In a decision issued on July 7, 2017, the U.S. Court of Appeals for the D.C. Circuit vacated revisions to the PJM Interconnection, L.L.C. (“PJM”) Minimum Offer Price Rule (“MOPR”) that had been proposed by the Federal Energy Regulatory Commission (“FERC”) in response to a filing submitted by PJM pursuant to section 205 of the Federal Power Act (“FPA”). In relevant part, PJM’s proposal sought to eliminate the existing unit specific review exemption of the MOPR and replace it with two categorical exemptions – the competitive entry exemption and the self-supply exemption. PJM also proposed to extend the MOPR mitigation period from one to three years. PJM’s proposal was the first capacity market proposal to garner the support of over two-thirds of PJM stakeholders. FERC found that the PJM proposal was not just and reasonable and proposed several modifications to resolve the deficiency, including retention of the unit-specific review process (in addition to the new categorical exemptions) and retention of the original one year mitigation period. PJM agreed to FERC’s proposed modifications.

Multiple generation owners petitioned for review of FERC’s orders effectuating the revisions, arguing that FERC exceeded its authority under FPA section 205 by creating a new rate, as opposed to merely accepting or rejecting what PJM proposed. The D.C. Circuit agreed with petitioners, finding that FERC’s proposed revisions constituted an “entirely different rate design” than what PJM proposed or what existed prior to PJM’s proposal. Specifically, FERC’s proposals expanded the availability of MOPR exemptions, when PJM intended to do the exact opposite through its proposal. This, the Court concluded, exceeded FERC’s “passive and reactive” role in reviewing rate filings under FPA section 205. Having found FERC exceeded its statutory authority, the Court vacated FERC’s orders with respect to unit-specific review, the competitive entry exemption, the self-supply exemption and the mitigation period of the MOPR.

While providing clear guidance on the limits of FERC’s authority under FPA section 205, the practical effects of the decision remain uncertain pending the outcome of remand proceedings. It is unclear whether FERC will revert to the prior incarnation, which provides for a unit-specific exemption and a one year mitigation period, or if it may attempt to use authority under FPA section 206 to keep the current regime in place.