The PJM Interconnection’s last power capacity auction went over like a bad joke in church, and now it looks like we’re going to have to wait to hear the punchline of the next one.
PJM plans to postpone its next base residual capacity auction for approximately six months to address a complaint calling for reforms, the grid operator announced late last week. PJM was preparing to hold a capacity auction in December for the 2026-27 delivery year, but will instead ask the Federal Energy Regulatory Commission (FERC) for time to “answer the complaint in defense of its existing market rules.”
PJM’s previous auction saw the total capacity bill for the region increase from $2.4 billion to about $14.7 billion, and some of that difference will be passed on to PJM’s customers starting in mid-2025. Next June, Maryland ratepayers could see their electricity bill increase by as much as 29%.
In September, Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project, and Union of Concerned Scientists filed a complaint against PJM related to specific aspects of PJM’s capacity market, the Reliability Pricing Model (RPM). PJM’s market monitor, the Organization of PJM States (OPSI) supports the complaint, which argues that PJM’s capacity market auction rules are unjust and unreasonable because they fail to account for the resource adequacy contributions of Reliability Must Run (RMR) units in the capacity auction, inflating costs. Earlier this month, FERC asked PJM for an answer on the treatment of RMR units and a decision on whether or not it will opt to delay its next auction by October 17.
PJM contends the “issues raised in the complaint are complex and affect other aspects of the RPM market design,” meaning there’s no quick way to handle this matter.
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“PJM does not take auction delay lightly, as the schedule for these auctions has already been compressed due to previous reform efforts,” the grid operator said in a statement, referencing its already scrunched timeline that would’ve crammed two capacity auctions into 2024 and another pair into 2025.
“However, this approach improves market certainty and provides a path for resolution before the next Base Residual Auction. This additional time will allow the Commission to deliberately consider the complex issues raised by the complaint,” PJM continued. “Further, this delay will allow PJM to discuss with its Members, stakeholders, and the PJM Board of Managers the possibility of other capacity market reforms that could occur through a Federal Power Act section 205 filing.”
PJM says it will continue to prepare for a December auction in case the FERC does not grant its request for a delay.
On Friday, PJM submitted a robust response to the market monitor’s report, punching back at accusations over the way it handles RMRs.
“PJM remains concerned that forcing RMR units into the supply stack as a matter of policy could put downward pressure on the capacity price signal at the very time that new capacity is needed,” the grid operator argued.
A report analyzing the potential effects of July’s capacity auction by Synapse Energy Economics commissioned by the Maryland Office of People’s Council found the primary impetus for the rate increase in the BGE zone to be the RMR contracts for Talen’s Brandon Shores and Wagner power plants. While PJM builds out more transmission, it is arranging for the continued operation of four units past their proposed retirement date in June 2025. The plants would continue to operate under an RMR arrangement and receive payments funded through customer rates outside of the competitive wholesale power markets.
The report indicates residential electricity bills will go up by 14% in that region as a result of keeping those plants online for resiliency. Ratepayers in the Allegheny Power System (APS) zone can expect to see their bills go up by about 24%; in the Pepco zone, 10%, and by 2% in the Maryland portion of the Delmarva Power South zone, per the Synapse report.
According to numerous industry experts, the PJM price hikes are driven by the cumulative effect of years of struggling to get more renewable generation interconnected. At the end of 2023, PJM had 3,309 projects – mostly solar and battery storage – waiting to connect to the grid.
PJM anticipates at least 40,000 MW of load growth by 2039 and expects to lose at least 40,000 MW of fossil fuel generation by 2030, factors the grid operator believes played into the higher-than-expected prices of its last capacity auction. Virtual power plant operator Voltus and behind-the-meter solar and battery company Sunrun recognize PJM’s market conditions as an unprecedented incentive to maximize the capacity of existing resources, including flexible commercial and industrial loads and behind-the-meter DERs.
