D.C. Circuit Vacates FERC Approval

The U.S. Court of Appeals for the D.C. Circuit vacated FERC’s approval of MISO‘s 2022 tariff amendment on September 26, 2025, ruling that the commission acted arbitrarily by eliminating reactive power compensation in MISO without giving generators a transition period. The decision in Capital Power Corporation v. FERC (No. 23-1134) does not restore payments immediately, but it forces FERC to reconsider whether generators deserved a phase-in period before losing revenue tied to reactive power dispatch within the standard 0.95 leading to 0.95 lagging power factor range.

What the Court Decided

FERC approved MISO’s tariff change to take effect the day after MISO filed it in 2022, bypassing the standard 60-day notice period. Generators in MISO had made capital investments and entered long-term contracts based on continued reactive power compensation. The D.C. Circuit found FERC failed to address those reliance interests, holding the commission’s explanation insufficient for an abrupt revenue elimination. The court vacated and remanded the orders, requiring FERC to either justify the immediate effective date or establish a phase-in period. Reactive power compensation remains unavailable in MISO during the remand process, since the ruling affects the procedural defect, not FERC’s underlying authority to eliminate the payments.

The ruling is separate from FERC Order No. 904, issued October 17, 2024, which eliminates reactive power compensation nationwide across all FERC-regulated transmission providers. Order 904 required compliance filings within 60 days and tariff changes within 90 days of those filings. PJM’s implementation takes effect June 1, 2026. NYISO’s takes effect May 1, 2026. Order 904 faces its own legal challenge in the Fifth Circuit, where generators argue the commission lacked authority to strip compensation for a service required under interconnection agreements.

Why Reactive Power Compensation Matters

Reactive power, measured in VARs, is the component of alternating current that maintains voltage levels across transmission lines. Generators supply it by operating within the deadband: producing or absorbing reactive current without generating additional real power output. FERC’s position is that this service costs generators nothing or nearly nothing in variable terms, because the generators are already synchronizing to the grid. Generator trade groups counter that embedded equipment costs, reactive capability commitments, and opportunity costs justify compensation. The dispute reflects a larger question: as renewable generators, battery storage, and STATCOM systems increasingly handle voltage support, what is the appropriate compensation framework for legacy synchronous machines that have historically provided reactive power as a required grid service?

Market Context

North America’s power factor correction equipment market reached $734.2 million in 2025 and is projected to hit $999.1 million by 2030, according to a June 2025 MarketsandMarkets report. Industrial facilities account for the largest application segment, driven by manufacturing, oil and gas, and automotive sectors where lagging power factor below 0.90 triggers utility penalties or elevated kVA billing. Automatic capacitor banks and STATCOM installations both address reactive power needs at the facility level. The regulatory uncertainty around generator compensation under Order 904 affects wholesale market incentives but does not change the fundamental physics: industrial and commercial loads that draw reactive current face power factor penalties independent of what generators receive from grid operators.

Critical Analysis

Reactive power compensation defines the economics of maintaining 0.95 power factor range across all FERC-regulated wholesale markets. Low power factor increases apparent power demand on distribution infrastructure, consuming transformer and feeder capacity without delivering useful work.

5-Year Projection

Within 5 years, these regulatory frameworks surrounding Reactive Power Compensation will strictly govern hardware procurement, rendering non-compliant legacy systems obsolete.

Related Coverage

• FERC Order 904 Eliminates Reactive Power Payments Across U.S. Grid by June 2026: FERC Order 904 nationwide elimination of reactive power payments
• FERC Order 904 Kills Reactive Power Payments: FERC Order 904 eliminates reactive power payments for generators
• FERC Order 904 Ends Generator Pay: FERC Order 904 ends generator compensation for reactive power