Reed Smith Client Alerts

The U.S. Circuit Court of Appeals for the D.C. Circuit recently sided with FERC and against generators in dispute over significant modifications to PJM’s capacity market rules.
Electric towers and wires at sunset


This dispute arose over a significant change in the way PJM Interconnection, LLC (PJM) conducts its capacity market. 

PJM is a large regional transmission organization (RTO) spanning 13 states and the District of Columbia.  Among the many tasks it performs pursuant to its Federal Energy Regulatory Commission (FERC or the Commission) tariff, PJM oversees annual capacity auctions to ensure adequate supplies of power going forward.  In capacity markets, power suppliers commit to produce electricity at some agreed-to point in the future (three years in the case of PJM’s capacity market).  In return, the suppliers are compensated for the costs associated with participating in the market.  A major modification to how that compensation is determined led to this dispute.

FERC changes the rule

Under PJM’s pre-existing default “market seller offer cap” rule, a supplier’s capacity offer that fell at or below the market-wide cap was admitted and deemed competitive.  In 2021, FERC responded to complaints brought by PJM’s Independent Market Monitor, Monitoring Analytics (as well as by state ratepayer advocates and large electric power end-users) finding that a key component of PJM’s default offer cap rule – the Performance Assessment Intervals – resulted in cleared capacity prices that were “excessively high,” and thus not “just and reasonable” under the Federal Power Act. 

In response, FERC adopted Monitoring Analytics’ recommendation – the Unit Specific Avoidable Cost Rate Proposal.  FERC then dispensed with the market cap rule and implemented a unit-specific review that relies on individualized calculations and requires power plant owners to get the Market Monitor’s unit-specific approval for bids above zero (unless the planned offer meets certain specific conditions).  Several suppliers objected to FERC action, requesting that the cap should be recalibrated, not discarded.  FERC rejected this approach and these appeals followed.