The PJM Interconnection’s proposal to revise its must-offer and market seller offer cap, or MSOC, rules faces pushback from its market monitor, trade groups for power plant owners and renewable energy companies, ratepayer advocates and others, according to filings made Friday at the Federal Energy Regulatory Commission.
The Organization of PJM States, Inc., called OPSI, Dominion Energy and Constellation Energy are among those supporting the grid operator’s proposal.
The debate centers on PJM’s Dec. 20 proposal to require intermittent resources, storage resources and hybrid resources — which make up nearly all of PJM’s interconnection queue — to take part in its capacity auctions, starting with one set to be held in July for the 2026/2027 delivery year. PJM also proposed updating its MSOC rules so that capacity bidders can better reflect the cost of their resources receiving a capacity obligation, including potential non-performance penalties.
“This proposed package of changes will enhance price formation in PJM’s capacity auctions by producing clearing prices that better reflect the PJM region’s existing supply and demand fundamentals,” the grid operator said in its proposal. It is one of several pending reform proposals aimed at ensuring PJM has adequate power supplies in coming years.
Inadequate stakeholder input?
The proposal was developed without adequate stakeholder input, according to some PJM stakeholders.
PJM said in late November it wouldn’t seek changes to its must-offer requirement, arguing the issue was too complex to address quickly, according to the Electric Power Supply Association and the PJM Power Providers Group. A month later, after one stakeholder meeting, PJM filed its proposal, they said in a joint filing.
“Even if going through the motions of soliciting input on matters which PJM has left itself no time to act can otherwise be said to be sufficient to satisfy the tariff requirements, it is plainly inadequate for a proposal that will affect an enormous number of existing resources, as well as ‘over 97% of PJM’s interconnection queue,’” the trade groups for power plant owners said.
PJM’s must-offer requirement and offer cap rules are linchpins of its market power mitigation rules and have “profound implications” for market participants, according to the groups, which agree with the grid operator that the MSOC should be reformed. “Capacity market sellers and indeed all stakeholders deserve more and better than the short-shrift PJM has given those issues here.”
Monitoring Analytics, PJM’s market monitor, also urged FERC to reject the grid operator’s proposal. The market monitor supports extending must-offer requirements to all resources in PJM, but contends the proposed offer-cap changes are a “poison pill” that would weaken the grid operator’s market power mitigation provisions. The offer cap proposal would increase capacity prices above their competitive level, the market monitor said.
The American Clean Power Association, Advanced Energy United, MAREC Action and the Solar Energy Industries Association also oppose PJM’s proposal, according to a joint filing.
PJM’s proposed reforms would not allow resources to adequately mitigate increased performance risk and would subject renewable resources to double penalties for non-performance, the renewable energy trade groups said.
If accepted, the proposal could cause renewable energy and storage resources to stay out of PJM’s capacity market, according to the trade groups. “This would jeopardize reliability and artificially inflate the cost of meeting the region’s resource adequacy needs, precisely at a time when the cost of meeting those needs is a central concern of states and consumer advocates,” they said.
Ratepayer advocates support extending the must-offer requirement, but said PJM’s offer cap proposal was flawed.
PJM’s proposal, coupled with other reform plans, does not go far enough and will not produce “just and reasonable” rates in its next capacity auction, according to the joint filing by the Illinois Attorney General’s Office, Illinois Citizens Utility Board, the Maryland Office of People’s Counsel, the New Jersey Division of Rate Counsel, the Office of the Ohio Consumers’ Counsel and Office of the People’s Counsel for the District of Columbia said.
“PJM predicts that even if its proposed changes are accepted, the upcoming 2026/2027 [base capacity auction] will likely produce prices at a market offer cap of $500/MW-day,” the ratepayer advocates said.
At that price, ratepayers would pay about $25 billion for capacity in the next auction, a twenty-fold jump in capacity costs from the 2024/2025 BRA held two years ago, they said.
American Municipal Power, Invenergy and Vistra also opposed PJM’s proposal.
Plan gets state, utility support
Meanwhile, OPSI, representing state utility regulators, supports PJM’s proposal, but said additional reforms are needed such as adopting a sub-annual capacity construct.
“Moving to a more granular capacity market construct would allow resources to reduce their risk exposure, allow PJM to more accurately identify risk, and incentivize responses to mitigate that risk,” OPSI said.
Constellation Energy Generation backed PJM’s proposed changes to the seller’s offer cap. Under PJM’s proposal, a unit’s offer cap never falls below its cost of obtaining a capacity commitment, the company said. Also, the proposal to allow market sellers to obtain different offer caps for each segment of a unit will facilitate offers that better reflect the costs of providing capacity, Constellation said.
Dominion Energy “generally” supports PJM’s proposal, but said the effects of the changes, if approved, must be tracked to ensure they do not slow the development and participation of capacity resources.
