The U.S. Court of Appeals for the D.C. Circuit issued an opinion denying challenges to FERC's adoption of PJM's capacity performance mechanism and design parameters.

Notably, the Court affirmed that the requirement for the capacity performance product to be an annual product (which was challenged by demand response providers) was not unduly discriminatory, and the Court found the aggregation rules to be appropriate.

However, the Court's opinion is more notable for succinctly reminding us how bad PJM's original capacity market design (which extracted billions of dollars from customers over a decade) was at achieving its supposed goal -- assuring reliability and preventing blackouts.

We will remind that, at the height of the capacity market hysteria in Texas from 2011-12, before the notion of capacity performance was conceived, capacity market proponents in Texas were heralding this ineffective and wasteful PJM design as something that should have been quickly and easily (perhaps with a few minor tweaks) bolted onto the ERCOT market to prevent rotating outages.

But the Court's opinion shows how foolhardy adopting such a toothless market design would have been

As summarized by the Court, "PJM presented significant evidence that the old capacity market was not ensuring reliable electricity. PJM explained that the system obtained sufficient capacity during auctions. But resources frequently did not perform when called upon." [emphasis added]

As summarized by the Court, "The Commission [FERC] found that PJM’s existing operating-parameter provisions were 'unjust and unreasonable because they can allow capacity resources to submit energy market offers with inflexible operating parameters that do not reflect their current, actual operating capabilities,'"

As summarized by the Court, "Such action by a capacity resource would be 'inconsistent with its obligation to make its capacity available to the PJM region, including during the most critical hours of the year,'"

"The Commission [FERC] also found that existing generator outage provisions 'impede PJM’s ability to ensure reliability' because they do not give PJM the authority to rescind approval for a planned outage when there is an emergency," the Court noted, in discussing the flaws of the prior PJM capacity market design, which for 10 years was sold to customers as assuring reliability

Link to Court opinion

Tags:
Texas   Capacity Markets  

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