The PJM Interconnection has filed a proposal to update capacity auction rules for consideration by the Federal Energy Regulatory Commission as part of the grid operator’s Periodic Review process.
The proposal, approved by the PJM Board of Managers, was jointly crafted by PJM and the Pennsylvania Public Utilities Commission and was the only one endorsed by a supermajority of PJM stakeholders among six solution packages that were proposed in the stakeholder process.
The Periodic Review process is typically conducted every four years. The proposal PJM filed Nov. 7, however, resulted from a review initiated by PJM a year earlier than required by the PJM Tariff, given the rapidly changing dynamics in the marketplace. Those dynamics include tightening supply and demand margins driving record capacity prices.
Capacity auctions incentivize investment in new Capacity Resources, and retention of existing Capacity Resources, that are needed to maintain resource adequacy up to three years in the future, it said.
The PJM joint proposal, crafted in partnership with Pennsylvania PUC Vice Chair Kimberly M. Barrow, seeks to strike a reasonable balance between wholesale cost and the need to produce auction results that will attract investment in generation required for future grid reliability, it said.
PJM Members endorsed the proposal on Sept. 25. If accepted by FERC, the proposal would become effective with the Base Residual Auction for the 2028/2029 Delivery Year, scheduled to commence on June 30, 2026.
The joint proposal:
• Maintains a natural gas combustion turbine power plant as the “reference resource” and updates the cost of new entry associated with this resource. The reference resource represents a technology that likely would be developed and whose development costs are the benchmark to be covered by the auction.
• Updates the VRR Curve used as the demand curve in the RPM Auction. The proposed VRR Curve caps the PJM-wide auction price at approximately $550/MW-day for the 2028/2029 Base Residual Auction. For the 2028/2029 Base Residual Auction, specific zones inside PJM would be capped at a range between $483/MW-day and $785/MW-day, based on variable costs in those zones.
Balancing Cost and Need
"PJM since 2023 has warned of the need to close the mismatch between the sluggish entry of new power resources on a system experiencing unprecedented load growth as well as retirement of existing resources because of government policies or economics. In the year-long review, PJM and stakeholders pursued solutions that balance the urgent need to attract new power resources while keeping ratepayer cost in mind," it said.
The Brattle Group, the consultant engaged by PJM to assist with the Periodic Review, concluded that the proposal addresses the need to attract substantial amounts of new generation and keep existing generation while supporting investor confidence.
In addition to the Periodic Review, PJM has also been working with stakeholders to fine tune and more accurately reflect information and rules applied in the capacity auction, the grid operator said.
These ongoing efforts include:
• Ongoing work through the Critical Issue Fast Path process to consider how to reliably interconnect and serve large loads. This includes ongoing discussions with load serving entities on ways to streamline and standardize evaluation of large new loads to make load forecasting more accurate.
• Engagement of a stakeholder process and consultant to evaluate how a sub-annual capacity market construct may improve resource accreditation, better tune grid operations in summer and winter, and trim costs.
