According to Utility Dive, East Kentucky Power Cooperative and Kentucky’s attorney general are challenging PJM Interconnection’s proposal to allocate costs regionally for future Department of Energy emergency orders. The dispute centers on DOE’s use of Section 202(c) authority to keep aging power plants operational, including directing Constellation Energy to operate two 380-MW gas- and oil-fired units at its Eddystone power plant past their planned retirement and allowing Talen Energy’s nearly 400-MW oil-fired unit at the H.A. Wagner Generating Station to run beyond normal limits. The Federal Energy Regulatory Commission previously approved PJM’s cost allocation plan for the Eddystone units in mid-August, but PJM recently returned seeking approval for similar treatment of future emergency orders. EKPC and Kentucky’s AG argue this violates FERC’s cost-causation principle, especially since PJM’s July 2024 capacity auction cleared more capacity than needed to meet reserve margins.
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The Fundamental Battle Over Cost Causation
This dispute represents a critical test of FERC’s long-standing cost-causation principle, which holds that costs should be allocated to those who benefit from or cause them. What makes this case particularly contentious is that EKPC, as a utility that actively manages its own resource adequacy needs, argues it’s being penalized for other load-serving entities’ failure to do the same. The core question becomes whether emergency measures taken for perceived regional reliability should be socialized across all market participants, or whether individual utilities should bear responsibility for their own capacity planning decisions. This tension between regional solidarity and individual accountability strikes at the heart of how organized electricity markets function.
The Capacity Surplus Paradox
The most compelling aspect of EKPC’s argument lies in the apparent contradiction between PJM’s declared emergency needs and its market results. When PJM’s own capacity auction demonstrates surplus capacity exceeding reserve margins, it fundamentally undermines the justification for emergency measures. This creates what energy economists call a “resource adequacy paradox” – where market signals indicate sufficient supply while regulatory actions suggest scarcity. The situation becomes even more problematic when, as EKPC notes, PJM continued exporting power to neighboring regions during peak demand periods. This suggests the emergency declarations might reflect localized deliverability issues rather than genuine regional shortages, raising questions about whether the current DOE emergency authority framework adequately distinguishes between these different types of reliability concerns.
The Aging Infrastructure Transition Dilemma
Behind this regulatory battle lies a deeper structural challenge: how to manage the retirement of aging thermal generation while maintaining reliability during the clean energy transition. The Eddystone and Wagner units represent precisely the type of legacy infrastructure that environmental regulations and market economics are pushing toward retirement. However, their strategic locations and dispatchability make them valuable during extreme weather events. This creates a policy dilemma where environmental goals conflict with near-term reliability needs. The compensation mechanism PJM proposes – using “deactivation avoidable cost credit”-based rates – attempts to balance these competing interests but may inadvertently create moral hazard by providing financial lifelines to units that would otherwise retire.
Broader Legal and Regulatory Implications
The simultaneous legal challenges from multiple states and environmental groups suggest this controversy extends far beyond Kentucky. When Michigan’s attorney general, the Sierra Club, Earthjustice, and the Natural Resources Defense Council all raise similar objections, it indicates a coordinated pushback against expanded use of DOE emergency powers. The central legal question revolves around what constitutes a genuine “energy emergency” justifying federal intervention in otherwise market-driven retirement decisions. If courts ultimately side with the challengers, it could significantly constrain future administrations’ ability to use Section 202(c) authority for reliability concerns, potentially forcing more reliance on market-based solutions and forward capacity procurement.
The Future of Electricity Market Design
This controversy highlights fundamental tensions in electricity market design that will only intensify as the generation mix evolves. The transition toward renewables and distributed resources creates new reliability challenges that existing market structures struggle to address. The PJM cost allocation dispute may ultimately drive broader reforms in how capacity markets value different resource attributes and how costs for system-wide reliability measures are allocated. We’re likely to see increased pressure for more granular locational pricing and capacity constructs that better reflect actual deliverability constraints, rather than relying on blunt regional approaches that socialize costs across diverse utility circumstances.
