Maryland and New Jersey’s state utility boards August 24 petitioned the US Court of Appeals for the Fourth Circuit to review FERC’s approval of PJM’s initial Reliability Pricing Model (RPM) capacity auctions. The state regulators, joined by more than a dozen other petitioners, argued before FERC that “[t]he absence of price discipline provided by new capacity resources and the ability of existing resources to withhold some capacity within the RPM rules combined to produce capacity prices in the transition period that are not comparable to those that would be produced in a competitive market or determined under cost-based regulation.” As a consequence, the state parties asked FERC to re-compute four RPM auctions (for delivery years 2007-8, 2008-9, 2009-10, and 2010-11), which were allegedly over-inflated. FERC roundly rejected these arguments, finding that the state parties’ requested relief was “not exactly clear” and that no violation of the RPM Settlement Agreement or the PJM tariff was evident, and therefore dismissed the complaint.

Similar challenges to other capacity markets have recently failed. In one recent appeal, the US Court of Appeals of the District of Columbia Circuit rejected the Connecticut utility board’s arguments that ISO-NE’s capacity markets unlawfully intruded on state’s rights — a ruling for which the Connecticut board and a score of other state regulators are presently petitioning for Supreme Court review.

While it is rare that a reviewing court would take action to overturn the clearing prices in past auctions for which service already has been provided, this proceeding is of great interest to the industry based upon the potential consequences of such a result.