On January 16, 2025, FERC approved a contested settlement agreement and rate schedule governing the provision of reliability must-run (“RMR”) service from the Indian River Unit 4 generating facility (“Unit 4”) in PJM Interconnection, L.L.C. (“PJM”).
Under the PJM Open Access Transmission Tariff (“Tariff”), generation owners must notify PJM at least 90 days before deactivating a unit. PJM will then study the proposed deactivation’s impact on reliability. If PJM determines that the generator deactivation will adversely affect reliability, PJM will inform the owner and provide an initial estimate of the amount of time it will take to complete necessary transmission system upgrades. Upon notification of reliability concerns, the generation owner can elect to continue operating and provide RMR service until the transmission upgrades are completed. Owners that do so may either (i) file a cost of service recovery rate with FERC to recover the entire cost of operating the unit until it is deactivated, or (ii) receive a “Deactivation Avoidable Cost Credit.”
In June 2021, Indian River Power, LLC (“Indian River”) notified PJM of its intent to retire Unit 4 in May of the following year. After PJM identified reliability concerns associated with the proposed deactivation, Indian River agreed to continue operating Unit 4 past its proposed deactivation date, subject to entering an RMR arrangement acceptable to Indian River. NRG Power Marketing LLC (“NRG-PML”), Indian River’s affiliate, subsequently filed an RMR rate schedule (“NRG-PML Rate Schedule”) with FERC, which FERC accepted subject to refund and established settlement judge proceedings. While those proceedings were still pending, NRG Business Marketing LLC (“NRG-BML”), the successor to NRG-PML, filed a substitute RMR rate schedule (“Substitute NRG-BML Rate Schedule”) with FERC in March 2024. FERC similarly accepted the Substitute NRG-BML Rate Schedule subject to refund and the ongoing settlement proceedings.
On July 19, 2024, the presiding settlement judge submitted a report of contested settlement that revised the rates, terms, and conditions for the continued operation of Unit 4. Among other items, the settlement revises the cost of service recovery rate for Unit 4 and provides that Unit 4 will not be subject to any must-offer obligation in the PJM capacity market. FERC Trial Staff filed comments supporting the settlement and the PJM Independent Market Monitor (“IMM”) and Maryland Office of People’s Council (“Maryland OPC”) in turn filed comments opposing the settlement, arguing, inter alia, that the settlement provides excessive compensation for Unit 4’s continued operation and inappropriately allows NRG-BML to recover sunk costs.
On January 16, 2025, FERC rejected the IMM’s and Maryland OPC’s arguments and approved the contested settlement. In particular, FERC concluded that generating units that would otherwise deactivate but which are needed to remain online for reliability purposes can recover sunk costs under FERC policy, and that the PJM Tariff similarly permits the recovery of a full cost of service rate, including sunk costs.
A copy of the order, found in Docket No. ER23-2688-002, can be accessed here.