Rehearing requests challenging a PJM Interconnection LLC capacity market overhaul were effectively denied Nov. 29 by the Federal Energy Regulatory Commission, setting the stage for a high-stakes legal battle as the grid operator prepares to run a series of capacity auctions under contested rules.

The new rules took effect automatically Sept. 29 due to a 2-2 deadlock at the commission, with members split along party lines over PJM's plan to accommodate state-subsidized clean energy resources such as offshore wind in its multibillion-dollar capacity market. PJM capacity market participants have been dueling for years over how to deal with alleged price suppression caused by state subsidies.

In December 2019, FERC's Republican majority attempted to resolve the long-running dispute by directing PJM to expand its minimum offer price rule, or MOPR, to market participants receiving material state subsidies.

However, the order (EL16-49, EL18-178) prompted some states such as New Jersey, which is actively developing thousands of megawatts of offshore wind generation, to consider leaving the market entirely. Dominion Energy Inc. did flee the market, citing a Virginia law requiring the use of 100% clean energy by 2050.

PJM responded by filing a "focused MOPR" proposal (ER21-2582) with FERC in July that allows state-subsidized energy resources to avoid submitting artificially high capacity market bids so long as they do not participate in state policies or programs "conditioned" on a resource clearing the market or making offers at a specific price.

That filing became effective by operation of law under the Federal Power Act after a deadlocked FERC failed to act on it within 60 days. Multiple rehearing requests Nov. 29 were similarly automatically deemed denied after the commission failed to act on them within 30 days.

The PJM Power Providers Group is now seeking judicial review before the U.S. Court of Appeals for the 3rd Circuit. The pending case, PJM Power Providers Group v. FERC (No. 21-3068), could provide the first legal test for a special section of the Federal Power Act aimed at resolving disputes over FERC orders that take effect automatically because the commission is deadlocked.

Meanwhile, PJM is set to hold its next capacity auction covering the 2023-2024 delivery year Jan. 25, 2022. Under a condensed timeline, PJM plans to run subsequent auctions Aug. 9, 2022, Feb. 28, 2023, and Aug. 29, 2023.