Key Highlights:
- Four governors, alongside nine state utility commissions and ratepayer advocates, are joining forces in a complaint aimed at reducing the capacity auction price cap set by the PJM Interconnection, as detailed in submissions to the Federal Energy Regulatory Commission (FERC).
- Constellation Energy Generation, the Electric Power Supply Association, and the PJM Power Providers Group are voicing opposition to this complaint initiated last month by Pennsylvania Governor Josh Shapiro. They argue that approving the complaint risks sending a “wait-and-see” signal to investors, which could further jeopardize the reliability of the capacity market.
- Utility firms Exelon and FirstEnergy have encouraged FERC to explore alternatives to PJM’s current capacity market, suggesting that innovative solutions should be sought to ensure affordable and reliable electricity for consumers.
Context of the Dispute:
The call to lower the capacity auction price cap is part of ongoing discussions following PJM’s latest auction in July, which resulted in record-high prices expected to cost ratepayers approximately $14.7 billion, a significant jump from $2.2 billion in the previous auction. Advocates, including Shapiro, express concerns that generating companies won’t be able to meet the high capacity prices promptly, labeling them as unjust.
Shapiro’s complaint proposes that the price cap should not exceed 1.5 times the Net Cost of New Entry for the upcoming two auctions. If timely resolution isn’t feasible, they suggest delaying the next auction planned for July to December.
Support for this complaint extends to the governors of Delaware, Illinois, Maryland, and New Jersey, highlighting that a temporary adjustment to the price cap could assist in mitigating issues within PJM’s market rules while addressing a backlog in power supply requests.
The governors argue that PJM’s reform proposals aren’t sufficient to safeguard customers from potentially excessive capacity prices. They emphasize that current measures could lead to price spikes that are unjustified by market fundamentals.
Additionally, the Organization of PJM States supports the complaint, stating that it would not only shield consumers from inflated costs but also ensure generators receive adequate revenue to maintain operations.
Meanwhile, several utility commissions chose to abstain from voting on this filing, and American Municipal Power criticized the complaint for not going far enough, calling it mere “tinkering” with the existing system.
The complaint has backing from various ratepayer advocates across Illinois, Maryland, New Jersey, Ohio, and the District of Columbia, as well as multiple environmental organizations.
Opposition from Generators:
In contrast, the Electric Power Supply Association claims that Pennsylvania has not provided justifiable reasons for altering PJM’s existing price cap. They argue that high prices resulting from a singular auction due to supply constraints demonstrate that the market is functioning effectively and signaling reliability needs.
With the backdrop of growing electricity demand and the retirement of older power plants, EPSA asserts that upward trends in capacity prices are expected. They argue that changes based on short-term anomalies are misplaced and that market dynamics are influenced by long-term decisions rather than one-off auction results.
Generator stakeholders argue that the complaint risks hindering the development of new energy supplies when demand is on the rise. They stress that maintaining stable price signals is crucial for attracting investment and addressing challenges in the region effectively.
FERC announced on Friday that it will extend the comment period for the complaint until January 28. As of now, PJM has not made a public stance regarding the complaint.
PJM’s board has expressed shared concerns with Shapiro about the potential repercussions of elevated capacity prices on consumers while also cautioning that market changes must not obstruct the entry of new generation resources necessary for system reliability and long-term cost reduction.