Pennsylvania and Governor Josh Shapiro have filed a complaint with the Federal Energy Regulatory Commission (FERC) aimed at addressing the rising capacity market prices within the PJM Interconnection, a regional transmission organization that coordinates the movement of wholesale electricity in parts of the United States. The complaint, lodged on December 30, 2024, aims to lower the price cap to forestall what they describe as “runaway” capacity costs, which they argue will impose exorbitant and unnecessary financial burdens on consumers without effectively boosting new power supply generation. This move comes following months of turmoil and unprecedented price spikes in PJM’s capacity auction, leading to a significant financial strain on ratepayers.
Record High Capacity Prices and Consumer Impact
The price spikes observed in PJM’s capacity market following its auction in July have led to record high capacity prices, causing a ripple effect on consumers. These inflated prices are projected to burden PJM ratepayers with a staggering $14.7 billion in capacity costs for the delivery year beginning in June, a significant increase compared to the previous year’s $2.2 billion. This drastic surge has not only raised major concerns but also prompted a wave of complaints and urgent calls for structural changes within the market. Pennsylvania’s complaint highlights that these high capacity prices are expected to result in over $20.4 billion in unnecessary capacity costs over the two years following the next scheduled capacity auction set for June 2025, for the 2026/2027 delivery year.
The concerns raised emphasize that consumers would face disproportionately high costs with little to no corresponding benefits in terms of new power supplies or improved grid reliability. Pennsylvania argues that if the current trajectory continues, ratepayers will be hit hard financially, and the intended market mechanisms will fail to drive the necessary investments in new power generation. These alarming projections underscore the urgency of addressing the issue to prevent an unwarranted financial strain on consumers without any tangible improvements in the power supply infrastructure.
Proposed Solutions and Market Reforms
To mitigate these runaway capacity costs, Pennsylvania’s complaint proposes that FERC mandates PJM to lower its capacity price cap to no more than 1.5 times the Net Cost of New Entry (Net CONE). At present, the price cap is set based on the higher value between 1.75 times the Net CONE or the Gross CONE, which was originally designed to avoid over-procurement of capacity. However, Pennsylvania contends that prevailing conditions have rendered this cap ineffective and financially detrimental to consumers.
The broader context of this issue sheds light on several recurring themes. Firstly, the complaint underscores the flawed market design of PJM’s capacity auction, which leads to extreme price volatility. This volatility, according to Pennsylvania, undermines reliable long-term investment and financial planning for both generators and consumers. Secondly, it brings forth the urgent need for market reforms due to an unusual confluence of factors, including significant load growth, an overly congested interconnection queue, and an accelerated capacity auction schedule. These overlapping challenges have magnified the financial impact on ratepayers while exacerbating grid reliability concerns, further highlighting the need for immediate and effective solutions.
PJM’s Response and Potential Solutions
PJM has acknowledged the issue of rising prices driven by an imbalance between supply and demand. The operator has proposed measures to address the problem, such as lowering the price cap and expediting interconnections for ready-to-start new power projects. PJM remains open to further solutions that would help maintain grid reliability while keeping costs in check, recognizing the critical balance needed between economic feasibility and reliable power supply.
There is a clear tension between the necessity for a cost-effective and reliable capacity market and the high financial risks posed by the current market structure. Ratepayer advocates and state authorities, like Pennsylvania, favor reforms that aim to lower costs and provide better incentives for new power generation to enter the market. They believe that the existing high price caps are inappropriate under the current market conditions and advocate for adjustments to preempt billions of dollars in unnecessary costs to consumers. This advocacy highlights the pressing need for regulatory intervention to ensure that ratepayer funds are utilized effectively to enhance grid reliability.
Broader Implications and Future Outlook
By addressing these issues, Pennsylvania aims to protect consumers from surging costs while ensuring a reliable supply of electricity. The outcome of this complaint could have far-reaching implications for energy markets and consumers in the region.