Understanding the Impacts of State Policy with MOPR Versions on Clean Energy

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Grid Strategies estimate a significant impact of MOPR versions on clean energy, with the latest version 10.0 raising costs and potentially reducing clean energy adoption. Various MOPR versions lack a coherent consensus theory, influencing demand response, utility self-supply, energy efficiency, and state procurements. The upcoming procurements will determine the financial implications, potentially affecting offshore wind projects and capacity sales.

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State Policy with MOPR State Policy with MOPR Raab Roundtable Raab Roundtable April 28, 2020 April 28, 2020 Rob Gramlich @RobGramlichDC www.gridstrategiesllc.com

MOPR Moving Target MOPR Moving Target Grid Strategies estimate $5.7b/ Grid Strategies estimate $5.7b/yr yr was about MOPR version 3.0 Recent IMM estimate was about version 9.0 New MOPR version in FERC rehearing order, v. 10.0, is different New MOPR version in FERC rehearing order, v. 10.0, is different Version 10.0 not yet defined Version 10.0 not yet defined Bid levels up to FERC now DR, EE, state procurement, utility self-supply implementation highly uncertain Not up to PJM or the IMM FERC on its own path FERC on its own path Goal is to raise prices (avoid price suppression ) Deciding regardless of cost, implementability, or effect on redundant capacity development was about MOPR version 3.0 2

MOPR versions 1 MOPR versions 1- -9 9 No coherent consensus theory No coherent consensus theory 1. 1. PJM original for monopsony power mitigation PJM original for monopsony power mitigation 2. 2. FERC/McIntyre FERC/McIntyre broad MOPR with resource broad MOPR with resource- -specific carve out 3. 3. Re Re- -pricing pricing 4. 4. MOPR MOPR- -Ex Ex 5. 5. Calpine clean Calpine clean 6. 6. Vistra Vistra 7. 7. IMM & Lafleur proposals to exempt competitive REC procurements IMM & Lafleur proposals to exempt competitive REC procurements 8. 8. IMM Sustainable Market Rule IMM Sustainable Market Rule 9. 9. PJM 2019 filing with Resource Carve Out PJM 2019 filing with Resource Carve Out specific carve out Also ISO Also ISO- -New England CASPR (v.1,2,3) and NYISO Buyer New England CASPR (v.1,2,3) and NYISO Buyer- -Side Mitigation (v.1,2) Side Mitigation (v.1,2) 3

MOPR v. 10.0 Still Costly, MOPR v. 10.0 Still Costly, Could Reduce Clean Energy, By Design Could Reduce Clean Energy, By Design Demand response Demand response Utility self Utility self- -supply Energy efficiency Energy efficiency State procurements ( State procurements (eg Offshore wind equally impacted Offshore wind equally impacted Upcoming procurements to determine $ expected via capacity sales. Soon if not next auction Raises cost Raises cost for load in ALL states for load in ALL states Adds capacity not chosen by states Adds capacity not chosen by states Reduces clean energy Reduces clean energy if cost caps triggered triggered supply eg, NJ BGS) , NJ BGS) if cost caps 4

Resources Subject to New MOPR by 2030 Resources Subject to New MOPR by 2030 33 GW unmet RPS demand by 2030, much more by new NJ by 2035 (7500MW Offshore Wind) and VA policies by 2040 33 GW unmet RPS demand by 2030, much more by new NJ by 2035 (7500MW Offshore Wind) and VA policies by 2040 Resource OVEC coal Ohio nuclear units NJ nuclear units IL PJM nuclear units NJ Tier 1 RPS, wind MW nameplate 2300 2150 3631 1880 1428 Capacity value 0.91132 0.98397 0.98397 0.98397 0.111 UCAP MW MOPRed 2096 Clears market Clears market Clears market 158 1062 2465 3500 0.496 0.496 0.26 527 1223 910 NJ Tier 1 RPS, solar NJ solar carveout NJ offshore wind Incremental Illinois RPS demand 2019-2030, wind Incremental Illinois RPS demand 2019-2030, solar Other PJM state RPS demand, wind Other PJM state RPS demand, solar MD wind MD solar MD offshore +Self +Self- -supply supply +DR +DR 533 0.111 59 +EE +EE +State proc. +State proc. 1384 1877 5916 1219 3212 1320 0.496 0.111 0.496 0.111 0.496 0.26 686 208 2934 135 1593 343 Accredited Capacity Sum: 5 10,874 MW

Does Does FRRexit FRRexit Help States Achieve Goals? Help States Achieve Goals? Cost Cost- -reducing effect of FRR is known reducing effect of FRR is known Lower reserve margin required under FRR IMM MD, IL FRR study assumptions are heroic IMM MD, IL FRR study assumptions are heroic FRR that unnecessarily pays generators outside LDA more than what they would get in PJM auction Price automatically assumed higher (net CONE*b) in half the scenarios Assumes MOPR has no cost impact going forward, thus finds no savings Only looks at next auction. State policies begin to take effect after that Ignores flexibility provided in FRR for portfolio-based penalties FRR is also undefined, there are good and bad FRR approaches FRR is also undefined, there are good and bad FRR approaches 6

Achieving State Clean Energy Objectives Achieving State Clean Energy Objectives with new MOPR with new MOPR Hope MOPR reined in next year Hope MOPR reined in next year Court review FERC policy aimed at state policy FERC policy change on whether mitigation is for a defined market failure, or anything that affects price. Future FERC Commissioners Proceed with plans Proceed with plans Prepare for the higher REC/ZEC/OREC costs in case MOPR sticks Procure power, see if cost caps triggered Consider FRRexit, design a procurement for the desired, energy, capacity, and environmental attributes PJM process for a new approach PJM process for a new approach 7

Alternative Approaches Alternative Approaches Build up real wholesale buyers Build up real wholesale buyers PJM focus on reliability services while states PJM focus on reliability services while states handle consumer price risk management handle consumer price risk management Lighter handed RTO/FERC resource adequacy Lighter handed RTO/FERC resource adequacy Australia style de-centralized procurement, with RTO review ERCOT de-centralized market with active buyers SPP, MISO, CAISO RTO approach States collectively make Resource Adequacy States collectively make Resource Adequacy policy calls policy calls SPP Regional State Committee model https://opsi.us/wp- content/uploads/2019/10/Making-Markets- Work-for-PJM-States-10-14-19-1.pdf state function state function 8