Dive Brief:
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Power supply companies — Vistra, Constellation Energy, Calpine, LS Power Associates, Talen Energy Marketing — and others failed to show the Federal Energy Regulatory Commission made a mistake when it eliminated “default offer caps” in the PJM Interconnection’s capacity market, a federal appeals court said Tuesday.
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FERC considered relevant evidence and arguments and adequately explained its decision in September 2021 to replace PJM’s offer cap rules with unit-specific reviews for capacity bids, the U.S. Court of Appeals for the the District of Columbia Circuit said.
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Electric Power Supply Association President and CEO Todd Snitchler said the court decision is “another blow to the health of PJM’s competitive markets and the [regional transmission organization’s] ability to retain the resources needed in the short and longer terms.”
Dive Insight:
PJM’s bidding rules are a key component of its annual capacity auctions, which aim to make sure the grid operator has adequate power supplies three years into the future.
Responding to complaints filed by PJM’s market monitor, Monitoring Analytics, as well as ratepayer advocates and large energy users, FERC said in March 2021 the grid operator’s default “market seller offer cap” needed to be revised. PJM’s offer cap rules were leading to unfairly high capacity prices, according to the market monitor and ratepayer advocates.
In its September 2021 decision, FERC ordered PJM to adopt a proposal from Monitoring Analytics that requires power plant owners to get the market monitor’s unit-specific approval for bids above zero, unless the planned offer meets certain conditions.
When FERC was considering changes to PJM’s capacity bidding rules, Vistra and other generators and power supply trade groups argued the switch would prevent market participants from making bids that fully reflected their financial risks.
The power supply companies, EPSA and the PJM Power Providers Group sued to overturn FERC’s decision, which they said was arbitrary and capricious because the agency failed to explain its reasoning. They also said FERC failed to account for the risks market participants take and that the decision infringes on their rights to set their own rates through their bids under Section 205 of the Federal Power Act, according to the appeals court decision.
The court disagreed that FERC failed to consider alleged bidder risks, such as liquidated damages, unanticipated outages, labor disputes, lower energy revenues, weather, supply chain restrictions, and unit performance.
“As clear as day, the commission’s prior orders expressly stated that energy-market risks were ‘not intended to [be] permit[ted]’ in capacity market offers, because such risks are already generally assumed by all PJM market participants,” the court said.
FERC also said that allowing suppliers to price every possible negative outcome in their bids would unreasonably shift all risk from suppliers to consumers, the court said.
The court also dismissed the argument that market participant bids are “rates” under the Federal Power Act and are therefore protected from change by PJM’s market monitor.
Although power suppliers and the market monitor may submit different proposals in the unit-specific review process, the market monitor’s proposal does not automatically displace an offer submitted by a supplier, the court said. PJM plays the main role in determining which offer makes it to the market, the court said.
“Capacity market offers are not ‘rates’ within the statutory meaning of Section 205; they are inputs into determining the market-clearing price,” the court said.
EPSA’s Snitchler said the court’s decision adds urgency to a capacity market reform stakeholder process at PJM.
