On February 8, 2011, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit” or the “court”) denied a petition for review filed by the Maryland Public Service Commission and New Jersey Board of Public Utilities (together, “Petitioners”).  The DC Circuit concluded that FERC had a “substantial basis on which to conclude” that the PJM Interconnection L.L.C. (“PJM”) Reliability Pricing Model (“RPM”) was an appropriate tool for increasing reliability in electric markets and did what it “was intended to do.”

The D.C. Circuit rejected the petitioners’ arguments that the PJM RPM resulted in higher electricity rates and found that FERC “adequately” explained why the new rates were just and reasonable.  According to the court, FERC instituted three mitigation measures to deal with market power concerns: (1) FERC oversees the availability of physical capacity and as a general matter, requires that suppliers offer all available capacity at RPM auctions; (2) where a supplier has market power, FERC requires PJM to substitute a proxy bid, determined by a formula that the RPM provides, in place of the actual offer; and (3) RPM encourages the entry of new suppliers into the market with auctions that set rates three years in advance of delivery.  FERC also reviewed reports by PJM’s Market Monitor and concluded that no market power was being exercised.  The D.C. Circuit upheld the Commission’s orders under the arbitrary and capricious standard.

A copy of the D.C. Circuit’s opinion is available here.