The more things change, the more things need to change with the PJM Interconnection, LLC (PJM) capacity construct. On December 9, 2024, PJM filed additional capacity market changes with the Federal Energy Regulatory Commission (FERC) in Docket No. ER25-682-000. The changes come after the price shock of the most recent Base Residual Auction (BRA) for the June 2025 to May 2026 (2025-26) period were announced this past summer, and PJM’s subsequent 6-month delay of 2026-27 auction, which was originally set to be conducted this month.
This recently filed package of capacity market rule changes consist of moderate tweaks rather than wholesale overhauls like the risk modeling and supply accreditation rules that were first implemented in the 2025-26 BRA. The package is also intended to act as a bridge for the next two BRAs (i.e., for the 2026-27 & 2027-28 periods) while PJM continues to work on yet more capacity market changes with its stakeholders. The proposed changes as filed include:
1. Inclusion of Reliability Must Run (RMR) Units as Supply: PJM proposed to define criteria to provide for certain RMR units (i.e., units slated for retirement that are required to remain operational temporarily for reliability reasons) to be included in the capacity auction as supply. Under PJM’s existing rules, RMR units do not participate in the capacity auction.
Why it Matters: The Brandon Shores and Wagner units in the Baltimore Gas & Electric (BG&E) zone are large RMRs located in a constrained area. Additional supply from those units would help ease prices, especially in their zone.
2. Reference Unit Reversion back to Combustion Turbine (CT): Based on its last review, PJM had decided to switch its reference resource technology from a CT to a Combined Cycle (CC), which was set to be implemented for the first time in the 2026-27 BRA. PJM is now proposing to maintain the CT as the reference resource rather than switch to a CC. The reference unit is the basis for defining the Cost of New Entry (CONE), which affects several PJM capacity parameters including the capacity demand curve and capacity penalty rate.
Why it Matters: The switch to a CC would have significantly increased the auction ceiling price, created a much steeper demand curve, and also reduced the capacity penalty rate to zero. By reversing that decision, PJM avoids those outcomes and maintains CT-based parameters that are more familiar and less dramatic. This reduces the highest price potential outcome (e.g., to levels similar to where the Dominion and BG&E zones cleared at in the 2025-26 BRA under the CT-based CONE), if PJM’s upcoming capacity auctions clear at the auction ceiling price. Prices may still clear very high in absolute terms, but the auction ceiling price will not take the significant jump higher that was anticipated under the CC approach relative to the auction clearing price used in the 2025-26 BRA.
3. Removal of Safe Harbor for Exempted Units: Intermittent, storage, hybrid, and demand resources are categorically exempted from being required to offer as capacity. While PJM is not proposing to change its capacity must-offer exemptions in this filing, it is clarifying that exempted units choosing not to offer as capacity can nevertheless be subject to market power review. PJM does appear to be on the verge of making another capacity filing that would altogether remove the categorical exemption, in addition to modifying market seller offer allowances.
Why it Matters: Exempted capacity in PJM often opts not to participate as capacity. If PJM’s change prompts some of that capacity to now participate moving forward, that additional supply would ease prices. Exempted capacity may feel pressure to offer to avoid the appearance of market power. If PJM removes the categorical exemption in a subsequent filing, then such capacity will be required to offer.
4. Other: PJM’s package includes additional reform elements that are less significant.
Although not completely explicit, PJM appears to be responding to the 2025-26 BRA price shock and pressure around affordability concerns (including complaints filed at FERC and letters from elected officials). This package of capacity market rule changes is intended to reduce price pressure for the next couple of auctions while PJM works on more durable resource adequacy solutions to address growing demand and a failure of sufficient entry of new supply resources. Related to the latter and in the same theme of bridge solutions, PJM made another FERC filing on December 13, 2024 proposing to institute the Reliability Resource Initiative (RRI), which is a fast lane geared at getting new resources through PJM’s clogged interconnection queue. Here’s to hoping PJM’s bridge solutions lead to reasonable market outcomes. More importantly, hopefully we find ourselves not needing these sorts of stop-gap fixes in the future.
Matt King, Director-Power Supply Planning
GDS Associates, Inc. - Marietta, GA
(770) 799-2401 or
matt.king@gdsassociates.com