After receiving two key Federal Energy Regulatory Commission decisions, the PJM Interconnection plans to hold its next capacity auction in June.
The PJM’s 2025/2026 Base Residual Auction is set to open June 12 and close June 18, with results slated to be posted June 25, the grid operator said Thursday. The schedule for pre-auction activities remains unchanged.
The announcement follows FERC’s Feb. 6 decision to reject a PJM proposal to revamp its offer cap and capacity performance rules and an earlier decision to approve a companion “modeling enhancement” plan that revises its resource adequacy risk modeling and capacity accreditation processes and bolsters its testing requirements for capacity resources.
The proposals grew out of about two years of stakeholders meetings, which were given urgency following Winter Storm Elliott in December 2022 when the grid operator narrowly avoided rolling blackouts.
In its Feb. 6 decision, FERC said PJM failed to show that several elements of its proposal were just and reasonable. They included the standalone “capacity performance quantifiable risk,” or CPQR, offer cap, the standardized methodology for calculating CPQR, and changes to the Fixed Resource Requirement alternative for responding to performance shortfalls.
In part, PJM’s proposal aimed to let power plant owners better reflect in their capacity bids the financial risk they take under the grid operator’s capacity performance rules, which penalize generators for not providing power during grid emergencies.
FERC also said PJM failed to show that its proposal to limit eligibility for capacity performance bonus payments was just and reasonable.
On some issues, FERC gave PJM guidance to help it potentially develop a new proposal.
“The approved reforms represent a substantial step forward in helping PJM maintain resource adequacy over the near and long terms, by ensuring alignment of market results with reliability impacts thereby driving effective investment signals,” Stu Bresler, executive vice president – market services and strategy at PJM, said about FERC’s first decision.
Capacity prices expected to rise
The FERC-approved changes will likely put upward pressure on capacity prices in most parts of PJM, according to Scott Niemann, managing director and principal at ESAI Power, a market research and consulting firm.
Driven by pending power plant retirements, prices in PJM’s Southwest MAAC zone — comprising Baltimore Gas and Electric and Pepco’s service territories — could break higher than the overall regional transmission organization, Niemann said Friday.
Potential capacity price changes will become clearer after PJM releases the auction’s planning parameters in early March, according to Niemann. The parameters include key details such as how much capacity PJM expects to need and import limits for each of its zones.
PJM’s capacity auctions, typically held once a year to buy capacity three years in advance, have faced multiple delays in recent years. The last auction was held in December 2022 for the 2024/25 capacity year.
Because of the delays, PJM’s capacity market hasn’t been sending price signals that can incent generators to keep operating or build new power facilities, according to Niemann.
PJM has been warning that power plants in its footprint may be retiring faster than they can be replaced.
“In the near term, there will be some challenges,” Niemann said. “We're already seeing that with resources that are slated to be retired because of environmental rules or just market economics not being favorable enough.”
As a result, PJM has entered into or plans to enter into “reliability must-run” contracts to keep some power plants operating instead of retiring.
“Because the auctions have been delayed, and the right set of rules for measuring the reliability contributions of resources haven't been in place, the price signals haven't been there to get the right capacity mix in each location,” Niemann said. “The rule changes that FERC approved will help with that going forward, but … it's going to take a few years for those price signals to really start working and start to be effective.”
In an effort to catch up to its typical yearly capacity auction cycle, PJM intends to hold the next auction in June and then one in December for the 2026/27 delivery year, followed by auctions in May and December 2025 and May 2026 for the 2029/30 delivery year. After that, it expects to be back on its once-a-year auction pace.
As PJM’s capacity auctions return to their normal cycle, the auctions will begin sending signals that should help bring on new generation to replace aging power plants, Niemann said.
Further, the FERC-approved reforms will help with that process, he said, noting that he expects PJM will take a second try at allowing generators to better reflect their financial bids in the capacity offers.
PJM operates the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia.
