On January 29, 2016, the Federal Energy Regulatory Commission (“FERC”) denied American Electric Power Service Corporation’s (“AEP”) request for a limited waiver of provisions of the PJM Interconnection, L.L.C. (“PJM”) Open Access Transmission Tariff (“Tariff”) and the Reliability Assurance Agreement (“RAA”) that impose capacity performance non-performance charges (“CPNP Charges”) on fixed resource requirement (“FRR”) entities beginning in the 2019/2020 delivery year. AEP’s waiver request stemmed from a June 9, 2015 order (see June 17, 2015 edition of the WER) in which FERC approved PJM’s capacity performance construct (“CP Construct”) that requires PJM load-serving entities to decide by March 7, 2016 whether to participate in PJM’s Reliability Pricing Model (“RPM”) capacity auction or alternatively to elect to be an FRR entity. Under the CP Construct, should AEP elect to be an FRR entity, it will be subject to (i) enhanced capacity performance rules including a requirement to submit to PJM a capacity plan that includes at least 80 percent capacity performance qualifying resources, and (ii) the requirement to implement full financial or physical non-performance assessments.

In approving the CP Construct, FERC found that a phase-in of the enhanced capacity performance rules for FRR entities is appropriate, and ordered that the capacity performance rules should not be applied until the 2019/2020 delivery year. As approved, the CP Construct will apply enhanced performance expectations, including more stringent consequences for failing to deliver energy or reserves during emergency conditions to FRR entities. It also imposes significant CPNP Charges on FRR entities that fail to comply with capacity performance rules.

On November 10, 2015, AEP filed a request for waiver of the PJM Tariff and RAA provisions implementing the CP Construct. AEP stated that it requires additional time to decide whether to remain a FRR entity given that: (i) neither PJM nor sellers in PJM have had experience with the revised rules; (ii) AEP’s state regulators have yet to release their compliance plans in response to a final rule issued by the EPA Clean Power Plan; (iii) the federal compliance option implementing EPA’s Clean Power Plan remains pending; and (iv) state and federal jurisdiction issues, including FERC’s jurisdiction over demand response, remain subject to judicial review. AEP also asserted that the waiver it proposes satisfies the Commission’s waiver standard.

PJM protested AEP’s waiver request, asserting that granting waiver would significantly reduce the incentive for FRR entities to perform during emergencies, thus diminishing reliability in the PJM region.

In its order denying AEP’s request for waiver, FERC found that AEP failed to satisfy the waiver standard because granting the waiver would be unduly discriminatory to other entities facing a similar choice between the FRR alternative and participating in PJM’s RPM capacity auction for the 2019/2020 delivery year. Specifically, FERC noted that the “uncertainties AEP describes, particularly in relation to the EPA’s Clean Power Plan, pending judicial determinations addressing state versus federal jurisdiction, and working experience with the [CPNP Charge] assessment, are not specific to AEP.”

The FERC order is available here.