Pandemonium in PJM
It has been a rough few months in PJM. Multiple wildfires are burning in the nation’s largest RTO, and it isn’t obvious when they’ll subside. Four matters in particular bear watching in the months ahead.
Capacity Auction Chaos
It’s no secret that PJM’s capacity markets have been challenged in recent years, and little suggests that will soon change. Seeing prices that PJM deemed were too high in one recent auction, the RTO proposed, and FERC approved, a plan to re-write auction rules midstream. That drew the ire of merchant generators that now stand to lose significant revenues. Litigation ensured. More recently, PJM recognized its auction rules are broken, and it has now proposed delaying auctions while it attempts yet another fix.
Winter Storm Elliott and its Fallout
PJM narrowly avoided major blackouts during the Christmas 2022 cold snap associated with Winter Storm Elliott. Over 20 percent of the generators in PJM failed to produce as expected. The failure has resulted in assessments of between $1 and $2 billion in penalties against non-performing generators. That has led to further chaos, with generators either seeking to avoid their penalties or by obtaining relief through outright bankruptcy. Apparently worried about how this might affect reliability. FERC itself approved a pathway for generators to continue producing power, even if they are in default.
Growing Tension with States
PJM and the states have a frequently uneasy relationship. That is no secret. Policy makers have a keen interest in PJM matters because the RTO makes decisions that impact consumers and the generation mixes within states. An emerging trend is for states to seek greater transparency into the secretive stakeholder processes that drive much of PJMs decision making. Officials in two states, West Virginia and Maryland, are pursing such a course, and the outcome of their efforts may encourage even more states to press PJM for reforms.
Reliability Storm Clouds Gathering
Finally, PJM leadership has flagged the retirement of generation as an additional concern. Reports indicate a looming capacity crisis, as demand is soon projected to outstrip generation availability.
The list of challenges within PJM is growing, and quick fixes are not readily apparent. PJM, FERC and the states will need to avoid the missteps that have imperiled other RTOs, as in Texas and California, where the threat of blackouts and volatile prices are a year-round concern. As the nation’s largest RTO, encompassing states with varying regulatory structures, PJM serves as a bellwether and cautionary tale for problems that are bedeviling ISOs and RTOs generally. It is safe to assume the next few years will be busy for the consulting firms, NGOs, associations, and stakeholders that drive the RTO. It is less clear how well this will all turn out for consumers.