On February 20, 2015, FERC rejected PJM Interconnection, L.L.C.’s (“PJM”) proposed tariff revisions to enter into out-of-market capacity contracts to address resource adequacy concerns for the 2015/2016 delivery year because the proposal was “unreasonably vague and ill-defined.”  As such, FERC denied PJM’s requested authority to compensate retiring generators to remain in-service.  FERC did, however, accept a separate but related resource adequacy waiver request that would allow PJM to retain 2,000 megawatts (“MW”) of capacity that PJM would have otherwise been required to release during the 2015/2016 delivery year.

FERC’s order originated from two separate filings made by PJM on December 24, 2014.  In one of the filings, PJM stated that it had originally secured enough capacity through its capacity auction to satisfy its reliability requirement.  However, PJM explained that a high number of expected generator retirements, coupled with decreased generator performance and a recent ruling vacating FERC’s demand response rule (see May 27, 2014 edition of the WER), may leave PJM with a 2,600 MW capacity deficiency in the upcoming delivery year.  Therefore, PJM requested authority to enter into capacity contracts, without holding a special auction, with generators that are retiring and/or with planned resources that have not yet started service.  PJM stated that these contracts would be subject to FERC approval pursuant to Federal Power Act section 205, and that they would be paid for  by Load Serving Entities on a pro rata basis.

Separately, PJM requested a limited waiver of its tariff provisions that require PJM to release capacity in excess of its reliability requirement for the 2015/2016 delivery year.  PJM explained that its waiver request was being made in the event that its concerns regarding the availability of demand response resources and decreased generator performance materialize.

In its order addressing both PJM filings, FERC approved PJM’s waiver request but rejected PJM’s tariff revisions for out-of-market capacity contracts.  With regard to the waiver, FERC agreed with PJM that the release of the 2,000 MWs could threaten PJM’s ability to serve load and yield a reserve margin below the established reliability requirement.  FERC also explained that PJM demonstrated that the waiver is of limited scope, remedies a concrete problem, and will not have undesirable consequences, such as harming third parties.

With regard to PJM’s proposal to enter into out-of-market capacity contracts, FERC held that PJM had not demonstrated that an out-of-market construct was necessary to address its resource adequacy concerns.  Furthermore, FERC stated that PJM’s tariff contains no criteria for determining how much additional capacity would be required through out-of-market capacity contracts, and without such criteria, FERC would not be able to determine whether such contracts were necessary or whether the agreed-upon prices were just and reasonable.  Finally, FERC noted that it was rejecting PJM’s proposed tariff revisions without prejudice, which would allow PJM to resubmit a fully explained and justified proposal at a later date in time.

A copy of FERC’s order is available here.