Two years after PJM CEO Manu Asthana warned stakeholders the RTO will have to move quickly to ward off a reliability crisis brewing around 2030, the Board of Managers stated a capacity shortage now could come as early as the 2026/27 delivery year.
PJM begins 2025 with several proposals before FERC seeking to rework its capacity market and generator interconnection queue, while stakeholders work on an expedited Quadrennial Review of the market and changes to resource accreditation.
Two capacity auctions are scheduled for 2025 following several delays: The Base Residual Auction for the 2026/27 delivery year is set to be conducted in July, with the auction for the following year scheduled for December. The rules for those auctions, however, remain unclear amid the ongoing stakeholder processes and pending proposals.
While those changes are being considered, consumer advocates argue there is a break between capacity prices and the ability for developers to bring new resources online to lower prices. In a complaint to FERC, they make a case that so long as that gap persists, PJM’s Reliability Pricing Model (RPM) cannot deliver capacity in a just and reasonable manner. (See Consumer Advocates File Wide-ranging Complaint on PJM Capacity Market.)
One of the pillars of the advocates’ complaint is that capacity supply is being suppressed by several categories of resources being exempt from the requirement that all resources offer into the market, which would be addressed by a PJM proposal to expand the requirement to intermittent, hybrid and storage resources. Some stakeholders have advocated for the change on the basis that capacity is being withheld from the market, while renewable developers have pushed back, saying that making a change of this magnitude on such short notice could have a chilling effect on development.
Another PJM proposal would model the output of the Brandon Shores and H.A. Wagner generators outside Baltimore as supply. Both units left the market for the 2025/26 auction to operate on reliability-must-run agreements, which the Independent Market Monitor said was a major component in the substantial increase in clearing prices (ER25-682). (See PJM Market Monitor Releases Second Section of 2025/26 Capacity Auction Report.)
The proposal also would establish criteria for determining when an RMR unit can be counted as supply, limiting the practice to the next two delivery years and applying only to resources that can meet the needs of the transmission constraints they are being retained for while also retaining operational flexibility to provide capabilities akin to capacity. PJM told FERC it intends to pursue a more long-term solution to how RMR agreements interact with the capacity market.
The third prong of the filing would add language stating that resources that are categorically exempt from the requirement that market sellers offer into the capacity market do not hold “safe harbor against allegations of the exercise of market power that benefits an affiliated portfolio of market manipulation power.”
Queue Proposals
Another pair of filings propose to create expedited processes for new resources to proceed through the interconnection queue.
The Reliability Resource Initiative (RRI) (ER25-712) would allow 50 resources to be added to the Transitionary Cycle 2 queue, which PJM is about to begin studying. Projects would be scored and prioritized based on their capacity and effective load-carrying capability (ELCC) ratings, impact on zones facing capacity shortfalls, constructability and transmission headroom availability. PJM said it is meant to be a “one-time” solution that could allow about 10 GW of unforced capacity to quickly come online to address projected capacity shortfalls toward the end of the decade.
The RRI has been met with a mixed response from stakeholders, with some generation owners saying it would allow them to bring shovel-ready projects and uprates to existing resources to the market, while those with projects that have been in the queue for years have argued it would amount to cutting in line and discriminatory treatment. (See PJM Stakeholders Wary of Expedited Interconnection Proposal.)
PJM also proposes changes to its surplus interconnection service (SIS) process, which allows accelerated interconnection studies on projects co-located with existing resources that would improve their average output without exceeding the site’s capacity interconnection rights (CIRs). The changes would loosen the eligibility rules to allow projects that would require network upgrades, consume transmission headroom or result in “material adverse impacts” on short circuit and thermal limits. It would also expand SIS to apply to planned resources not yet completed.
And PJM plans to file in January yet another proposal, to create a parallel process for resources that would replace a deactivating generator at the same point of interconnection. The new process would take advantage of CIRs from deactivating generators to construct a new resource.
Endorsed by stakeholders in October, the proposal would create a nine-month timeline from when a developer submits an application to the drafting of an interconnection agreement. It would allow projects with minor network upgrades to proceed, including storage resources — a sticking point throughout the stakeholder deliberations.
Quadrennial Review Could See Changes to Demand Curve
To address the longer-term concerns PJM and its members have with the capacity market design, the Quadrennial Review of the market has been moved up by one year, with the aim of submitting a filing at FERC in the third quarter.
Through a handful of conceptual meetings in the fall and winter, the Brattle Group laid out its thinking on the demand curve and reference resource. In the most recent Quadrennial Review, PJM shifted to a combined cycle for the reference resource over a combustion turbine, but it has sought to reverse that in one of its capacity market proposals.
That change was proposed out of a concern that higher energy and ancillary service (EAS) revenues for CCs would lead to the net cost of new entry (CONE) falling to zero for some locational deliverability areas. Several additional parameters use net CONE as an input, including the penalty rate for generators that fail to perform during an emergency, compensation of black start units and the overall shape of the demand curve. The 2026/27 auction would be the first to use a CC reference resource.
Brattle also is exploring the possibility of PJM shifting from a variable resource requirement (VRR) curve to a marginal reliability impact curve, which could improve price stability and be adaptable to a sub-annual design if that is sought in the future. The design could yield a flatter demand curve, one of the major concerns stakeholders have voiced about the VRR curve, particularly as EAS revenues are projected to rise.
Data Center Growth Driving Transmission Upgrades
On the transmission side, PJM is grappling with how to supply rising load growth in the east, particularly around “Data Center Alley” in Northern Virginia, with new generation expected to come online in the west.
Staff have announced their intention to recommend a $5.8 billion package of Regional Transmission Expansion Plan upgrades to the board, with a vote on approval expected in the first quarter. (See “PJM Unveils Recommended Projects for 2024 RTEP Window 1,” PJM PC/TEAC Briefs: Dec. 3, 2024.)
In Transmission Expansion Advisory Committee presentations on the recommended project components, PJM staff said one of the factors it weighed in its selections was expandability because of the likelihood that additional grid reinforcements will be needed as load growth continues.
Presentations to the RTO’s Load Analysis Subcommittee on the preliminary 2025 Load Forecast included several transmission owners projecting tens of gigawatts of large load additions (LLAs). Those additions represent expected load growth not captured in PJM’s standard economic load growth models, but consumer advocates have argued the process by which they are included requires more transparency.
Bill Fields, deputy of the Maryland Office of People’s Counsel (OPC), said the transparency and standardization of data center load projections will be a major focus for advocates going forward. He said it is unclear how PJM is vetting LLAs, and he is concerned that developers scoping out one project across multiple utilities could lead to speculative or duplicative additions making it into the forecasts.
Consumer Advocates Seek More Capacity Market Changes
Consumer advocates laid out their own priorities at a December meeting of the PJM Public Interest and Environmental Organizations User Group (PIEOUG), including incentivizing storage and demand response participation in the capacity market, a sub-annual market design and changes to RTO governance. (See Rising Transmission Costs in PJM Concern Consumer Advocates, Enviros.)
Fields said there are roadblocks limiting the participation of DR and storage resources, both of which have been the subject of stakeholder discussions in recent months. The Market Implementation Committee has been examining the winter availability window for DR, which defines the hours in which the resource is considered available for dispatch for capacity emergencies in ELCC modeling. Curtailment service providers have argued the window limits consumers with a flat load profile from responding in winter.
The Markets and Reliability Committee voted to delay action on a PJM issue charge to establish rules for storage as transmission assets in October, with several stakeholders suggesting that the membership is saturated with work. Speaking at the Dec. 10 PIEOUG meeting, Greg Poulos, executive director of the Consumer Advocates of the PJM States, said the advocates are broadly supportive of expanding storage development, and they may seek changes to market rules through the PIEOUG.
Fields said it’s hard to see how PJM’s capacity market filings will be enough to address the concerns that advocates have with the market. While the RRI would allow some projects to progress and mitigate high prices, a mechanism is needed to keep prices reasonable so long as capacity prices cannot result in an actionable price signal, he said.
Under normal circumstances, PJM’s filings would constitute years’ worth of stakeholder attention and effort, not concentrated into a few months. Adequate analysis will be needed to ensure stakeholders understand the possible market impacts and to identify any unintended consequences, Fields said.
Capacity Accreditation
While several stakeholder efforts are focused on overhauling aspects of the capacity markets, they also continue to fine-tune the redesign to come out of the 2022 Critical Issue Fast Path (CIFP) process.
Three issue charges introduced by LS Power in the fall focus on the marginal ELCC accreditation methodology at the heart of the CIFP changes and are being worked on through the newly formed ELCC Senior Task Force. It is charged with considering the process’s transparency, how it contributes to resource accreditation, and a “disconnect” between the winter-focused risk modeling behind ELCC and the use of summer peaks to calculate zonal capacity emergency transfer limits.
When introducing the issue charges, LS Power argued that market participants have limited ability to understand how changes to their assets would affect their ELCC ratings. Because the framework relies on performance during past capacity emergencies, it may also take years for any improvements that could bolster capacity performance to result in higher accreditation.
LS Power’s Dan Pierpont told RTO Insider that the issue charges are just the first steps in improving ELCC; there needs to be a larger discussion on creating an accreditation framework that reflects future capability rather than historical performance. Without that, he said, the market cannot deliver a clear investment signal.
