Head: PJM defends how it auctions power supply in response to complaint to FERC
MORGANTOWN – PJM Interconnection has submitted its defense in the case alleging the way it conducts auctions to secure power supply for the regional electric grid needlessly raises the bills ratepayers – as much as a projected $14.5 billion for 2026-2027.
PJM operates the 13-state regional power grid that includes West Virginia, Pennsylvania and Ohio. It conducts annual auctions – called Base Residual Auctions, or BRAs – to secure sufficient generation capacity.
Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project, and the Union of Concerned Scientists joined to file a complaint to the Federal Energy Regulatory Commission on Sept. 27.
They say PJM doesn’t include plants slated for retirement to bid into the auction. But it has them under Reliability Must Run – RMR – agreements. “RMR arrangements require consumers to pay power plants that would otherwise retire to stay online in order to maintain reliability,” the original complaint says.
The complainants say this allows for the creation of an artificial supply shortage and for consumers to pay inflated rates, boosting the overall cost of energy across the grid. They say PJM’s method is unjust and unreasonable.
PJM says in its filing that FERC should dismiss the complaint. The answer spans 54 pages, we give the highlights here.
PJM says the BRA prices are intended to call attention to supply and demand issues. High auction prices would signal that the capacity supply is running short and new capacity should enter the market. Low prices signal that more expensive generation may be uneconomic and should leave the market.
PJM had been long on supply for years, it told FERC. Low prices and other factors led numerous resources to retire.
But now demand and supply are converging, with prices increasing, new resources not coming online timely and load demand growing – in large part tied to electrification trends and data center development.
“In fact, it appears that demand may outstrip supply in the near future,” PJM said. “The replacements in the interconnection queue have been slow in coming, with over 34,000 megawatts with final agreements in hand but have not come into service.”
Regarding plants under RMR contracts, PJM said not all of them are willing to provide capacity-like service and PJM can’t count on them to meet the region’s resource needs. It would have to examine each RMR contract case-by-case to determine if it could be considered a capacity resource. Counting an RMR as a capacity generator could misrepresent the available supply and artificially lower prices.
Also, PJM noted, it has no authority to require a plant to stay online past a 90-day notice period, no authority to dictate how it operates and no control over how it may be compensated.
SUBHEAD: The world of supply and demand
PJM in February 2023 that power demand growth combined with plant retirements means demand will outstrip supply by 2030. Since then, load demand has accelerated.
For instance, it said, summer peak has increased by 375% from the 2022 to 2024 load forecasts.
Low prices, environmental compliance costs and government regulations have combined to spark thermal plant retirements, it said.
The mix in 2008 was 55% coal, 7.4% gas and 35% nuclear. By 2023 that evolved to 14.7% coal, 44.1% gas and 33% nuclear. In 2023, renewables, storage and hybrid resources made up 8% of the supply but comprise 94% of the interconnection queue.
“In addition to an accelerated pace of resource retirements,” PJM said, “the facilities lined up to replace them have been slow in arriving.” As of September, 448 projects completed the queue process but aren’t in service: 111 are under construction, 199 are in the engineering/procurement phase and 138 projects elected to suspend.
Adding further complications, PJM said, many of the new resources are low reliability and don’t provide for a 1:1 replacement of retiring plants.
