D.C. Circuit Upholds New Rules for Consistent Energy Delivery

WASHINGTON (CN) - The D.C. Circuit on Tuesday upheld the Federal Energy Regulatory Commission's approval of new rules for how energy providers ensure consistent electricity when periods of high demand put stress on the power grid.

The rules first came up when PJM Interconnection, the organization that oversees the electrical grid for 13 states across the mid-Atlantic and Midwest, tried to solve the stress to the grid that came with the cold winds of the 2014 polar vortex.

PJM proposed the rules to change a market it operates where energy providers bid on the responsibility to provide electricity at times of unusually high demand, according to the D.C. Circuit's opinion filed Wednesday.

During the polar vortex, 22 percent of energy providers in the PJM network failed, leading to higher costs and power outages, according to the opinion.

The rules put in place new penalties against providers that did not deliver electricity when called on and allowed them to make higher bids for the responsibility than had previously been allowed under the old regime, according to the opinion.

But nine energy and environmental groups challenged the rules in court for a number of reasons, including that they relied on unreasonable estimates for emergency hours and that a requirement that required predictable outputs from all providers discriminated against energy sources like wind and solar that are only reliable at certain times of the year, according to the 32-page opinion authored by three judges.

Providers argued the changes would bring a host of problems to the emergency power marketplace, from causing some sources of energy to overpromise their capacity to edging renewable energy sources out of the bidding, according to the opinion.

Under the new rules, for example, solar plants can only offer what they expect to produce in the winter, their lowest output of the year. The rules allow renewable sources to pool, paring summer-peaking solar with winter-peaking wind together in one bid, but the challengers said this still put renewable resources at a disadvantage to traditional power sources that have relatively reliable output, according to the opinion.

But the D.C. Circuit did not find any of the challengers' arguments particularly persuasive, denying their petitions for review after finding the Federal Energy Regulatory Commission reasonably explained why it approved the changes to the market system.

"The commission balanced the benefits of the revised rules against the increased costs and reached a reasoned judgment," U.S. Circuit Judge A. Raymond Randolph wrote in the section of the opinion he authored, which covered challenges to the cost-benefit analysis done on the new rules. "The commission's decision was not arbitrary or capricious."

One of the petitioners in the suit, the Advanced Energy Management Alliance, said in a statement that it was "disappointed" in the ruling but that it is still considering legal options for the future.

"Consumers will be directly impacted by the reduction in choice and the ability to save on their electric bills since the decision means that certain seasonal resources - in particular residential demand response and renewable resources - could be forced out of the market altogether," Katherine Hamilton, Advanced Energy Management Alliance's executive direction, said in a statement.

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