On February 20, the Federal Energy Regulatory Commission (FERC) rejected a request by the mid-Atlantic grid operator, known as PJM, for authority to make special payments to generators that would otherwise have shut down, or to induce already mothballed generators to come back into commission. (150 FERC ¶ 61,122). The Sierra Club, along with a group of other environmental and consumer advocates, had filed a protest with FERC, contending that PJM’s proposal was unnecessary and lacked any standards for implementation.
PJM argued that the lackluster performance of generators during the 2013 polar vortex called for offering additional payments to aging coal and gas plants that would otherwise retire, to keep those plants operating in case other plants suddenly failed to perform as expected. In our protest, we noted that PJM was already implementing measures to address the performance problems generators had experienced in cold weather, such as requiring coal and gas plant operators to keep their fuel supplies de-iced and weatherize their facilities.
These common-sense measures have greatly improved performance during this even colder winter, which we argued undermined any case that these extraordinary payments would benefit ratepayers. PJM already operates forward capacity markets, which pay generators for being available in the coming years, based on PJM's estimate of the expected peak load plus a margin for error, known as the "reserve margin." The proposed payments would have been completely outside of that well-functioning market. This proposal could have set a precedent for grid operators to make thinly justified and unnecessary payments to coal and gas plants, thereby preventing retirements of uneconomic generators that the market would otherwise force.
Furthermore, PJM had not offered any specifics for how these generators would be paid or from what funds, in stark contrast to the very well-defined procedures for identifying resources qualifying for “reliability must run” payments. FERC’s rejection of PJM’s proposal as “unreasonably vague and ill-defined” echoed the arguments made by the Club and its allies. Most importantly, it represents a victory for ratepayers who won’t have to pay for unnecessary generating resources to sit around. The Sierra Club’s partners in this case included the Environmental Defense Fund, Environmental Law & Policy Center, Natural Resources Defense Council, Sustainable FERC Project, Union of Concerned Scientists, and New Jersey Board of Public Utilities.
The Sierra Club is also an intervener in several related cases, working with our allies to ensure that proposed revisions to PJM’s capacity market rules do not unfairly disadvantage participation by renewable energy and demand side resources. Aside from the polar vortex, the other impetus for these revisions is the D.C. Circuit’s opinion setting aside FERC Order 745, which governs the participation of demand response resources in wholesale energy markets. Trade associations representing generators have filed complaints with FERC arguing that this decision applies equally to the participation of demand response resources in the capacity markets operated by PJM and ISO-New England. The Sierra Club and others have opposed those complaints, arguing they are premature while the U.S. Supreme Court considers whether to review the D.C. Circuit’s opinion, and that the lower court’s opinion, even if upheld, applies only to wholesale energy markets and not the very distinct capacity markets.