Court Denies Challenge to PJM?s Reliability Pricing Model
On February 8, 2011, a federal court denied a challenge made by two public utilities commissions, to FERC?s orders approving PJM Interconnection, LLC?s (PJM) 2005 proposed Reliability Pricing Model (RPM), which was designed to encourage investment in electrical capacity. Maryland Public Service Commission v. Federal Energy Regulatory Commission, No. 09-1296 (D.C. Cir. Feb. 8, 2011).
The RPM was implemented in 2007 and reflects a long-term approach to making capacity commitments through a competitive auction setting price signals to stimulate investment in maintaining existing generation and in the development of new sources of capacity. Its locational pricing features are intended to account for the differing needs for capacity in areas within PJM. After the proposal was filed at FERC, most parties became parties to a filed settlement agreement. The petitioners here argued that the RPM allowed electric capacity suppliers to exercise their market power and inflate prices.
Given evidence cited by the decision, the federal court concluded that FERC reached the right conclusion that RPM was ?an appropriate tool for increasing reliability in electricity markets, that the RPM did precisely what it was intended to do . . . and that the price hikes in its wake were attributable to legitimate causes, not the suppliers? exercise of market power.
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