power.

Harms to All Consumers

The MOPR results in higher bills for consumers. A 2019 analysis conducted for the Sustainable FERC Project by Grid Strategies concluded the MOPR could raise New England consumers’ electricity bills by $3 billion over the next decade.

These higher costs are already materializing. For example, by protecting conventional power plant owners from having to compete with the 800-megawatt Vineyard Wind project off the coast of Massachusetts, the MOPR locked in an estimated $270 million in higher bills for consumers.

The MOPR’s higher costs are not only borne by consumers in Massachusetts and other states that are incentivizing the build out of clean energy; the cost of the rule is paid by consumers across the region. By reducing competition in New England’s regional electricity market, the MOPR creates higher prices everywhere.

Take, for example, New Hampshire, which does not currently have clean energy policies as ambitious as those of its neighbors. Because New Hampshire participates in a regional electricity market, without the MOPR, when a neighboring state like Massachusetts invests in clean energy, those investments would increase the overall supply of power in the region and lower prices in New Hampshire and other states. Such investments would also reduce the need for consumers in New Hampshire to pay for new power plants and encourage the retirement of surplus, less efficient generation.

Because clean energy, including resources like energy efficiency, already is or is increasingly becoming the cheapest source of power; creates local jobs; results in local air quality improvements that improve residents’ health; and is needed to mitigate the climate crisis, a state like New Hampshire would see greater economic and environmental benefits by adopting its own policies to grow this sector.

But even in the absence of adopting such policies, New Hampshire stands to benefit from the clean energy policies of its neighbors — or at least it would if it weren’t for the MOPR.

Getting Back on Track to Protect Consumers and Clean Energy

There are two ways to fix this problem for New England’s consumers: eliminate the MOPR or significantly reform it.

Eliminating the MOPR would remove the rule’s existing barrier to clean energy and enable projects like Vineyard Wind — and the thousands of megawatts of other clean energy projects that are proposed, being built, and coming online in the region — to participate in New England’s electricity market fairly. Consumers from Nashua to New Haven would benefit from lower bills driven by increased competition from investments in clean energy.

Alternatively, ISO New England and FERC could reform the MOPR. For example, ISO New England could allow the state-driven clean energy investments to opt out of participation in the centrally operated New England market, and therefore avoid the MOPR. But, unlike today, ISO New England would still account for the full contributions of these clean energy resources to grid reliability regardless of their participation in these markets. This path, known as a “residual market,” would recognize that as clean energy resources are built, the need for conventional power resources to meet consumers’ needs decreases. An ISO New England-run residual market would shrink in size over time, resulting in fewer market procurements and lower costs for consumers.

As Sustainable FERC Project groups discussed in our recent comments to the New England states, either of these pathways — MOPR reform or MOPR elimination — would help get the region back on track to protecting consumers and help get ISO New England out of the way of the clean energy transition that’s both needed and underway.

Addressing the MOPR isn’t the only reform New England needs to protect consumers and build a better environment. Leadership and action from states, ISO New England, and FERC is also needed in a variety of areas, including transmission planning, better governance and standards for public participation in decision-making, and environmental justice, to ensure the grid is reliable, clean, affordable, and fair.

But defusing the MOPR bomb is and must be a top priority. It is inexcusable to force New England consumers to pay billions for a misguided rule that serves the interests of the fossil fuel industry rather than those of the public.

 

 

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