On November 12, 2020, FERC accepted two compliance filings submitted by PJM Interconnection, L.LC. (“PJM”) in which PJM proposed updates to its reserve market and forward-looking energy and ancillary services offset (“E&AS Offset”) used in PJM’s capacity market. Commissioner Glick filed a partial dissent, stating that, while he agreed with the implementation of the E&AS Offset, the order was otherwise implementing an unjust and unreasonable rate.

In March of 2019, PJM submitted proposals asserting that the reserve market provisions of its Tariff and operating agreement were unjust and unreasonable, and proposing a replacement reserve market design. FERC agreed with PJM’s assessment in a May 21, 2020 order, finding PJM’s existing reserve market design to be unjust and unreasonable (see May 28, 2020 edition of the WER). FERC accepted PJM’s proposed replacement design and further directed PJM to clarify the rules for resource eligibility to provide reserves, the determination of reserve capability for certain types of resources, and the removal of caps on demand response resource participation in reserve markets. FERC also held that the replacement reserve market design would render PJM’s existing methodology for calculating its E&AS Offset unjust and unreasonable, and directed PJM to implement an updated, forward-looking E&AS Offset. In response, PJM submitted two compliance filings, with the first proposing the FERC-requested revisions to the replacement reserve market design (“First Compliance Filing”) and the second proposing revisions to incorporate a forward-looking E&AS Offset (“Second Compliance Filing”). Subsequently, on November 3 2020, FERC upheld its May 2020 order, but did not respond to the compliance filings (see November 12, 2020 edition of the WER).

In its November 12, 2020 order, FERC accepted PJM’s First Compliance Filing and established May 1, 2022 as the effective date for the reserve market reforms proposed in that filing. FERC approved PJM’s proposals: (i) to designate clear resource classes as incapable of providing reserves for each reserve product, (ii) to update the reserve capability ramping rates, and (iii) to remove minimum reserve requirements percentage caps that could be met by demand response resources.

FERC also accepted PJM’s Second Compliance Filing and established November 12, 2020 as the effective date of those revisions. FERC found that PJM complied with FERC’s directive to implement a forward-looking E&AS Offset and approved PJM’s proposals: (i) to use publicly available futures prices from liquid trading hubs in the E&AS Offset methodology, (ii) to use forward prices averaged over the 30-day period that ends 180 days before the Base Residual Auction to be just and reasonable, (iii) on how PJM will determine the E&AS Offset for the PJM region, (iv) to use historic prices, rather than future projections, in its projected E&AS Offset dispatch model, and (v) to use historical and projected energy prices to develop forward regulation prices. Finally, FERC found that it was not necessary to direct PJM to provide to the Commission and stakeholders or in additional filings, any other additional information on implementation of the reforms. FERC, however, directed PJM to file further Tariff changes related to nuclear refueling within fifteen days of the November 12, 2020 order.

In Commissioner Glick’s partial dissent, he echoed his dissenting opinions to the May 21, 2020 and November 12, 2020 orders, stating that such orders implemented an unjust and unreasonable rate and “abdicated the Commission’s responsibility to protect consumers from unjust and unreasonable rates and were fundamentally arbitrary and capricious.” However, Commissioner Glick did agree with the implementation of PJM’s E&AS Offset, stating that, while not perfect, it would help to ensure that PJM’s markets work in concert.

FERC’s November 12, 2020 order is available here.