Third Circuit Court of Appeals Upholds Federal Order Enabling Renewable Energy Generators to Fairly Compete in Capacity Markets

December 1, 2023: After years of advocacy by Sierra Club and its coalition partners, the U.S. Court of Appeals for the Third Circuit issued an order upholding a decision by the Federal Energy Regulatory Commission (FERC) to eliminate an artificial barrier preventing clean energy generators from participating in wholesale energy markets. The grid operator for 13 states in the mid-Atlantic and Ohio Valley, known as PJM Interconnection, runs an annual "capacity" market to procure commitments by generators to be available to produce power three years ahead of time. This market costs consumers as much as $10 billion each year, much of which flows to fossil fuel generators that rarely run. Since 2019, a "minimum offer price rule" (MOPR) required any power plant supported by state clean energy policies to offer into the capacity market at a price far above its actual costs. The intent and effect of this rule was to prevent these resources from competing with fossil fuel plants, and to keep capacity prices paid by the region's 65 million customers elevated, despite the low cost of clean energy. 

After litigation and substantial pressure from states, consumer advocates, and environmental organizations, PJM filed new rules in 2021 with FERC that largely eliminated the MOPR—thereby enabling generators supported by state policy such as wind and solar plants to offer into the capacity market at their actual, affordable costs. Fossil fuel generators fought this change at FERC, but the four commissioners deadlocked on the new rules, meaning that they went into effect automatically. The fossil fuel generators challenged this result in the federal court of appeals, arguing that the new rules were automatically invalid due to the lack of a Commission order approving them. Resolving the case required the Third Circuit to first interpret a recent amendment to the Federal Power Act regarding the nature of judicial review in these circumstances–the first time any court had the opportunity to do so. The Third Circuit concluded that the Federal Power Act, which required each commissioner to issue a written statement explaining how they would have voted in the case, called for the court to review the statements of the two commissioners who supported PJM's filing to determine whether FERC's action passed legal muster. The court then rejected every argument made by the fossil generators that the more limited MOPR would result in unreasonably low revenues for suppliers in the market.

This decision by the Third Circuit culminates years of advocacy by Sierra Club and other public interest and consumer organizations to enable clean energy resources supported by state policies to fairly participate in PJM's capacity market, so that fossil fuel plants are not unnecessarily retained for reliability. 

Sierra Club was represented in this case by Environmental Law Program Attorneys Casey Roberts and Megan Wachspress, and by Earthjustice senior attorney Danielle Fidler.