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sources not meeting this requirement to face significantly higher to resources without any support from a utility customer charge costs and submit higher price offers for capacity. PJM has placed or payments from a governmental entity.Exempt self-supply new capacity performance requirements on all resources that resources are those owned or procured by LSEs who have long wish to participate in the capacity auction similarly requiring standing business models(i.e.,public power,cooperative,and resources to be available during emergency periods.These rules vertically-integrated utilities)and who can meet certain"net- carried significant capacity price increases in both RTOs,but short"or"net-long"thresholds.Net-short,net long means especially in PJM where the offer cap was lifted,thus allowing that the exempt resource would not result in the LSE buying capacity resources to bid in much greater prices than needed substantially more capacity in the capacity markets than they sell to meet the capacity performance obligations.An APPA-com- (net-short) or selling substantially more capacity than they buy missioned analysis of the PJM capacity performance rule found (net-long).Such thresholds are intended to demonstrate that the that the new rule will increase capacity costs by$7.3 billion over LSE would not have any financial incentive to exercise"buy- three years with no discernible benefit to reliability.Moreover, er-side market power."But this exemption has been challenged these rules will greatly disadvantage hydropower and other forms in the U.S.Court of Appeals for the District of Columbia of renewable energy,demand response,and energy efficiency pro- Circuit by a group of merchant generators. grams,further constraining supply.PJM's Capacity Performance State-sponsored resources are still not subject to any exemp- rule is being challenged in the U.S. Court of Appeals for the tion in PJM unless they can demonstrate that the resource was District of Columbia Circuit by APPA and eight other parties, procured through a process that was open to all generation including public power utilities,trade associations,and environ- types,an unrealistic scenario given the need for states to be able mental groups. to determine what resources best meet regulatory and policy needs.In NYISO,self-supply exemptions were granted by How Will these changes impact public power? FERC in two separate 2015 dockets.First,FERC approved a In a mandatory capacity market,a public power utility or competitive entry exemption for resources that are offered into other LSE that constructs generation for its own customers still the auction,but receive no payments from bilateral contracts must offer such"self-supply"capacity into the RTO's capacity or other"subsidies."Second,FERC later approved exemptions auction. If that capacity is required to be offered at a higher for self-supplied resources and a limited amount of renewable price under buyer-side mitigation rules, that capacity might not energy. Resources eligible for the self-supply exemption would clear the auction while the utility would be required to purchase be required to meet net-short and net-long thresholds as in capacity that had cleared the auction.Thus, the buyer-side mit- the PJM MOPR self-supply exemption. But the NYISO's igation rules could force an LSE to pay for capacity twice—first proposed rule changes to implement FERC's order have been in paying for the construction of its own power plant and then challenged by the New York Power Authority,New York Public again as a capacity payment to a generator that did clear the Service Commission,and New York State Energy Research and auction.The original rules of the capacity markets in PJM and Development Authority,as well as the New York Association of ISO-NE contained provisions to ensure that self-supplies capac- Public Power because these rules would make it very difficult for ity would clear capacity auctions.This blanket exemption for self-supply resources to qualify for the exemption.Thus far,no self-supply was undone by FERC,and revised capacity market exemption has been approved by FERC for the NYISO. rules now threaten a cornerstone of the business model for pub- These self-supply exemptions represent a significant im- lic power and cooperative utilities—their ability to self-supply provement to the buyer-side mitigation rules,but still are not energy services to their own customers.Moreover,the capac- a return to the complete exemption for self-supply agreed to in ity performance and performance incentive rules will further the original design of the capacity markets in PJM and ISO- increase the cost of the portion of capacity that is purchased by NE(which still does not have a self-supply exemption)and public power and place additional constraints on their ability to later overturned by FERC.Self-supply is one of the few viable self-supply,especially when using resources,such as hydropower, alternatives that public power has to the RTO-operated capacity that may not meet the overly stringent performance criteria. markets,and therefore greater certainty of this right is critical There have been recent positive developments that may min- for public power. imize the negative impacts on public power of the buyer-side mitigation rules.Negotiations among merchant generators, industrial customers,and public power and cooperative utilities Congressional Action in 2012 resulted in an agreement providing for a MOPR The House and Senate approved competing versions of com- exemption for both competitive entry and self-supply resourc- prehensive energy legislation in the 114th Congress:H.R. 8, es that meet certain criteria.This agreement was approved by the North American Energy Security and Infrastructure Act of FERC in May 2013.The competitive entry exemption applies 2015,and S.2012,the Energy Policy Modernization Act of PubticPower.org 57 239