PJM Interconnection, the nation’s largest wholesale electricity market, on Friday (Oct 13) proposed major changes to its troubled capacity market to make sure it has enough power to distribute during weather emergencies. The regional transmission operator made two massive filings at the Federal Energy Regulatory Commission (Docket No. ER24-98-000 and Docket No. ER24-99-000 totaling over 1,000 pages) to implement the long-awaited changes to the capacity market.
PJM had long been aware that its once-vaunted capacity market, which holds periodic auctions to determine payments to generators that agree to be available when conditions threaten to bring the PJM system to its knees. But Winter Storm Elliott, which slammed the eastern two-thirds of the U.S. over the Christmas 2022 holiday, and nearly brought rolling blackouts to the system that serves 65 million people in 13 states and the District of Columbia, concentrated the attention both at PJM and FERC on a market that had been showing problems.
PJM began looking at capacity market reforms in October 2021, forming the Resource Adequacy Senior Task Force. As that organization was contemplating a range of reforms, Elliott started banging on PJM’s transmission grid. In February 2023, PJM put its reform process in overdrive, and was spurred on by criticism from FERC, where Commissioner Mark Christie at the agency’s March 16 meeting said, “The markets are not right. Specifically, the capacity markets are not right.” PJM, he said, is failing to offer competitive capacity markets.
During the fierce, low-temperature superstorm, many of PJM’s highly-touted gas generators, who raked in millions of dollars on the promise of delivery in a crunch, failed to perform. Fortunately, PJM was able to import power from elsewhere and make additional adjustments and, barely, avoided electrical catastrophe. FERC imposed non-performance penalties, totaling up to $2 billion. With generators facing the fines entering or claiming bankruptcy, PJM and some 80 parties reached a settlement in September, which they hope FERC will approve by the end of the year.
PJM’s detailed proposal involves a spectrum of changes ranging from the fairly mundane – “Improve generator testing, including operational and seasonal requirements” – to the opaque – “Reform certain rules related to the Capacity Performance program, which establishes accountability for generator performance during system emergencies.” It will fall to the FERC staff and, ultimately, the commissioners themselves, to wade through the filings and determine their worth.
PJM says it hopes FERC will make decisions on the new capacity market before the system’s next scheduled 2025/2026 Base Residual Auction in June 2024. That means FERC must act well before that date. According to the filing, “PJM proposes that the Market Monitor provide a preliminary Projected PJM Market Revenue by 150 days before each RPM Auction and a final Projected PJM Market Revenue value by 120 days before each RPM Auction.”
“The proposal, while enhancing reliability, would maintain fundamental principles of competition that control costs for consumers as well as incentivize investment in new resources,” said PJM’s Adam Keech, Vice President – Market Design & Economics. “These proposed capacity market reforms will help PJM do what we do best – operating markets that attract critical investment in the resources we need to keep the lights on. Maintaining enough resources that can support reliability are crucial to PJM’s ability to serve demand through the transition to a less carbon-intensive grid.”
In 1927 the New Jersey’s Public Service Electric and Gas Company, Philadelphia Electric Company, and Pennsylvania Power & Light Company formed a power pool called the Pennsylvania-New Jersey Interconnection, for the purpose of economic dispatch, sending out the least-cost power over the transmission system, regardless of which company owned the generating resource. In 1956, Baltimore Gas and Electric and General Public Utilities joined what became known as the Pennsylvania, New Jersey, Maryland Interconnection, aka PJM. When FERC transformed the electricity business by creating wholesale competition in a series of late 1990s orders (Orders 888, 889, and 2000), PJM was a natural fit and FERC designated it a “regional transmission organization” in 2001.
The Northeast blackout of 2003 demonstrated the value of the creation of the market, as the PJM system largely dodged the blackout bullet. PJM expanded greatly over the next 15 years, to its current configuration.
–Kennedy Maize
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