PJM 2022-2023 Capacity Auction Ducats Decrease Dramatically

Electricity generators across the 13-state plus the District of Columbia footprint of the PJM Regional Transmission Organization (RTO) have waited three years for its normally-annual capacity auction, which provides payments to powerplants based on their generation capacity, and an agreement to provide a specific amount of that capacity when called upon by PJM. These payments help cover generators’ typically-large overhead, a vital source of income for the many hours, days and even months when they aren’t delivering electricity and receiving “energy” payments in return. The auction, for delivery year 2022-2023, opened on May 19 and closed on May 25; PJM posted the auction results on June 2.

Capacity markets arose across sections of the country following location-specific deregulation, which began in 1988 with federal legislation, the Public Utility Regulatory Policies Act (PURPA), followed by the 1992 Energy Policy Act, and cemented by the Federal Energy Regulatory Commission’s (FERC) Acts 888, 889, and 2000. These Acts broke up utilities’ vertical integration, which then required utility-owned powerplants to be sold to a third party or transferred to an unregulated affiliate. They also supported the creation of Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) and encouraged “all transmission-owning entities in the Nation, including non-public utility entities, to place their transmission facilities under the control of appropriate RTOs in a timely manner.”

Capacity markets, which PJM calls its “Reliability Pricing Model” don’t exist everywhere, such as in Texas (ERCOT – the Electric Reliability Council of Texas) which has only an energy market. And we saw how well that worked in February during an unprecedented Winter Storm named Uri, that saw prices rise to the cap of $9000/MWh, creating unheard-of costs for third-party electricity retailers and, sadly, ratepayers who have variable-rate energy contracts. 

In PJM—originally Pennsylvania, Jersey, and Maryland—the country’s largest electricity market, a total of 144,477 MW cleared for delivery year June 1 to May 31, 2023 at a cost of $3.9 billion, $4.4 billion lower than the 2021-2022 auction. PJM stated that these prices are a result of a lower load forecast; a 19% drop in CONE, Cost of New Entry; and lower offered prices overall from resources that participated in the auction. Prices varied widely by sub-region, from a scant $50 MW/day in “RTO” which includes Ohio, West Virginia, and part of Maryland, Indiana, Kentucky, and Pennsylvania, to $126.50 MW/day in the BGE (Baltimore Gas & Electric) region. Prices were a significant drop from the last auction, especially in RTO, for which the price was $140/MW-day in the most recent auction in 2018.

Here are the full results in MW/days:

RTO               2022-2023  $50.00           

ComEd          2022-2024  $68.96            

DEO&K         2022-2023  $71.69

MAAC            2022-2023  $95.70            

EMAAC         2022-2023  $97.86            

BG&E            2022-2023  $126.50          

Coal-fueled generation cleared 8,175 fewer megawatts than in the last auction, while combined-cycle natural gas units cleared an additional 3,414 MW, solar and uprates 942 MW, and wind-powered units 312 MW. Interestingly, while energy efficiency programs added 1,979 MW or 70%, demand response at 8,812 MW was down 2,314 MW, or 21% from the previous auction. Nuclear resources added 4,460 MW, but three Exelon nuclear units failed to clear entirely: Byron at 2,347 MW; Dresden at 1,845 MW; and Quad Cities at 1,403 MW.

Two generators discussed the results with me; one says much of it was an oversupply issue, saying they believe about 6,000 MW of new build bid into the auction, and about 1,500 MW of uprates. The other noted that new investments in non-subsidized combined-cycle assets are inadvertently making low-risk investors into high-risk investors.

PJM’s Capacity Auctions (BRA) are normally held every spring for the delivery period of June 1-May 31, three years forward. However, the BRA was instead delayed for three years while both FERC and PJM grappled with issues and controversies around pricing for generation resources subsidized by the states. This led to the imposition of a MOPR or Minimum Offer Price Rule which was applied in this auction and prevented some resources from clearing. However, it’s likely that some of those generators wouldn’t have cleared even absent the rule.  

And many stakeholders believe that more reforms are necessary to preserve a competitive market, irrespective of the fact that such reforms may be viewed by some as interfering with state policies. Independent Market Monitor Joe Bowring stated that he’ll issue a report on auction results sometime in the coming month.

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