Winter Storm Elliott, PJM Capacity Markets, and Related Bankruptcy Issues

In late December 2022, Winter Storm Elliott brought historically cold weather to the Midwest, Mid-Atlantic and Northeast regions, accompanied by unplanned drops in natural gas production and forced outages to electric generation.  As a result of those generation outages, PJM issued almost $2 billion in “Performance Assessment Interval” penalties for failures to operate during December 23 and 24.  Enforcement of those penalties is providing the first major test of the “Capacity Performance Plan,” which PJM instituted following the 2014 Polar Vortex to encourage PJM capacity resources to operate when most needed.  The Federal Energy Regulatory Commission is now considering multiple challenges to those penalties, which also have raised novel issues in certain related bankruptcy proceedings.