Dive Brief:
- The PJM Interconnection’s failure to consistently account for power plants with reliability must-run contracts in its capacity market could drive up ratepayer costs by $15 billion in the next three capacity auctions, according to a complaint filed Friday at the Federal Energy Regulatory Commission by the Sierra Club and other groups.
- By failing to either require RMR resources — power plants that have been given contracts to continue operating past planned retirements — to bid into capacity auctions or to account for the expected output from those plants in its forecast for how much capacity PJM needs, the grid operator forces consumers to pay twice for those plants’ capacity value, which is “unjust and unreasonable,” the groups said in the complaint.
- “Failing to account for resource adequacy provided by RMR units produces capacity market price signals that are disconnected from the actual supply and demand balance on the grid,” the groups said. “The result is artificially elevated prices that harm the markets by encouraging inefficient decisions by both supply and demand side market participants.”
Dive Insight:
Unlike ISO New England, the New York Independent System Operator and the California Independent System Operator, PJM doesn’t require RMR resources to participate in their capacity auctions or equivalent market, according to the complaint.
Under PJM’s auction held in July, for most of the PJM region, capacity prices for the 2025/26 delivery year soared to $269.92/MW-day, up from $28.92/MW-day in the last auction, the grid operator said in an auction report. Prices hit zonal caps of $466.35/MW-day for the Baltimore Gas and Electric zone in Maryland, and $444.26/MW-day for the Dominion zone in Virginia and North Carolina. Total cost to consumers jumped to $14.7 billion from $2.2 billion in the previous auction.
A report prepared for the Maryland Office of the People’s Counsel found that failing to require two Talen power plants in Maryland to take part in the auction increased the capacity costs by about $5 billion, while PJM’s independent market monitor estimated it boosted costs by about $4.2 billion.
PJM is reviewing the complaint, Jeff Shields, a spokesperson for the grid operator, said in an email Monday. He noted that on Sept. 19 PJM’s board of managers explained why it decided to reject a request from state ratepayer advocates that the grid operator require power plants with RMR contracts to take part in capacity auctions.
It makes sense not to require RMR plants to bid in capacity auctions, partly because it could “fail to incent the new build needed in Maryland and in the rest of the regional transmission organization,” the board said.
However, the groups behind the complaint — Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project and the Union of Concerned Scientists — contend that market factors in PJM such as demand growth, capacity accreditation changes and power plant retirements appropriately affect capacity prices and send accurate market signals.
“PJM should not be permitted to further increase its price, over what actual market fundamentals would cause, based on a deliberate distortion of the supply picture,” the groups said. “Capacity price signals should be adequate to incent the needed investment, but no higher.”
And with capacity auctions scheduled for December, June and December 2025, power plant owners won’t have enough time to bring new generation online in response to those price signals.
“The fast pace of PJM’s capacity auctions and the slow pace of its interconnection queue mean that new generation is highly unlikely to be able to come online quickly enough to prevent price spikes like the one caused by PJM’s most recent auction,” they said.
PJM may increasingly enter into RMR contracts, partly driven by expected power plant retirements, the slow pace of the grid operator’s interconnection queue and inadequate transmission planning to address foreseeable retirements, according to the complaint.
The groups asked FERC to require refunds from upcoming auctions if the agency orders PJM to change its market rules after the auctions are held.
Meanwhile, the Organization of PJM States Inc., which represents state utility commissions, on Friday asked PJM to address potential flaws in its market before the next capacity auction, including the failure to consider RMR units as available capacity.
“If these units will be available for dispatch during the relevant Delivery Year, the reliability value of these units should be duly reflected when settling the capacity market,” OPSI said.
OPSI urged the PJM board to direct the grid operator to take action on six items, including four before the next auction, even if it requires a slight delay.
“OPSI has serious concerns that the capacity prices customers will pay as a result of the 2025/2026 [base residual auction] may not reflect market fundamentals, especially since the price signals in these BRAs will not likely be actionable in the time frame applicable to these auctions,” the group said. “This problem could worsen with the 2026/2027 BRA.”
