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On June 9, 2015, the Federal Energy Regulatory Commission (FERC) conditionally approved significant reforms to PJM’s capacity market, implementing the Capacity Performance Resource product, with PJM’s compliance filing due within 30 days.1 FERC found such reforms were necessary to address “the confluence of changes in the PJM markets, including both recent performance issues…impacted by inadequate incentives and penalties for resource performance under its current construct and ongoing changes in PJM’s resource mix that are projected to accelerate.” PJM’s resource performance fell well below expected levels during the extreme weather events of January 2014 (i.e., during the Polar Vortex) when PJM’s 22 percent forced outage rate far exceeded its 7 percent historical average.

FERC found that PJM’s Capacity Performance proposal is intended to ensure performance and the reliability of the PJM system during extreme weather events. As approved, capacity resources necessary to perform during these events can recover their costs of doing so while facing new and substantial penalties for non-performance.2 Specifically, FERC noted that PJM’s currently effective offer cap for existing generators does not allow sellers to include in their offers the costs attributable to natural gas firm transportation contracts.

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