The Federal Energy Regulatory Commission on Thursday ordered the PJM Interconnection to stop using an "adder" in a capacity market methodology that critics contend increases prices and leads the grid operator to buy more capacity than needed.

The 4-1 decision at FERC's monthly meeting centered on the way PJM sets its demand curve for its annual capacity auctions, which the grid operator uses to make sure it has enough power supplies three years in the future.

As part of its methodology for calculating the net cost of new entry (CONE) – a key parameter in PJM's capacity auction – the grid operator includes a 10% adder in its assumptions for how much power plant owners will bid in the energy market. The adder is designed to reflect fuel cost risks.

However, in July the U.S. Court of Appeals for the District of Columbia Circuit said FERC failed to adequately explain why it approved the adder in 2019 for the largest U.S. grid operator.

Removing the adder will lower the net CONE by roughly 8% to 9%, which will put downward pressure on PJM capacity prices, possibly leading less efficient power plants to retire, according to Casey Roberts, a Sierra Club senior attorney who argued the case at the appeals court.

"Lower cleared prices as well as lower cleared quantity is definitely helpful in getting some of the older plants to retire," Roberts said Thursday. "It also sends a needed signal to new fossil developers, especially, to chill out on investing more in PJM."

FERC Commissioner James Danly dissented from the decision, saying PJM's market rules have been constantly changing at the agency's direction, leading to greater investor risk and rising costs. 

FERC Chairman Richard Glick, who voted against the original decision that included the adder and a rehearing decision when he was commissioner, blasted PJM capacity market rules in comments with reporters Thursday.

In at least the last four years, there has been an "obsession" with trying to increase revenue for power plants, according to Glick.

"We've seen constant proposals, in my opinion, to blatantly increase prices, without really any justification as to why that would improve things in most cases or why it would be just and reasonable," Glick said.

The PJM's expanded minimum offer price rule, which was replaced last year, is perhaps the biggest example of efforts to boost generator revenue, according to Glick.

"Sometimes I felt like we were just making stuff up in order just to increase prices," Glick said. "It's important that we go back to basics and figure out what is truly just and reasonable and not focus extensively on bolstering uneconomic generation."

In general, FERC will continue its efforts to make sure the rates it approves in wholesale power markets around the country aren't unfairly high, according to Glick.

"These orders that we issue have very real impacts, not only on utilities and other stakeholders, but also on consumers, and we keep that in mind when we issue our orders," Glick said.

Commissioners outline positions on natural gas issues

In other action at FERC's meeting, commissioners debated natural gas issues, signaling possible stances on a pending review of the agency's decades-old criteria for reviewing natural gas infrastructure.

FERC rejected calls to shut down an Enbridge gas compressor station in Weymouth, Massachusetts, which malfunctioned in September 2020 as it was being prepared to come online. The station had two emergency shutdowns after it released gas into the air.

In early 2017, FERC approved the Atlantic Bridge pipeline project, which included the compressor station, but in February 2021 opened a hearing process to consider safety and environmental concerns raised by people living near the plant and groups in the area.

FERC on Thursday ended the briefing process without taking any action. However, three commissioners said issues raised in their review of the compressor station could affect possible changes to the agency's process for reviewing natural gas infrastructure.

"The commission should never have approved the proposal to locate the compressor station where it is, in a heavily populated area with two environmental justice communities and a higher than normal level of cancer and asthma due to heavy industrial activity," Glick said. "Going forward, the commission needs to pay more attention to the impact of its siting decisions, and I intend to push for those changes."

FERC Commissioner Allison Clements called for updating FERC's "outdated and deeply flawed" natural gas review process.

Talking about the decision to approve the Weymouth compressor station, Clements said "ensuring that future certificate decisions are based on a full analysis of need and environmental impacts, including fulsome consideration of potential impacts on environmental justice communities, would lend a great deal more support for, and therefore credibility and durability to, the decisions made."

FERC Commissioner Willie Phillips, who was sworn in at the agency last month, said he was joining FERC at "a critical moment" for environmental justice communities. 

"Going forward, we need to carefully consider the impacts on landowners, environmental justice communities and area residents," Phillips said. "Residents living near the Weymouth compressor station are burdened by multiple industrial facilities and sadly this pattern of consolidating industrial activity in such communities is neither isolated nor unique."

FERC Commissioners Danly and Mark Christie agreed with ending the briefing process, but argued it should never have been started to begin with because FERC had approved the pipeline project and that decision should be final.

The briefing process created uncertainty about the future of the pipeline at a time when ISO New England, the grid operator for six Northeast states, is warning about possible gas shortfalls in the region, according to Christie.

Christie also balked at FERC's decision to set a new policy for allowing parties to join cases when a developer of natural gas infrastructure seeks to extend a deadline for bringing their project online. In the past, parties weren't allowed to join those cases if they weren't part of the original proceeding.

The new policy outlined in a decision related to the Adelphia Gateway project in Delaware and Pennsylvania will increase litigation risk, according to Christie.

"It's a blank check for late intervention and that's not a legal standard. That's a legal weapon," Christie said. "It does create further uncertainty about whether FERC is going to stand behind the [certificates of public convenience and necessity] that it issues."

Glick told the media under the new policy parties wouldn't be able to challenge FERC's underlying decision, but could bring up issues such as whether the economics of the project justify extending the deadline. The policy will also apply to hydroelectric cases, Glick noted.

FERC proposes new cybersecurity standard

At its meeting, FERC proposed directing the North American Electric Reliability Corp. to develop a reliability standard requiring internal network security monitoring for high- and medium-impact bulk electric system cyber systems.

Existing network security monitoring requirements in FERC's Critical Infrastructure Protection standards center on preventing access to cyber systems at their perimeter, commission staff said in a presentation during the meeting.

"The 2020 SolarWinds attack demonstrated how an attacker can bypass all network perimeter-based security controls traditionally used to identify the early phases of an attack," staff said."This supply chain attack leveraged a trusted vendor to compromise the networks of public and private organizations."

Comments on the proposal are due in 60 days.