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PJM Won't Proceed With Reliability Backstop Procurement At This Time, After FERC Says LSE Collateral Requirements May Be Unjust And Unreasonable
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PJM said in a market notice that, "At this time, PJM will not proceed with the Reliability Backstop Procurement," after a FERC decision subjected PJM's RBP filing to a five-month suspension and paper hearing process, with FERC concluding that several aspects of the RBP, "may be unjust and unreasonable".
PJM said that, "All milestones previously communicated for the RBP will be reviewed and further communicated with stakeholders at a later date."
While FERC found "certain aspects" of PJM’s proposal to be just and reasonable, FERC specifically said that the following elements of the PJM RBP proposal have not been shown to be just and reasonable: LSE collateral requirements; cost allocation; and Transmission Owner exit rules
Regarding collateral from LSEs, PJM proposed an initial credit rate of $1.5 million per committed RBP MW, which would collateralize approximately 50% of the estimated contractual value associated with RBP commitments.
However, FERC said that, "PJM does not support its 50% estimate with any quantitative measures, including an expected probability of default, a loss-given-default assumption, a historical LSE default experience, a liquidation or replacement period, or any other quantitative measure."
"PJM also fails to demonstrate how the LSE Collateral requirements strike a reasonable balance between protecting PJM’s markets and its members against the risk of default and ensuring that market participants have adequate flexibility to manage their collateral requirements," FERC said
"PJM otherwise provides little flexibility for LSEs to manage their collateral requirements, including a short timeline for posting collateral1 and limited, acceptable forms of collateral," FERC said
Regarding cost allocation, FERC expressed concern that PJM's process could have resulted in some large loads not being captured in the forecast and procurement target, which could result in costs associated with load growth not being placed on cost causers
FERC said, "Specifically, based on PJM’s explanation in a previous proceeding of the way in which it avoids double counting when accounting for Load Adjustments, and comments in this record,2 it appears some large loads may never have been accounted for as Load Adjustments because PJM accounted for them when calculating the initial load forecast. In short, the delta accounts for net load growth associated with any size or type of load, while excluding any new large loads that PJM knew of and accounted for when calculating the initial load forecast. As such, the Initial RBP Target MW may only capture a portion of new load growth, potentially leaving out some new large loads. This could lead to the costs imposed on certain entities not being at least roughly commensurate with the benefits they will receive from the procurement."
FERC noted that it may be just and reasonable for PJM to allocate RBP costs based on updated load forecast information
FERC also stressed that, "states have authority over how the wholesale costs of providing electricity, including transmission of such electricity to the retail customers, are recovered through retail rates."
While FERC set the three matters identified above for paper hearing, FERC encouraged PJM to swiftly submit a new RBP proposal without delay, addressing the issues identified by FERC and incorporating FERC's guidance
"That new filing may in turn obviate the need for the paper hearing procedures that we establish here and could expedite a potential RBP auction," FERC said
FERC Chairman Laura V. Swett said in a concurrence, "American ratepayers and utilities need urgency, clarity, and discipline -- none of which PJM appears capable of delivering at this time. The Reliability Backstop Procurement proposal came before us on the last possible statutory day to open a procurement window on September 30. Whether by accident or incompetence, that timing left the Commission no meaningful opportunity to issue a deficiency letter, seek additional record development, or establish hearing procedures to attempt to rehabilitate the mess we received."
Swett stated, "This Commission will not be forced into accepting a deeply flawed, eleventh-hour procurement mechanism with billion-dollar implications for consumers. Today we triage the issues and urge PJM to promptly remedy them in a Federal Power Act Section 205 filing. We accept certain parts of the proposal that advance urgently needed capacity procurement, find that other components require reform, and provide guidance to inform expeditious resubmission."
Commissioner David Rosner said in a concurrence, "In the longer term PJM and its stakeholders must return to market fundamentals. Load and supply should have strong incentives to hedge, manage their risks, and procure the capacity they rely upon. Market discipline -- not ad hoc backstops -- must again become the primary safeguard for reliability."
Commissioner David LaCerte said in a concurrence, "A competent and effective RTO can take this half-baked cake and finish the job. Does PJM meet that description? They’re on the clock."
Docket Nos. ER26-3380 and EL26-108
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FERC Commissioner Calls RBP "Half-Baked"
September 30, 2026
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Reporting by Paul Ring • ring@energychoicematters.com
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