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7th Circuit, not DC Circuit, to hear challenges to PJM capacity market overhaul

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Essential Energy Insights - January 2021


7th Circuit, not DC Circuit, to hear challenges to PJM capacity market overhaul

Consolidated legal challenges to an expanded price floor in the PJM Interconnection's capacity market will be heard by the U.S. Court of Appeals for the 7th Circuit and not the District of Columbia Circuit, which hears most legal challenges to federal agency actions.

In June 2018, a split Federal Energy Regulatory Commission found that PJM's capacity market rules needed to be modified because they failed to counter price distortion allegedly caused by state subsidies for clean energy resources. After PJM proposed various fixes, FERC in December 2019, with one member dissenting, directed PJM to apply its minimum offer price rule to all new and some existing capacity resources that receive material state subsidies.

Acting on rehearing of both orders, a divided FERC in April largely upheld the findings and directives of those orders, clearing the way for opponents to seek court review. While the Illinois Commerce Commission challenged the orders in the 7th Circuit, multiple parties, including the New Jersey Division of Rate Counsel and the American Public Power Association, filed appeals at the D.C. Circuit.

On May 5, a U.S. judicial panel on multidistrict litigation revealed that the 7th Circuit had been selected to hear the consolidated appeals. While the D.C. Circuit has far more experience dealing with the legal intricacies of FERC's practices and the Federal Power Act compared to other federal appellate courts, some judges for the 7th Circuit are also familiar with such issues, including jurisdictional questions surrounding state subsidies for clean energy.

Notably, a three-judge panel for the 7th Circuit in September 2018 upheld an Illinois program that provides zero-emission credits to nuclear power plants in the state. The same panel later denied a request to revisit the decision, and the U.S. Supreme Court ultimately declined to review the lower court's ruling.

The 7th Circuit has also heard appeals of several FERC orders involving the allocation of transmission costs in the Midcontinent ISO and PJM Interconnection.

And in ruling on several consolidated cases in 2016, the 7th Circuit upheld FERC's abrogation of a provision in MISO's transmission owners' agreement granting the owners a right of first refusal to build needed new regional transmission facilities. The owners were acting like cartels in that they were seeking to protect themselves from competition from third parties, the court reasoned.

Legal challenges to FERC's minimum offer price rule orders are now consolidated at the 7th Circuit under Illinois Commerce Commission v. FERC (No. 20-1645).