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12 - Minimum Offer Price Rules

Published online by Cambridge University Press:  24 February 2022

Todd S. Aagaard
Affiliation:
Villanova University Charles Widger School of Law
Andrew N. Kleit
Affiliation:
Pennsylvania State University
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Summary

When regional transmission organizations (RTOs) in the northeastern United States created their second-generation capacity markets in the mid-2000s, they included – at least partially at FERC’s urging – regulatory programs aimed at preventing some vertically integrated firms – “net buyers” – from intentionally suppressing market prices for financial gain. In adopting these programs, the RTOs took the unusual step of acting against not only prices that were too high due to monopoly, but also prices that were perceived to be too low. These regulatory moves were highly unusual in practice and lacked foundation in economic theory. In combination with other institutional features of capacity markets discussed in previous chapters, they exerted upward pressure on capacity prices. Over time, these Minimum Offer Price Rules (MOPRs) have proliferated, broadening their targets to price suppression more generally and expanding their scope to include most new capacity resources, as well as some existing resources. In the process, the regulation of capacity markets has strayed from the purpose of capacity markets, which was to provide adequate capacity at the lowest possible cost. MOPR expansion has justifiably triggered harsh criticism of FERC’s regulatory overreach.

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Publisher: Cambridge University Press
Print publication year: 2022

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