PJM Interconnection, a regional transmission organization, manages the electrical grid for thirteen states and the District of Columbia. To ensure grid reliability, PJM holds annual capacity auctions where providers bid commitments to supply electricity. Since 2009, PJM allowed Energy Efficient Resources (EERs)—projects that reduce electricity consumption—to bid in these auctions. This was permitted to offset a four-year lag in PJM's statistical load forecast, which delayed the recognition of energy savings. Under the 2009 tariff, if an EER project cleared an auction, it could bid in up to three additional consecutive auctions. Affirmed Energy, LLC, a company that aggregates these capacity reductions, relied on this multi-year eligibility to structure its business and invested $50 million in EER projects. In 2024, PJM updated its load forecast to capture EER effects immediately, eliminating the need for the lag. Consequently, PJM proposed a tariff amendment to sunset EER eligibility starting with the 2026/27 delivery year. FERC approved the amendment, finding it would reduce costs for end-use customers without compromising reliability. Affirmed Energy petitioned for review, arguing the amendment retroactively divested it of vested rights and was arbitrary and capricious.
The court addressed two primary claims: whether the amendment violated the filed-rate doctrine through retroactivity, and whether FERC's decision was arbitrary and capricious. Regarding retroactivity, the court applied the rule that a regulation is not retroactive merely because it upsets expectations based on prior law. The court distinguished this case from precedents where past transactions were undone. Here, FERC's order did not strip Affirmed of payments already received or render past actions illegal. Instead, it altered the future effect of Affirmed's conduct by changing eligibility for future auctions. The court noted that Section L.4 of the tariff was itself prospective, setting forth what PJM intended to do if a bid cleared, but did not create an unalterable guarantee for future years. The court found FERC's orders were not impermissibly retroactive under established caselaw. On the arbitrary and capricious claim, the court held that FERC met its duty to critically review PJM's analysis. FERC did not rubberstamp PJM's submission; it explained why the updated load forecast was reliable, citing the use of public data from the Energy Information Administration, the incorporation of end-use intensity values, and refinements based on stakeholder feedback. The court also found FERC properly considered Affirmed's reliance interests. While FERC acknowledged that the decision might undermine incentives to invest in EERs, it determined that the benefits of reduced consumer costs and maintained grid reliability outweighed those costs. FERC also noted that PJM would honor existing capacity commitments, mitigating the harm to Affirmed's sunk investments.
The decision allows PJM to exclude Energy Efficient Resources from capacity auctions starting with the 2026/27 delivery year. This change is expected to lower costs for end-use customers by removing the 'addback' mechanism that previously required utilities to pay for EER capacity without a corresponding reduction in reliability requirements. Affirmed Energy must cease bidding its existing EER projects in future auctions, though it retains revenue from projects that cleared prior auctions. The ruling leaves open the question of how FERC will handle reliance interests in future tariff changes where vested rights are more clearly defined.
Podcast (federal-narrative-summaries): Play in new window | Download