PA Environment Digest Blog: Gov. Shaprio, Joins 4 Other Governors To Call On PJM To Reform Its Electric Generating Capacity Auction Rules To Prevent Billions Of Dollars In 'Unnecessary’ Costs To Their Residents, Businesses

On October 25, Gov. Josh Shapiro joined the governors of Delaware, Illinois, Maryland and New Jersey in calling on the PJM Interconnection to take "swift action" to change its electricity generation capacity auction rules to "prevent unnecessary increases in capacity costs" for their residents and businesses.

In a letter, the governors said--

"In July, we saw the staggering results of PJM’s capacity auction for the 2025/2026 Delivery Year, with clearing prices almost 10 times higher than the previous auction. These record high prices are a serious concern.

"The resulting $14.7 billion bill will be paid by our residents and our businesses and could deter future economic development.

"Alongside these high capacity auction prices, the underlying issues with the interconnection queue will delay new energy generation, leading to decreased competition in the market and even higher costs for the average consumer."

"We recognize supply has decreased while demand is projected to grow at an accelerated rate.

“However, both the Independent Market Monitor for PJM and the Organization of PJM States, Inc. (OPSI) have correctly observed that there are serious flaws with the PJM capacity market construct leading to capacity prices that fail to reflect supply and demand fundamentals."

The governors call for PJM to consider five changes--

-- Ensure that capacity from Reliability Must Run units is included in the next Base Residual Auction. OPSI, the Independent Market Monitor, and complainants all agree that making this change would save consumers between $3-5 billion without undermining market competitiveness or necessary price signals;

-- Eliminate the must-offer exemption for intermittent generation resources, while protecting them from performance penalties that discourage participation;

-- Lower the capacity price cap back to the level it was prior to PJM’s recent capacity market reforms;

-- Review the propriety of recent Effective Load Carrying Capability accreditation changes and adjust to improve accuracy; and

-- Although it may take longer than by the upcoming auction, swiftly implement a subannual capacity market designed to reduce risk on the transmission system.

"Analysts estimate that, without any of these changes, the upcoming auction could result in over $30 billion in costs to consumers for the 2026/2027 Delivery Year.” [This would be on top of the $14.7 billion increase from the most recent auction.]

“This would be far beyond what is needed to send a price signal encouraging new capacity, at the expense of our consumers."

“We welcome PJM’s decision to delay the 2025/2026 base residual auction in order to provide time for PJM and stakeholders to work through these critical issues, but delay alone is not enough.”

"We remain concerned that the current years-long PJM interconnection process severely limits the ability of high capacity prices to encourage the development of additional capacity.

"If developers cannot expect to get through the interconnection queue before a reasonably near-term delivery year, then additional energy projects cannot be deployed in time – no matter how high prices rise."

"We recognize the work that PJM has done to reform this process, and we encourage the PJM Board to maintain focus on further improvements.

"In particular, we look forward to engaging on PJM’s recently announced Reliability Resource Initiative and ensuring that any new capacity from diverse, clean sources is available as soon as possible, as well as identifying an appropriate role for states to help identify “shovel ready” projects for inclusion in the accelerated process."

"Urgent action is needed to prevent customers from paying billions more than is necessary to support the development of needed capacity, and to reform the interconnection queue so developers can promptly respond to prices by providing new supply.

"We expect PJM to address these issues on an expedited basis, after which we request that the PJM Board hold a special session to address our longer-term concerns."

Click Here for a copy of the letter.

NewsClip:

-- Utility Dive: 5 Governors Call For PJM Capacity Market Rule Changes To Reduce ‘Unnecessary’ Consumer Costs

Resource Links - Electric Grid:

-- PJM CEO Expresses Concern About Electric Generating Capacity: Higher Prices Have Incentivized Some Generators, But Building Gas Generators Has Slowed, Permitting, Supply Chain Issues Hamper Renewables [PaEN]

-- PJM Interconnection Winter Outlook: Adequate Power Supplies Available Under Normal Conditions; PJM Delays Next Power Auction After Prices Spike [PaEN]

-- PJM Electricity Auction Price 9 Times Higher Than Previous Auction-- $269.92/MW-Day For 2025/26 Delivery Compared To $28.92/MW-Day In 2024-25; Extreme Weather Risk Big Factor [PaEN]

-- PennFuture: Dramatic PJM Electricity Price Increases Due To Forced Outages Of Gas Power Plants; Huge Backlog Of New Generation Projects; Demand Growth Driven By Data Centers, Cryptocurrency Mining [PaEN]

-- Natural Resources Defense Council: The Cost Of Slow-Walking Clean Energy Can Be Seen In Latest PJM Electricity Prices [PaEN]

-- Spotlight PA: No One Is Using $2.6 Billion Hydrogen, Natural Gas Tax Credit, Shapiro Wants To Rewrite The Law To Boost Electricity Production

-- Sen. Yaw To Introduce Bills To Establish PA Baseload Energy Development Fund Based On Texas Model; And Have One Permit For Power Plants [PaEN]

-- PA House Republicans Announce Energy Package, Including An Energy Advocate Within DEP To Veto Any Action That Would Impact PA’s Energy Portfolio And An Independent Energy Office With The Same Power [PaEN]