Enviros, Others Sue FERC to Undo Costly Power Market Rule

Enviros, Others Sue FERC to Undo Costly Power Market Rule

NRDC, Sierra Club, Union of Concerned Scientists, and Earthjustice on Friday filed a legal brief in federal court explaining why certain electricity market rules that are harmful to consumers and the environment are illegal and should be invalidated. The rules were proposed by PJM (the electric grid operator serving 13 Mid-Atlantic and Midwestern states and the District of Columbia) and approved by the majority of the commissioners at the Federal Energy Regulatory Commission (FERC), the agency charged with regulating PJM. The FERC Chairman dissented, pointing to the rules’ high costs and uncertain benefits.

Paying for the new rules are the 61 million electricity customers in PJM’s service territory, and hundreds of thousands of these customers are members of NRDC, Sierra Club, and Union of Concerned Scientists. At stake in this case is our members’ interest in and access to affordable clean energy.

Legally at issue is whether PJM’s rules will result in unreasonable electricity rates and disadvantage seasonal clean energy (like solar or smarter use of air conditioning) without good reason, in violation of the Federal Power Act (the Act).

We argued that, in approving PJM’s rules, FERC failed to weigh the evidence of the rules’ costs against their claimed benefits. Evidence submitted to FERC demonstrates that the rules will drive up costs to consumers by the billions. In contrast, there is no clear evidence that the rules will actually confer any benefits in terms of grid reliability, as PJM claims. A reasoned decision-making process, we believe, would have led FERC to conclude that the rules were unreasonable in violation of the Act.

We next argue that FERC’s approval also violated the Act because the rules unquestionably exclude most clean energy resources from participating in the nation’s largest “capacity” market (operated by PJM) without good reason. FERC’s finding that there is no undue discrimination under the Act again lacks analysis.

To provide a bit of background, PJM operates a market that currently allows various energy resources (such as coal, gas, nuclear, wind, and solar power, as well as customer promises to reduce electricity consumption) to sell commitments to supply power or curtail use in the future. These future commitments (or “capacity”) and the revenue from their sales inform resource investment and retirement decisions.

PJM’s new rule requires all resources participating in this capacity market to be available to deliver electricity over a 12–month period. This all-year availability requirement is superficially resource neutral, but 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 at the same levels. PJM will fully implement its new rule in 2017, which will largely eliminate resources with seasonal or variable attributes from this market.

The annual availability requirement clearly has a discriminatory effect, and FERC has a duty under the Act to ensure that the market rules do not confer “undue prejudice or disadvantage.” But FERC, without much explanation or analysis, brushed off claims of discrimination.

Had FERC questioned the annual requirement, it would have found that there is nothing magical about 365-day availability—in fact, PJM could ensure year-round reliability with seasonal resources by procuring capacity for four, six, or eight months at a time—that is, by covering the year with commitment periods that more closely track the seasons. This would keep the capacity market open to solar, wind, and customers’ smarter use of air conditioning.

Had FERC considered cost-effectiveness as a desirable quality in capacity resources, it would have found that seasonal resources tend to bring down capacity prices for consumers. In fact, completely eliminating seasonal resources and only procuring annual resources, as PJM’s rules do, could further inflate costs to consumers by up to $5 billion more per year, as shown by our analysis based on PJM’s 2015 auction results and PJM’s market monitor’s analysis of the 2016 results.

Had FERC considered performance during extreme weather—when fuel shortages, fuel price spikes, and fuel delivery can be problematic— it could have found that wind, solar, and customer curtailment are sure bets compared to relying entirely on fuel-burning annual resources. Notably, some seasonal resources played a critical role in keeping the lights on during the 2014 Polar Vortex while many fossil power plants were unable to deliver electricity in the extreme cold despite being paid for their capacity commitments (which was the impetus for PJM rushing to develop the new rules in the first place). PJM’s new rules effectively punish the very resources that helped keep the lights on when the grid was stressed and reward the annual resources that failed to deliver electricity when needed by now allowing them to earn even more than they could before under the old rules.  

The brief was written in collaboration between the environmental groups and associations representing public power, rural electric cooperatives, and demand response providers as well as a state regulatory agency, who all “petitioned” the D.C. Circuit Court of Appeals to overturn the new rules. Representatives of renewable energy and consumer interests plan to support our position with intervenor and amicus briefs to be filed soon. This coalition has diverse interests, but we all share the same goals of affordable and reliable power and therefore jointly advocate that the Court invalidate FERC’s decision.

About the Authors

Jennifer Chen

Attorney, Sustainable FERC Project, Energy & Transportation program

Join Us