FERC Order 904 Ends Generator Pay
- Power Factor Power Quality Regulatory
Marin Holt
- 0
- 5 minutes read
- FERC Order 904 issued October 2024 eliminates generator compensation for reactive power within 0.95 leading to 0.95 lagging standard band
- Rule effective January 27, 2025; compliance filings due March 28, 2025
- ISO-NE, NYISO, and PJM sought delayed effective dates to revise market rules before compliance
- D.C. Circuit vacated FERC approval of MISO reactive compensation elimination in September 2025, citing inadequate reliance-interest analysis
- Order 904 faces consolidated Fifth Circuit challenges from generators arguing the elimination is unjust and unreasonable
The Federal Energy Regulatory Commission issued Order 904 in October 2024, eliminating compensation for reactive power provided by generators within the standard power factor range of 0.95 leading to 0.95 lagging. The rule took effect January 27, 2025, affecting generator interconnection agreements across all FERC-jurisdictional RTOs and ISOs. Generators must now provide reactive support within that band as a condition of interconnection at no charge.
What Changed
Before Order 904, generators could recover costs incurred to provide reactive power within the standard band through formula rates filed with FERC. The commission argued those costs were already embedded in interconnection and transmission agreements, making separate reactive compensation duplicative. Compliance filings were due March 28, 2025. ISO-NE, NYISO, and PJM sought delayed effective dates to revise market rules. Compensation remains available for reactive power provided outside the 0.95 band and under specific ancillary service arrangements where voltage support is procured separately.
Court Challenges and MISO Complication
Order 904 faces consolidated challenges in the Fifth Circuit from generators arguing the elimination is unjust and unreasonable. Separately, in September 2025, the D.C. Circuit Court vacated FERC’s approval of MISO’s own reactive power compensation elimination, ruling that FERC acted arbitrarily by failing to consider generators’ reliance interests on that revenue stream. That ruling applies only to MISO’s pre-existing elimination, not Order 904 nationally, but it creates legal uncertainty about how FERC must evaluate reliance interests when eliminating established compensation streams. The Fifth Circuit cases will determine whether Order 904 survives judicial review nationwide.
Critical Analysis
Order 904 requires generators to provide reactive support within 0.95 leading to 0.95 lagging without compensation, but this range covers the operating conditions where large. 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 Solar will strictly govern hardware procurement, rendering non-compliant legacy systems obsolete.
Critical Perspective
The new regulation affects generator interconnection agreements across all FERC-jurisdictional RTOs and ISOs, with a specific effective date of January 27, 2025. Similar to the experience of NextEra Energy, which has had to adapt to changing regulatory requirements in the past, generators will now have to provide reactive support within the standard band at no charge. The historical precedent of the California Independent System Operator’s (CAISO) 2016 effort to reform its resource adequacy program, which ultimately led to increased costs for generators, suggests that the actual outcome of Order 904 may not align with its intended goal of reducing costs. Will the elimination of compensation for reactive power within the standard band ultimately lead to decreased investment in grid resilience and reliability?
