Brief:
Amid the ongoing uncertainties in the energy landscape, the PJM Interconnection’s recent proposal to postpone its forthcoming capacity auctions for an additional six months has sparked a significant debate. Power plant operators express cautious support for the delay, shedding light on the necessity for revamped capacity market regulations. However, they also voice concern that such postponements might critically undermine investor confidence in the market. This sentiment emerged from filings submitted to the Federal Energy Regulatory Commission (FERC) on Tuesday.
“A moderate delay of the auction is warranted to rectify the numerous deficiencies plaguing the current market design—shortcomings that are almost guaranteed to manifest if the auction proceeds under existing rules,” posited the PJM Power Providers Group (P3) alongside the Electric Power Supply Association (EPSA).
In stark contrast, American Municipal Power has voiced its dissent against the proposed delay, framing it as an endeavor by the grid operator to implement market modifications with scant oversight from stakeholders. “Utilizing this delay to rush through additional alterations to the capacity market framework threatens to erode, rather than enhance, market stability,” argued the Columbus, Ohio-based organization in its protest to FERC.
Insight:
Traditionally, PJM holds annual capacity auctions, securing electrical supplies three years in advance. However, this standard practice has been disrupted over the last five years due to several pauses initiated by PJM to refine its market rules. In July, a previously postponed auction occurred, representing a shift back toward a normal auction schedule. This auction not only led to unprecedented capacity prices but also mandated that electricity consumers within PJM’s Mid-Atlantic and Midwest territories face an astonishing $14.7 billion for capacity for the 2025/26 delivery year, a stark rise from the prior amount of $2.2 billion.
Consequently, customers of FirstEnergy’s utilities are slated for steep rate increases of 11% to 20% between June and May 2026, as the utility revealed in its supportive statement to FERC regarding the proposed auction delay.
The push for postponement arises from a complaint filed last September, challenging the grid operator’s failure to factor in the reliability must-run (RMR) power plants in its capacity auctions. On October 15, PJM formally requested a waiver from FERC, seeking to delay the upcoming three base capacity auctions by approximately six months, extending through the 2029/30 delivery cycle, with the first auction originally set for December 4. PJM also aims to cancel two “incremental” capacity auctions and has urged for an expedited decision by November 8.
PJM has committed to submitting proposed market modifications “in the coming weeks” to tackle the RMR complaint, alongside concerns raised by various organizations including the Organization of PJM States and P3. The proposed auction postponement is contingent upon FERC’s approval of new market rules by mid-January.
“PJM does not take the request for auction delays lightly; the compression of prior auction schedules reflects ongoing reform efforts,” asserted the grid operator. “However, this delay is essential in light of the substantial market uncertainties intertwined with the 2026/27 Base Residual Auction stemming from the recent complaint.”
Supporting the delay, P3 and EPSA caution that without impending modifications to market rules, the upcoming auction will be burdened with an elevated offer cap—set at a staggering $695/MW-day—and a drastically steep demand curve, fostering volatility and diminishing penalties for power plants underperforming across the grid operator’s jurisdiction.
The power plant owners’ trade organizations are skeptical about reaching stakeholder consensus concerning the RMR dilemma. Nevertheless, they advocate for quick reforms that PJM can propose, which a responsive FERC can expedite, such as reverting PJM’s “reference unit” back to a combustion turbine from a combined cycle. This adjustment, they argue, would significantly lower the offer cap, provide necessary slope to the demand curve, and likely yield a Net Cost of New Entry exceeding zero—a situation crucial for accurately assessing performance penalties.
With elevated capacity prices failing to incentivize new power plant projects amidst dwindling reserve margins and surging demand, FirstEnergy suggests that “new solutions” might be imperative.
“It may be essential not only to ensure that fair rates are guaranteed to maintain existing generating units, but also to institute policies that shift the responsibility for developing new dispatchable generation resources back to the states,” the utility company clarified.
PJM’s waiver petition garnered backing from various entities including the New Jersey Board of Public Utilities, Public Service Enterprise Group, the Sierra Club, Constellation Energy Generation, and several advocacy groups associated with the RMR complaint.
Meanwhile, Talen Energy has urged FERC to confine the auction delay to just four months, claiming, “PJM has established an unsustainable trend of countless delays. Additional postponements would further suppress investment at a time when the market signals for new generation are unmistakable.” They concluded, “The optimal path forward is to resume the three-year forward auction cycle without further contributions to the confusion instigated by non-market participants.”