In 2021, PJM and its stakeholders continued to work together to adapt the PJM wholesale electricity markets to serve a dynamic power grid, balancing evolving public policy efforts with the need to maintain resource adequacy at the lowest cost.
Capacity Auction Return
In early June, PJM announced the successful procurement, through its annual capacity auction, of competitive and affordable power supplies for the 65 million people throughout the PJM footprint.
The PJM capacity auction, called the Base Residual Auction, procures power supply resources in advance of the delivery year to meet electricity needs in the PJM footprint, which includes all or part of 13 states and the District of Columbia.
Auctions are usually held three years in advance of the delivery year. The 2022/2023 auction was originally scheduled to take place in May 2019 but was postponed until this year as FERC considered approval of new capacity market rules, specifically the Minimum Offer Price Rule (MOPR).
Renewables, nuclear and new natural gas generators saw the greatest increases in cleared capacity in the 2022/2023 auction, while coal units saw the largest decrease. Prices were significantly lower than in the previous auction.
To get back to a three-year forward schedule, FERC approved a compressed schedule for auctions through 2024. After initially scheduling the next auction (for the 2023/2024 Delivery Year) for December 2021, PJM asked for and received FERC approval to push the 2023/2024 Delivery Year auction to Jan. 25, 2022, to allow for the orderly administration of the upcoming auction given recent FERC-required changes related to the Market Seller Offer Cap.
FERC issued a notice Sept. 29 indicating that PJM’s proposed amendments to its capacity market rules would take effect immediately by operation of law, in the absence of Commission action. As a result, PJM implemented its proposed amendments to the Minimum Offer Price Rule (MOPR) for the upcoming 2023/2024 Delivery Year capacity auction.
These amendments, developed and endorsed by PJM members at the request of the PJM Board, work to accommodate state policy and self-supply business models, address attempted exercises of buyer-side market power and create a sustainable market design by keeping clearing prices consistent with supply-and-demand fundamentals. PJM’s amendments achieved consensus under a unique, accelerated stakeholder process, called the Critical Issue Fast Path (CIFP). This was the first time the PJM Board employed the CIFP process, an alternative to the normal stakeholder process designed to expeditiously resolve issues that are contentious or time sensitive.
PJM is focused on meeting the evolving needs of a reliable, resilient grid of the future. The Resource Adequacy Senior Task Force (RASTF), convened in late 2021, addresses capacity market reform as well as critical, broader resource adequacy topics at the direction of the PJM Board of Managers.
To address reliability, areas for study and action include:
- Generation performance assessments
- Capacity resource qualification, accreditation and obligations
- Supply-side market power mitigation rules
- Fixed Resource Requirement rules
- Procurement processes, including those of clean resource attributes
- Inclusion of the social cost of carbon in electricity markets
In a flexible, responsive and inclusive stakeholder process, the RASTF will advance its work in stages that allow for incremental reforms adapted in upcoming capacity market auctions in a process expected to conclude by late 2023 for implementation in the 2027/2028 Base Residual Auction in May, 2024.
At the start of September, PJM, as directed by the Federal Energy Regulatory Commission, implemented its new fast-start pricing market rules.
Fast-start resources are those that PJM has determined are capable of operating within one hour of notification and have a minimum run time of an hour or less.
The new rules allow these quick-start resources to set the price of energy in the Day-Ahead and Real-Time markets, reflecting their cost of serving load and strengthening their incentive to perform during tight system conditions.
Operational flexibility is increasingly important for the grid to remain reliable as more variable resources like wind and solar power interconnect. The new pricing rules more appropriately value resources needed to serve load and incentivize flexibility by enabling resources to compete for additional revenues.
PJM implemented a fresh approach to its Quadrennial Review during 2021. The formal study, administered every four years, is completed to determine how much capacity the bulk power system needs to remain reliable.
The Quadrennial Review is an analysis required by PJM’s Tariff to assess the Variable Resource Requirement (VRR) curve, a measure that sets the quantity of capacity PJM will procure in the annual capacity auction as a function of price to meet acceptable reliability standards.
PJM and The Brattle Group, which has been retained to conduct the study, have engaged stakeholders at the outset of the process and invited them to weigh in at strategic points. Historically, stakeholders have provided feedback only after the consultant study was completed.
To kick off the process, Brattle held two education sessions in August. During the sessions, Brattle representatives told stakeholders that they were pleased to have the benefit of stakeholders’ perspectives going into the process. The industry is changing rapidly, representatives said, posing more uncertainty than there has been in the past. Following the sessions, stakeholders submitted initial input on study scope and approach in late August before Brattle began its formal study.
Brattle has continued to involve stakeholders periodically since those sessions, including an October presentation on the reference technologies it proposed to use in its analysis. A December session on draft results is planned along with a meeting in February 2022 to discuss near-final results.
The process will culminate in 2022, with the Tariff mandating a PJM staff proposal due May 15; a member vote by Aug. 31; and a filing, of any proposed changes, by Oct. 1 to the Federal Energy Regulatory Commission. These dates are the year prior to the applicable auction.