The PJM Interconnection’s failure to include power plants with reliability must-run contracts in its capacity auctions could increase costs in the grid operator’s upcoming capacity auction by roughly $14.5 billion, the Organization of PJM States Inc., or OPSI, told federal regulators on Tuesday.
PJM’s capacity auction held in July totaled $14.7 billion, a cost to be paid by power consumers across PJM’s Mid-Atlantic and Midwest footprint, according to a report from the grid operator. Failing to include Talen Energy’s RMR resources in Maryland in the auction accounted for about $4.3 billion in capacity costs, according to analysis from Monitoring Analytics, PJM’s market monitor.
When a power plant owner wants to retire a unit, PJM studies how shuttering the plant would affect the grid. If PJM determines it would cause reliability problems, the grid operator can enter into an RMR contract with the plant’s owner to keep it operating. Those units aren’t required to take part in capacity auctions.
OPSI supports a complaint at the Federal Energy Regulatory Commission that contends that PJM’s practice with RMR units should be barred, the organization for utility regulators in PJM’s footprint said in a filing with the agency.
In their complaint, the Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project and the Union of Concerned Scientists said failing to account for Talen Energy’s RMR units in PJM’s last auction increased capacity costs by $4 billion to $5 billion.
However, because of a change in the demand curve PJM uses to set capacity prices, that estimate may significantly understate how much the grid operator’s handling of RMR resources will affect a capacity auction set to be held in early December, according to OPSI.
Given changes in the parameters that help set capacity prices since the last auction, OPSI staff estimates that failing to include Talen Energy’s RMR units in the auction could increase capacity costs by roughly $14.5 billion.
Because of the use of certain assumptions, the analysis should be taken as “an approximate, indicative description” of what could happen if RMR capacity is excluded from PJM’s capacity supply stack, according to OPSI.
FERC should find that PJM’s capacity market rules are unjust and unreasonable because they create price signals that are inconsistent with market fundamentals, OPSI said.
“OPSI urges the Commission to grant the complaint and require PJM to revise its capacity market rules to ensure RMR capacity is reflected as available capacity when settling the capacity market even if that requires FERC to direct PJM to slightly delay the 2026/2027 [capacity auction]” set for December, the organization said.
In a letter to PJM’s board last month, OPSI urged the grid operator to address what it said were a series of flaws in its capacity market rules, including the failure to include RMR resources in the auctions.
The board previously rejected calls from ratepayer advocates to change PJM’s handling of RMR resources, in part because it said requiring deactivating power plants to take part in the auction would distort capacity prices, which would dampen developer interest in building generation.
