{"id":41761,"date":"2024-11-06T16:28:26","date_gmt":"2024-11-06T22:28:26","guid":{"rendered":"https:\/\/www.citizensutilityboard.org\/?p=41761"},"modified":"2024-11-07T06:56:42","modified_gmt":"2024-11-07T12:56:42","slug":"pjm-broke-the-capacity-auction-but-heres-how-they-can-fix-it","status":"publish","type":"post","link":"https:\/\/www.citizensutilityboard.org\/blog\/2024\/11\/06\/pjm-broke-the-capacity-auction-but-heres-how-they-can-fix-it\/","title":{"rendered":"PJM broke the capacity auction–but here’s how they can fix it"},"content":{"rendered":"

\"\"By Clara Summers, Campaign Manager
\nConsumers for a Better Grid (a project of CUB)<\/i><\/em><\/span><\/p>\n

The electricity price for Illinois\u2019 largest power utility, Commonwealth Edison, will go up significantly next summer because of a recent auction to secure reserve power. Grid operator PJM announced that its recent <\/span>“capacity” auction<\/a><\/strong> sent prices skyrocketing from $28.92 per Megawatt-day to a record $269.92 per MW-day.\u00a0<\/span><\/p>\n

Such capacity costs make up a portion of the price of electricity, so this is expected to cause ComEd bills to increase starting in June of 2025.\u00a0<\/span><\/p>\n

Why are the prices so high? The Market Monitor for PJM said \u201cthe [] prices do not solely reflect supply and demand fundamentals but also reflect, in significant part, PJM decisions about the definition of supply and demand[.]\u201d\u00a0<\/span><\/p>\n

But if supply and demand weren\u2019t to blame, what was? Well, it\u2019s complicated: There are multiple root causes\u2013and\u00a0 each demonstrates a different failure of PJM leadership.\u00a0<\/span><\/p>\n

But just as the causes are in PJM\u2019s hands, so are the solutions\u2026<\/span><\/p>\n

\n

Root Cause 1: A Perfect Storm of Interconnection and Auction Delays<\/strong><\/p>\n

PJM\u2019s capacity market is supposed to operate under a \u201cthree-year forward\u201d mechanism. That means PJM holds auctions to buy reserve electricity three years in advance of when it\u2019s needed. So when lower supply sparks higher auction prices, generators will then have ample time (three years) to respond to that signal and build new power plants.\u00a0<\/span><\/p>\n

Unfortunately, 2018 was the last time PJM held a three-year forward auction. Today, auctions happen on a drastically compressed schedule.\u00a0<\/span><\/p>\n

For example, PJM\u2019s July auction secured reserve power for just 11 months into the future, June 2025\u2013not enough time for new generating resources to build and connect to the grid.\u00a0<\/span><\/p>\n

That would be true even if PJM\u00a0 were quick to get resources online\u2013but it\u2019s not, and that\u2019s the other problem. PJM is infamous for having <\/span>one of the nation\u2019s slowest interconnection queues<\/a><\/strong>. The \u201cqueue\u201d is the waitlist for new electric resources seeking review and approval by PJM so they can be connected to the grid.\u00a0 Unfortunately, there are more renewable resources waiting in line than all of the resources currently powering PJM\u2019s vast 13-state region.\u00a0<\/span><\/p>\n

As it processes this massive backlog, PJM isn\u2019t renewing any new interconnection applications until 2026, at the earliest. Some projects have sat in the queue for so long (5 or more years) that they have lost financing or site permissions, and so they drop out of the process before PJM even reviews them.\u00a0<\/span><\/p>\n

In this frustrating situation\u2013with a key part of the clean energy transition on hold\u2013everyday electric customers will pay for higher capacity prices on their electric bills without\u00a0 getting any benefit for those payments. High prices + failure to get resources online quickly = bad news for ratepayers.<\/span><\/p>\n

What does PJM need to do? Get back on schedule and bring more generation online.<\/strong><\/em><\/p>\n

First, PJM should fully comply with FERC Order 2023, which laid out new standards for interconnection processing. PJM has been foot-dragging on compliance, <\/span>asking for exceptions<\/a><\/strong> to a number of these standards, including realistic treatment of battery storage, a technology that could be a huge help in easing these serious grid problems.<\/span><\/p>\n

Complying with the Order will speed up processing in the long run\u2013but, of course, PJM also needs to continue clearing out the existing backlog. And it needs a speedier process to transfer the ability to interconnect at a certain point in the grid\u2013called Capacity Interconnection Rights (CIRs)\u2013from retiring plants to new resources, so we can make the most efficient use of the grid. Right now, \u201cstakeholders\u201d–all the parties with interests in PJM, such as generators, transmission owners, consumer advocates, etc.–are evaluating a proposal to do just that. We hope the final proposal will not include any exceptions that allow resources to claim CIRs without using them, or monopolize them for an extended construction period.<\/span><\/p>\n

There is an option that PJM stakeholders are not currently considering, but should: Reforms to PJM\u2019s <\/span>surplus interconnection process<\/a><\/strong>. Surplus interconnection allows multiple resources to use the same interconnection point and fill in when another resource isn\u2019t performing. For example, a gas plant could share a connection with a battery, which means the gas plant could run less while the battery provides capacity. This is a key moment, and a creative solution like this should be on the table!<\/span><\/p>\n

\n

Root Cause 2: Bad Market Rules<\/strong><\/p>\n

PJM leadership doesn\u2019t seem concerned about the high prices \u2014 indeed, they point to high prices as a signal that the market <\/span>is<\/span><\/i> working. But the <\/span>Market Monitoring Unit (MMU)<\/a><\/strong>, an independent watchdog to prevent market manipulation, has a different analysis: \u201cBased on the data and this review, the MMU concludes that the results of the 2025\/2026 [] Auction were significantly affected by flawed market design decisions\u2026\u201d There were a number of contributing factors, like recent changes to how PJM calculates resource risk and availability, and potential market manipulation via loopholes in the rules.\u00a0<\/span><\/p>\n

Speaking of flawed market design decisions, one of the major contributors to the high prices is the way PJM handles<\/span> RMRs, or Reliability Must Run arrangements<\/a><\/strong>. RMRs allow PJM to keep an otherwise retiring plant in operation whenever they have concerns that a plant closure would hurt grid reliability. With a growing number of uneconomic coal and gas plants reaching retirement, RMRs keep polluting, expensive generators online well past their planned deactivation dates while replacement transmission is built. The whole point of RMR contracts is that the plant gets extra money to stay open \u2014 but PJM doesn\u2019t consider them as available for the capacity market. Consumers thus end up paying double for an RMR: first for the price of the contract, and then again because of the high capacity prices that result from not counting the plant.\u00a0<\/span><\/p>\n

According to the Market Monitoring Unit, the way PJM handles RMRs resulted in a capacity price increase of over 40 percent!\u00a0<\/span><\/p>\n

What does PJM need to do? Fix the rules.<\/strong><\/em><\/p>\n

We joined other consumer advocates in sending a<\/span>\u00a0letter asking PJM<\/a><\/strong> to change the rules for handling RMRs, and several organizations have<\/span> brought a complaint to FERC<\/a><\/strong>. Plus, we will continue pushing for alternatives to RMRs in<\/span> a process CUB helped start this summer<\/a><\/strong>.\u00a0<\/span><\/p>\n

\n

\u00a0<\/b>Root Cause 3: Data Centers\"\"<\/a><\/strong><\/p>\n

Meanwhile, we\u2019re also seeing more challenges on the demand side.\u00a0 Requiring massive amounts of 24\/7 energy, data centers are undeniably putting new strain on our electric system. PJM\u2019s capacity market is intended to ensure there is enough electricity to meet our needs in the future. With the influx of new data centers being built, the grid operator is under pressure to make sure there is significantly more electricity available than previously. This can contribute to higher bills for ratepayers.\u00a0<\/span><\/p>\n

What does PJM need to do? Use accurate load forecasting<\/strong><\/em><\/p>\n

PJM uses load forecasts to determine how much electricity we need to buy in the capacity market. The load forecast is a projection of how much electricity demand there will be in the future. Since a load forecast determines how much electricity we\u2019re on the hook for buying, it\u2019s important to get it right! Unfortunately, PJM allows utilities to use wildly different assumptions and practices in determining their load forecast, which can drive up prices for consumers. A data center that has entered into a contract and put down money is much more realistic to include in a load forecast than a data center that may be shopping around for the best deal. We\u2019ve <\/span>called on PJM<\/a><\/strong> to institute more objective criteria.<\/span><\/p>\n

\n

We continue to find out how different factors impacted the capacity auction. It\u2019s complex, but the aforementioned root causes are real. CUB will continue to advocate for new generation, rule changes, and load forecasting, and push for better as we uncover more details. The last auction was a failure for consumers. It must not happen again.\u00a0<\/span><\/p>\n

\n

\"\"About the Author:<\/strong>
\nClara Summers joined CUB in 2023. She heads the\u00a0Consumers for a Better Grid<\/a><\/strong>\u00a0(formerly CLEAR RTO) campaign, which advocates for a cleaner, more affordable power grid for the 65 million people served by PJM, the nation\u2019s largest grid manager. Clara is based in the greater DC area. When not deep in the weeds of energy policy, she enjoys Irish dance, hammered dulcimer, and anything to do with koalas.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Clara Summers, Campaign Manager Consumers for a Better Grid (a project of CUB) The electricity price for Illinois\u2019 largest power utility, Commonwealth Edison, will go up significantly next summer because of a recent auction to secure reserve power. Grid operator PJM announced that its recent “capacity” auction sent prices skyrocketing from $28.92 per Megawatt-day to a record $269.92 per MW-day.\u00a0 Such capacity costs make up a portion of the price of electricity, so this is expected to cause ComEd bills to increase starting in June of 2025.\u00a0 Why are the prices so high? The Market Monitor for PJM said \u201cthe [] prices do not solely reflect supply and demand fundamentals but also reflect, in significant part, PJM decisions about the definition of supply and demand[.]\u201d\u00a0 But if supply and demand weren\u2019t to blame, what was? Well, it\u2019s complicated: There are multiple root causes\u2013and\u00a0 each demonstrates a different failure of PJM leadership.\u00a0 But just as the causes are in PJM\u2019s hands, so are the solutions\u2026 Root Cause 1: A Perfect Storm of Interconnection and Auction Delays PJM\u2019s capacity market is supposed to operate under a \u201cthree-year forward\u201d mechanism. That means PJM holds auctions to buy reserve electricity three years in advance of when it\u2019s needed. So when lower supply sparks higher auction prices, generators will then have ample time (three years) to respond to that signal and build new power plants.\u00a0 Unfortunately, 2018 was the last time PJM held a three-year forward auction. Today, auctions happen on a drastically compressed schedule.\u00a0 For example, PJM\u2019s July auction secured reserve power for just 11 months into the future, June 2025\u2013not enough time for new generating resources to build and connect to the grid.\u00a0 That would be true even if PJM\u00a0 were quick to get resources online\u2013but it\u2019s not, and that\u2019s the other problem. PJM is infamous for having one of the nation\u2019s slowest interconnection queues. The \u201cqueue\u201d is the waitlist for new electric resources seeking review and approval by PJM so they can be connected to the grid.\u00a0 Unfortunately, there are more renewable resources waiting in line than all of the resources currently powering PJM\u2019s vast 13-state region.\u00a0 As it processes this massive backlog, PJM isn\u2019t renewing any new interconnection applications until 2026, at the earliest. Some projects have sat in the queue for so long (5 or more years) that they have lost financing or site permissions, and so they drop out of the process before PJM even reviews them.\u00a0 In this frustrating situation\u2013with a key part of the clean energy transition on hold\u2013everyday electric customers will pay for higher capacity prices on their electric bills without\u00a0 getting any benefit for those payments. High prices + failure to get resources online quickly = bad news for ratepayers. What does PJM need to do? Get back on schedule and bring more generation online. First, PJM should fully comply with FERC Order 2023, which laid out new standards for interconnection processing. PJM has been foot-dragging on compliance, asking for exceptions to a number of these standards, including realistic treatment of battery storage, a technology that could be a huge help in easing these […]<\/p>\n","protected":false},"author":25,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":"","_wpscppro_dont_share_socialmedia":null,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"default","_twitter_share_type":"default","_linkedin_share_type":"default","_pinterest_share_type":"default","_linkedin_share_type_page":"","_instagram_share_type":"default","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[1692,503],"tags":[1684],"class_list":["post-41761","post","type-post","status-publish","format-standard","hentry","category-campaign-for-a-better-grid","category-capacity","tag-consumers-for-a-better-grid"],"cp_meta_data":{"_facebook_share_type":["default"],"_twitter_share_type":["default"],"_linkedin_share_type":["default"],"_pinterest_share_type":["default"],"_instagram_share_type":["default"],"classic-editor-remember":["classic-editor"],"_edit_lock":["1731093502:5"],"_edit_last":["5"],"_wp_page_template":["default"],"borntogive_page_header_show_hide":["2"],"borntogive_pages_title_show":["1"],"borntogive_pages_Choose_slider_display":["2"],"borntogive_pages_select_revolution_from_list":["3"],"borntogive_pages_slider_pagination":["yes"],"borntogive_pages_slider_auto_slide":["yes"],"borntogive_pages_slider_direction_arrows":["yes"],"borntogive_pages_slider_effects":["fade"],"borntogive_pages_body_bg_wide":["0"],"borntogive_pages_body_bg_repeat":["repeat"],"borntogive_pages_content_bg_wide":["0"],"borntogive_pages_content_bg_repeat":["repeat"],"borntogive_pages_social_show":["1"],"borntogive_strict_no_sidebar":["0"],"borntogive_sidebar_columns_layout":["3"],"borntogive_gallery_slider_pagination":["yes"],"borntogive_gallery_slider_auto_slide":["yes"],"borntogive_gallery_slider_direction_arrows":["yes"],"borntogive_gallery_slider_effects":["fade"],"_wpb_vc_js_status":["false"],"_wpscppro_custom_social_share_image":[""],"_wpscppro_dont_share_socialmedia":["off"],"_wpsp_is_facebook_share":["off"],"_wpsp_is_twitter_share":["off"],"_wpsp_is_linkedin_share":["off"],"_wpsp_is_pinterest_share":["off"],"_selected_social_profile":["a:0:{}"],"_yoast_wpseo_primary_category":["503"],"_yoast_wpseo_content_score":["30"],"_yoast_wpseo_estimated-reading-time-minutes":["7"],"_wpb_post_custom_layout":["default"]},"_links":{"self":[{"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/posts\/41761","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/users\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/comments?post=41761"}],"version-history":[{"count":2,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/posts\/41761\/revisions"}],"predecessor-version":[{"id":41772,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/posts\/41761\/revisions\/41772"}],"wp:attachment":[{"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/media?parent=41761"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/categories?post=41761"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.citizensutilityboard.org\/wp-json\/wp\/v2\/tags?post=41761"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}