Pennsylvania Gov. Josh Shapiro has reached an agreement with PJM Interconnection over a lawsuit concerning potential “significant” electricity price increases in the 13-state territory.
Shapiro filed a lawsuit with the Federal Energy Regulatory Commission (FERC) against PJM in December, claiming flaws in the grid operator’s capacity auction design that threatened to impose significant new price increases. The agreement will avoid “historic” price hikes in PJM, saving consumers over $21 billion over the next two years, Shapiro’s office said.
The governor said he worked with PJM to lower the capacity auction price cap – from over $500/MW-day to $325/MW-day. Left unaddressed, PJM’s next capacity auction scheduled for July 2025 would have resulted in “billions in unnecessary energy costs” for 65 million people across the region, Shapiro’s office claimed.
PJM – which is headquartered in the commonwealth of Pennsylvania – coordinates wholesale electricity for customers across 13 states. The grid operator has been under increasing pressure from state governors, advocates and consumer protection agencies to reform its current rules, which they believe give utilities and energy conglomerates an outsized say in generation and transmission planning.
“When PJM’s next auction was set to result in historic price hikes, I filed a lawsuit to stop this price hike on consumers and defend Pennsylvanians,” said Governor Shapiro. “PJM did the right thing by listening to my concerns and coming to the table to find a path forward that will save Pennsylvanians billions of dollars on their electricity bills. My Administration will continue to work to ensure safe, reliable, and affordable power for Pennsylvanians for the long term.”
PJM and the Shapiro administration have agreed to a path forward for the complaint, subject to consultation with PJM members and the PJM Board of Managers. In order to avoid further delays to the auction schedule, PJM will soon seek a FERC order by proposing a cap and floor mechanism through an FPA section 205 filing with the FERC.
Sticker shock
The concerns grew louder after PJM’s capacity auction last July, when electricity prices jumped over 800%, going from $29 per megawatt day to $270. Insufficient future transmission planning, the retirement of fossil-fired generation, long interconnection queues and the implementation of FERC market reforms are all factors in the price hikes. PJM’s next capacity auction is scheduled for July 2025.
The short explanation behind the price hikes: supply and demand. A longer line of reasoning includes insufficient future transmission planning, the retirement of fossil fuel generation, long interconnection queues and the implementation of FERC-approved market reforms.
When the lawsuit was filed, PJM said it had been approving new, mostly renewable generation projects for a grid connection “at a record pace.” The grid operator said it had approved approximately 50,000 MW of such projects, most of which have not been connecting to the grid fast enough because of factors outside the organization’s control, including state permitting, project financing and global supply chain challenges.
However, national trade association Advanced Energy United points out PJM scored a “D-” in a recent scorecard of how all grid operators are managing “generator interconnection,” the process of connecting energy projects to the power grid. PJM’s interconnection process was going so poorly it shut down its interconnection queue until sometime in 2025. Hundreds of projects are still stuck waiting in line. A 2023 report from Americans for a Clean Energy Grid graded PJM a “D” for its process of building new transmission lines, which are needed to connect energy projects to population centers.
PJM Board Chair Mark Takahashi sounded a dire warning in a Dec. 9 letter from the Board (PDF).
“Taking the anticipated 2025 Long-Term Load Forecast into account, the PJM system could see a capacity shortage as soon as the 2026/2027 Delivery Year,” he said.
To try and mitigate the risk of such an outcome, PJM has supported actions such as bringing capacity online more expeditiously through the interconnection queue and making sure price signals accurately reflect current supply-demand fundamentals.
Takahashi went on to say, “We do not expect that these filings, taken in aggregate, will fully resolve the resource adequacy challenge that we are facing, but we believe we must take the entire suite of actions to address the immediate reliability need.”
Gov. Shapiro proposed solutions to protect against rising costs, such as the reopening of the interconnection queue to bring new generation projects online. Other proposed solutions include member states helping determine project readiness and speeding up approval processes, adopting FERC’s best practices to better prepare for extreme weather, and lowering capacity price caps.
Originally published in Factor This Power Engineering.
