Enviros Look to Court to Undo Costly Electricity Market Rule

NRDC—together with the Sierra Club, Union of Concerned Scientists, and Earthjustice—today initiated a lawsuit challenging Federal Energy Regulatory Commission (FERC) approval of wholesale electricity market rules that are detrimental to consumers and the environment. The rules were proposed by PJM, the electric grid operator serving 13 Mid-Atlantic and Midwestern states and the District of Columbia. Four out of five FERC commissioners voted to approve PJM’s rule, while the Chairman dissented, pointing to the rules’ high cost and uncertain benefits.

We filed a notice (or “petition for review”) at the D.C. Circuit Court of Appeals that we are challenging FERC’s approval because it conflicts with FERC’s governing statute and laws governing agencies more generally. In addition, the new rules will funnel billions of dollars from electricity consumers to fossil and nuclear power plants while severely limiting clean energy participation in PJM’s capacity market (which helps determine what types of resources power PJM’s grid in the future). This notice is the first step in bringing a challenge; legal briefs will follow on a later date.

The approved rules have important implications. Currently, various energy resources (coal, gas, nuclear, wind, and solar power, as well as customer commitments to use energy more efficiently) compete in the market to sell “capacity” to supply power or reduce customer consumption in the future. More resources competing in the market tend to reduce prices, and those who eventually pay to procure this power are the 61 million customers in PJM’s territory. However, PJM’s new rules that will fully take effect next year (and that are being phased in now) will limit clean energy resources from participating and drive up costs to those consumers.

PJM had rushed to develop the new capacity market rules in response to the 2014 Polar Vortex because many fossil power plants were unable to deliver electricity in the extreme cold despite being paid for their capacity commitments. The new rules require that all resources perform whenever needed—any time of the year—and these resources that run all year are paid even more than under PJM’s previous rules. While this always-available, all-year requirement is superficially resource neutral, it disadvantages or excludes resources that perform reliably and cheaply in the winter (like wind) and the summer (like solar and smarter use of air conditioning) but not necessarily all year-round. Notably, some of these cleaner resources played a critical role in keeping the lights on during the 2014 Polar Vortex.

We believe PJM’s new rules are unnecessarily costly and discriminatory. There is no reason why every resource in the capacity market must be available 24/7, 365 days a year in order to participate as capacity. This inflexible approach precludes resources that are otherwise highly reliable for parts of the year. There is nothing magical about 365 days – in fact, PJM could ensure reliability with cheaper, cleaner resources by procuring capacity for four, six, or eight months at a time. Commitment periods that more closely track the seasons would more flexibly enable solar, wind, and customers’ smarter use of air conditioning to participate in the capacity market and bring down capacity prices for consumers.

In addition to potentially procuring resources on a seasonal basis, PJM has other cost-effective means to ensure that resources with capacity commitments actually deliver. For example, PJM implemented solutions (such as power plant weatherization and maintenance) targeted to the specific problems experienced by fossil plants during the 2014 Polar Vortex. As a result, resource performance improved, and PJM weathered the comparably cold 2015 Polar Vortex more easily. In either case, PJM’s reserve margin (the extra resources PJM procures beyond what’s needed) is so large that even with significant power plant outages, customers did not experience blackouts or brownouts during either spell of extreme weather.

Despite the various options that would have addressed PJM’s concerns, the “solution” that PJM chose and that FERC accepted is unnecessarily costly, discriminates against resources that can reliably provide capacity, and thus is not in compliance with FERC’s governing statute (which requires that costs to consumers are reasonable and rules do not unduly discriminate between resources). Further, no one has demonstrated that these rules would benefit electric grid reliability. Having exhausted our options at FERC by filing a “protest” to PJM’s original application for the rule changes and asking FERC to reconsider its approval of PJM’s proposed changes, we have no choice but to initiate this lawsuit today in hopes of reversing PJM’s rules.

About the Authors

Jennifer Chen

Attorney, Sustainable FERC Project, Energy & Transportation program

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