Advanced Energy Management Alliance v. Federal Energy Regulatory Commission
2017 U.S. App. LEXIS 10815
| D.C. Cir. | 2017Background
- PJM Interconnection operates a regional capacity market where resource owners commit to be available to produce electricity (capacity) and are paid via annual auctions at a market-clearing price.
- PJM observed persistent underperformance (notably winter 2014 outages) and older thermal plants retiring, increasing reliability risk and motivating reforms to ensure committed resources actually deliver.
- PJM filed capacity-market rule changes under FPA §205 (Capacity Performance Filing) and a related §206 complaint to change Operating Agreement terms (Energy Market Filing); FERC approved the §205 filing and granted §206 relief.
- Key elements of the approved reforms: narrower exemptions for nonperformance, much stiffer penalties for failing to perform, bonus payments for excess delivery, a default offer cap reflecting new penalties/bonuses, a year-round performance requirement with limited aggregation for seasonal resources, and revised demand-resource performance metrics.
- Multiple petitioners (utilities, state commission, environmental groups, demand-response trade association) petitioned for review raising challenges on cost-benefit analysis, statutory procedure (§205 vs §206), penalty formula, offer cap, year-round requirement and aggregation limits, demand-resource measurement, and treatment of operating-parameter constraints.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of cost-benefit analysis | FERC failed to properly weigh costs; relied on optimistic study and understates costs | FERC reasonably balanced reliability benefits against higher costs and relied on evidence including Exelon study | Court deferred to FERC’s reasoned balancing; decision not arbitrary or capricious |
| Use of §205 filing together with §206 changes | FERC impermissibly "bootstrapped" by accepting PJM §205 changes then using them to justify §206 changes to Operating Agreement | PJM may file under §205; §206 may be used concurrently when §205 effects render other provisions unjust and unreasonable | Court upheld concurrent approach; FERC acted within authority and reasonably explained §206 findings |
| Penalty formula (30-hour estimate) | 30 emergency hours is too high, producing a low penalty that won’t ensure performance | 30 is within historical range; FERC explained choice and monitored review; penalty balances incentives and market risk | Court upheld FERC’s 30-hour estimate and penalty formula as reasonable |
| Default offer cap level | Cap is too high and will inflate capacity prices and harm consumers | Cap accounts for lost bonus/opportunity costs under new rules and is competitive for low-cost resources; mitigated by market behavior and penalties | Court sustained cap as reasonably reflecting incentives and opportunity costs |
| Year‑round performance requirement & aggregation limits | Year‑round standard unduly discriminates against seasonal (wind/solar) resources; aggregation allowance and limits are inadequate or arbitrary | Year‑round availability is key to reliability; aggregation for non‑year‑round resources is a reasonable accommodation; limits (LDA, no portfolio bidding) preserve deliverability | Court found year‑round requirement and aggregation rules just and reasonable; not unduly discriminatory |
| Demand-resource performance metric (recent-peak vs annual-peak) | Recent-peak method departs from prior practice and improperly measures capacity value for non-summer months | Recent-peak better reflects true base usage in non-summer months and incentivizes winter availability under Capacity Performance | Court upheld recent-peak method as reasonably explained and appropriate for year‑round product |
| Operating-parameter exceptions to penalties | Penalizing resources for unit-specific parameter constraints is inconsistent with energy-market rules and unreasonable | Capacity market commitments differ; penalizing limits incentivizes reducing constraints and improving reliability | Court deferred to FERC/PJM policy choice; treating parameter limits differently in capacity market is reasonable |
Key Cases Cited
- Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir.) (background on capacity as commitment)
- Hughes v. Talen Energy Mktg., L.L.C., 136 S. Ct. 1288 (U.S.) (discussion of PJM capacity-market structure)
- Elec. Power Supply Ass’n v. FERC, 136 S. Ct. 760 (U.S.) (deference to FERC where reasoned decisionmaking supported by record)
- Blumenthal v. FERC, 552 F.3d 875 (D.C. Cir.) (standard for FERC reasoned balancing)
- Consol. Edison Co. of N.Y., Inc. v. FERC, 510 F.3d 333 (D.C. Cir.) (costs may be just and reasonable when warranted)
- PPL Wallingford Energy L.L.C. v. FERC, 419 F.3d 1194 (D.C. Cir.) (burden when FERC changes methodology under §206)
- Alabama Elec. Coop., Inc. v. FERC, 684 F.2d 20 (D.C. Cir.) (discussion of undue discrimination)