On December 9, PJM proposed a series of changes to its capacity rules. These changes are designed to address: (i) the high clearing prices in the 2025/2026 auction, and (ii) the increasing risk of capacity shortfalls. As discussed in earlier 5 by 5s, this capacity shortfall is driven by numerous factors including the construction of new data centers that require significant amounts of electricity, the retirement of older fossil fuel units, and delays in the development of new generation and transmission lines.
For our clients, the most important of the proposed changes relates to the treatment of two Reliability Must Run (RMR) fossil fuel plants: Wagner (843 MW oil-fired) and Brandon Shores (1289 MW coal-fired). RMR units are power plants that were scheduled to be retired by their owners but, due to grid reliability needs, receive out-of-market payments from PJM in exchange for keeping the plants running. Under current PJM rules, RMR plants are excluded in calculating available capacity resources. Excluding the generation capacity of Wagner and Brandon Shores from the 2025/2026 capacity auction decreased the amount of available capacity in the market and significantly pushed up the capacity clearing price. Under the proposed rule changes, capacity from these two large RMR plants will be included in the upcoming 2026/2027 and 2027/2028 auctions.
Including capacity from the Wagner and Brandon Shores units and other modifications to the rules proposed by PJM are expected to lower the ceiling price for capacity in PJM from $700 per MW-day to around $500 per MW-day. However, these new rules require Federal Energy Regulatory Commission (FERC) approval. Due to widespread concerns regarding the capacity auction rules in the 2025/2026 auction, FERC approved a delay in the next auction (for the 2026/2027 delivery year) from December 2024 to July 2025. To allow sufficient time for the July 2025 auction to take place, PJM requested a schedule that will result in a final decision from FERC on the new rules by February 18, 2025. In PJM’s filing, they stated that if the new rules were not approved by FERC, they would run the July 2025 auction (for the 2026/2027 delivery year) using the current rules. If PJM’s new rules are not approved, and the auction takes place using current rules, the ceiling price will likely remain close to $700 per MW-day. When capacity prices are converted to retail costs, a $200 per MW-day increase equates to an increase in retail electricity rates of approximately 1.6 cents/kWh.
To further complicate matters, on December 30, 2024, Governor Josh Shapiro and the Commonwealth of Pennsylvania filed a complaint against PJM at FERC. Pennsylvania maintains that PJM’s current capacity market is “unjust and unreasonable” and that the market rules should be changed in various ways that will put a significant cap on capacity prices.
Use these links to access PJM’s tariff filing and PA’s complaint on the Federal Energy Regulatory Commission eLibrary.
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