Following OPC’s appeal to federal court, agency reverses course on regional electric market rules that would have cost consumers billions
BALTIMORE – A proposal of the regional electric transmission organization covering Maryland that could have cost consumers up to $2 billion a year in increased costs will not proceed after federal regulators reversed course last week, following a federal court appeal by the Office of People’s Counsel. The new ruling by the Federal Energy Regulatory Commission (FERC) determined that PJM, the regional organization, had not shown that certain changes it proposed to its market rules were necessary to promote the justness and reasonableness of regional rates for power generation.
“At long last, FERC made the right decision to reject PJM’s proposal to change how power companies are compensated for providing energy reserves to support system reliability,” said People’s Counsel David S. Lapp. “PJM’s proposal would have authorized PJM to buy—and bill customers—at prices far in excess of those necessary for power system reliability. FERC’s decision is a victory for consumers.”
FERC’s order addressed so-called “reserve markets” used to protect electric system reliability. In May 2020, FERC issued an order accepting most of PJM’s proposed changes to its reserve market rules. PJM itself estimated that these changes would increase customer costs by $555 million per year. Other analyses showed even higher costs.
OPC, along with other consumer representatives, challenged FERC’s decision, appealing it to the U.S. Court of Appeals for the D.C. Circuit. At FERC’s request, following changes in its composition, the court agreed to send the matter back to FERC for further consideration, which resulted in last week’s FERC ruling. The new FERC ruling found that PJM had not met its burden of showing that certain PJM rules in place prior to the May 2020 order were unjust and unreasonable, so FERC reversed the costly changes PJM had proposed.
Maryland consumers share power generation and transmission costs allocated by PJM with consumers in 12 neighboring states and D.C. FERC-jurisdictional costs flowing through PJM account for approximately 60% of the electricity bills of Maryland consumers. In its arguments, OPC disputed PJM’s claim that much higher maximum prices, compared to existing arrangements, were necessary to incentivize adequate electric generation for system reliability during times of system “stress.” FERC agreed with OPC’s position, finding that the existing pricing arrangements provided appropriate levels of compensation for maintaining system reliability.
“PJM overstated the reliability risks to the system,” Lapp said. “That overstatement meant that PJM was asking to unnecessarily impose billions of costs on PJM customers. Fortunately, FERC’s ruling should prevent that from happening.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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