U.S. Appellate Court Upholds PJM Rules to Meet Peak Demand for Power

Tom Johnson | June 22, 2017 | Energy & Environment
Environmentalists, others fear new regulations from operator of the power grid will cause prices to spike when demand is highest

Power grid PJM
A federal court has upheld rules that govern how the nation’s largest grid operator pays power suppliers to provide the electricity needed to keep the lights on.

The U.S. Court of Appeals for the District of Columbia said the Federal Energy Regulatory Commission properly approved the rules developed by the PJM Interconnection, which oversees the power grid for tens of millions of people from the Eastern Seaboard to Illinois.

The rules, initiated after an extreme cold wave in 2014 strained the ability of power suppliers to meet electricity demands, were contested by several organizations, including the Natural Resources Defense Council, Sierra Club, Union of Concerned Scientists, and Earthjustice. The regulations are designed to enhance the reliability of the power grid by ensuring there is enough capacity to meet demand — even in extreme weather.

The environmental organizations echoed arguments made by others that the rules would boost prices to consumers and hinder clean-energy alternatives, such as solar and wind.

The rules, adopted by PJM after a lengthy and contentious process, also sparked concern among regulators here in New Jersey at the state Board of Public Utilities, who argued it could lead to a spike in prices for utility customers.

For the most part, those fears have not been realized, although power prices, after dropping in the first year the rules took effect, increased again in the most recent capacity auction overseen by PJM this past May.

Capacity payments are given to power suppliers to ensure they supply electricity at times of peak demand. The rules made those payments more lucrative to generators, but also imposed stiff fines on suppliers who fail to provide power when promised.

“This decision hits 65 million Americans in the pocketbook,’’ said Jennifer Chen, attorney with the NRDC. “It hits all of us where it hurts most: our right to breathe clean air. The decision upholds rules that restrict clean-energy resources from fairly competing with fossil-fuel and nuclear power plants.’’

Jeff Tittel, director of the New Jersey Sierra Club, also criticized the ruling. “What this rule does is create a massive subsidy for dirty energy by pushing aside clean energy. It is allowing dinosaurs to win at the expense of renewable energy.’’

The issue of capacity payments is particularly sensitive in New Jersey, where portions of a constrained power grid tend to spike prices for both businesses and homeowners. In the most recent capacity auction overseen by PJM, prices in New Jersey were far higher than in other portions of PJM’s territory, particularly areas west of the state’s borders.