PJM’s fixes to broken capacity market fall short, the Office of People’s Counsel tells federal regulators
BALTIMORE – PJM Interconnection, LLC—the regional transmission organization for Maryland and neighboring states—now concedes that the excessive capacity market prices driving up utility rates are driven by entry barriers for new generation, artificial supply constraints, and the market power of large generation companies, but its proposed solutions to those problems will not fix the unjust and unreasonable rates customers continue to face, the Office of People’s Counsel told the Federal Energy Regulatory Commission (FERC) in three separate protests filed last week.
“We applaud PJM for effectively recognizing that its capacity market rules are fundamentally flawed and that large generation companies can exercise market power to increase their profits,” said Maryland People’s Counsel David S. Lapp. “But PJM’s proposed solutions fall far short of what’s needed to protect customers from having to pay windfall profits to large generation corporations.”
OPC’s first filing last week addressed PJM’s proposal to recognize the capacity contributions of so-called “reliability must run” power plants in the market. As OPC’s report from last August explained, the failure to consider the reliability benefit of the Baltimore-area Brandon Shores and Wagner power plants while under reliability must run (RMR) arrangements contributed to increases in PJM-wide capacity prices by up to $5 billion. PJM’s filing would also reverse its planned change to the “reference” generation unit used to calculate the auction’s maximum price. OPC’s filing supports these changes with modifications, while noting they are insufficient alone to ensure just rates.
The second filing addresses PJM’s proposal to encourage targeting faster entry of new generation to increase supply into the capacity market auctions. OPC’s filing supports the concept of advancing projects in line for connecting to the transmission system to address supply issues. But the filing points to flaws in how PJM plans to weigh different factors that qualify a generation resource for expedited treatment, while also emphasizing that the initiative will not work fast enough to address unjust outcomes in the next several auctions. The proposal, “by design . . . will not solve the longer-term structural issues” in PJM’s capacity market rules—problems compounded by PJM’s failure to estimate the impacts of its proposal on resource adequacy and market prices, OPC’s filing says.
OPC’s third filing addressed PJM’s proposed rule change for this June’s auction to require certain kinds of generation resources—such as storage, wind, and solar—to bid into the auction. This change is important and beneficial to customers, but PJM should not have paired it with other rule changes, the filing argues. One of those changes would penalize those resources for failing to provide capacity for reasons beyond their control—such as a solar facility not producing power at night—while authorizing all resources to exceed maximum bid rules so they can price the penalties into their offers, a measure PJM’s independent market monitor describes as a “poison pill” that would “weaken market power mitigation for all capacity resources.”
All three filings pointed out missing pieces in PJM’s proposals that FERC should require to protect customers. PJM’s filings acknowledge a high probability that the upcoming auction in June is likely to produce prices at the market cap of $500/MW-day, region-wide, subjecting ratepayers to capacity charges of roughly $25 billion—20-fold greater than regionwide prices from two years ago.
In one of its filings, PJM supports its proposed market rule changes with an analysis by its chief economist acknowledging that generation companies have “both the ability and incentive to exercise market power” because of their “large generation portfolios.” These companies own multiple resources, the analysis concluded, allowing them to “benefit from strategic market power withholding” of resources from the auction, raising prices for their other resources that they do bid into the auction. That analysis largely confirms what OPC found in its August 2024 report—that Talen, the owner of the Brandon Shores and Wagner plants, may have benefitted in the July 2024 auction by more than $300 million.
OPC’s protests emphasize that PJM’s proposals fall far short of what’s needed to make rates just and reasonable and that FERC should take the additional steps requested in OPC’s earlier complaint and in other pending complaints regarding PJM’s capacity market rules, including one filed December 30th by Pennsylvania Governor Josh Shapiro.
In a fourth filing today, OPC commented to FERC in support of PJM’s so-called “surplus interconnection service,” or SIS, proposal. The SIS proposal would help additional generating resources—especially intermittent resources like wind and solar paired with battery storage—to connect to the transmission system by letting them use room on the system previously closed off. The filing pointed out that if approved by FERC, PJM’s proposed SIS change would allow the rapid connection of new generation in zones with limited transmission import capability.
OPC filed the first and third protests jointly with the Illinois Attorney General’s Office, Illinois Citizens Utility Board, New Jersey Division of Rate Counsel, Office of the Ohio Consumers’ Counsel, and Office of the People’s Counsel for the District of Columbia.
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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