The PJM Interconnection is rejecting a call to include reliability must-run power plants in its capacity auctions, saying the move would blunt price signals needed to spur new generation, according to a Sept. 19 letter to ratepayer advocates from the grid operator.
The letter was in response to a late-August proposal from six state ratepayer advocates that PJM launch a fast-track stakeholder process to include power plants with RMR contracts in the grid operator’s upcoming capacity auctions, which they said could lower capacity prices.
A study conducted for the Maryland Office of People’s Counsel found that including two Talen Energy power plants with pending RMR contracts — totaling about 1,975 MW — in PJM’s last capacity auction would have produced a $163.46/MW-day clearing price for the Baltimore Gas and Electric zone, down from $466.35/MW-day, lowering overall capacity costs for the grid operator by about $5 billion.
“We understand that many consumers are financially stressed right now, and we appreciate you raising questions around appropriate price signals for capacity given the current supply-demand balance on our system,” PJM said.
However, with Maryland importing about 40% of its annual electricity needs and PJM needing new generation to keep up with demand growth and generator retirements, suppressing the capacity price signal would likely result in greater reserve shortfalls in the future, PJM said.
“It has become very clear that our region will require the buildout of a significant quantity of new generation, including a material amount of natural gas-fueled generation, in order to maintain the reliable electricity supply our consumers expect,” PJM said.
Also, suppressing capacity prices could discourage resources that can be available quickly, such as demand response, from providing capacity to the region, the grid operator said.
Lowering prices could lead power plant owners to retire units instead of investing in pollution control technology needed to keep them running, according to PJM.
The grid operator said it intends to take steps to ensure that market prices accurately reflect the supply-demand balance and to enable the fastest possible supply response to the market signals.
PJM, for example, plans to soon propose an expedited framework to fast-track some generation interconnection projects, according to the letter.
Stu Bresler, PJM executive vice president for market services and strategy, outlined the potential proposal in a late-August interview with Utility Dive.
“We’re thinking really hard about whether there might be something we could put in place that could run in parallel with at least the second half of this [interconnection queue] transition we’re in, that would accommodate shovel-ready projects,” Bresler said. “They have site control. They can get on the system very quickly. They can benefit system reliability … without perturbing the transition as we go through it.”
Also, PJM told the ratepayer advocates that it has launched an expedited quadrennial review to assess the choice of “reference unit” and shape of the capacity auction demand curve, key factors that affect capacity prices. A change to the parameters could be in effect for a base capacity auction tentatively set to be held in May 2026 for the 2029/30 delivery year, according to a PJM presentation.
With its independent market monitor, PJM intends to review generating resources that don’t offer into the next capacity auction that is set for early December. The review aims to make sure decisions to not offer a resource are economically justified based on market conditions.
Wind, solar, battery storage and hydroelectric projects aren’t required to participate in the capacity auction, PJM noted.
“Resources without a must-offer requirement generally should be evaluated to ensure that their decision not to offer is justified on a stand-alone basis and is not being done for the purposes of benefiting other units in the resource owner’s portfolio,” the grid operator said. “PJM should be given the ability to mandate participation in the capacity auction if there is found to be an exercise of market power.”
Several generators are seeking exemptions to the must-offer exception for the next auction for certain units because they intend to retire them, according to the grid operator. “PJM will work with our IMM to request information from these generators to ensure that these decisions to retire are still justified on a stand-alone basis,” the grid operator said.
PJM told the ratepayer advocates it “is certainly willing to have a more fulsome discussion on the issues you raise related to deactivating units and their positioning within our markets.”
