PJM Interconnection, the regional transmission organization serving 65 million customers in 13 states and the District of Columbia — from Chicago to New Jersey — has filed a proposal to update capacity auction rules for consideration by the Federal Energy Regulatory Commission as part of the periodic review process.
The proposal, approved by the PJM Board of Managers, was jointly crafted by PJM and the Pennsylvania Public Utilities Commission. It was the only one endorsed by a supermajority of PJM stakeholders among six solution packages that were proposed in the stakeholder process.
The periodic review process is typically conducted every four years. However, the proposal PJM filed on Nov. 7 resulted from a review initiated by PJM a year earlier than required by the PJM Tariff, given the rapidly changing dynamics in the marketplace. Those dynamics include tightening supply and demand margins driving record capacity prices. New Jersey electricity prices surged as much as 20% beginning in June.
Capacity auctions incentivize investment in new capacity resources, and retention of existing capacity resources, that are needed to maintain resource adequacy up to three years in the future. The PJM joint proposal seeks to strike a reasonable balance between wholesale cost and the need to produce auction results that will attract investment in generation required for future grid reliability.
PJM members endorsed the proposal on Sept. 25. If accepted by FERC, the proposal would become effective with the base residual auction for the 2028-2029 delivery year, scheduled to begin June 30, 2026.
The joint proposal would:
- Maintain a natural gas combustion turbine power plant as the “reference resource” and updates the cost of new entry associated with this resource. The reference resource represents a technology that likely would be developed and whose development costs are the benchmark to be covered by the auction.
- Update the Variable Resource Requirement used as the demand curve in the Reliability Pricing Model (RPM) Auction. The proposed VRR Curve caps the PJM-wide auction price at about $550/megawatts-day for the 2028-2029 base residual auction. For the 2028-2029 base residual auction, specific zones inside PJM would be capped at a range between $483/MW-day and $785/MW-day, based on variable costs in those zones. The Variable Resource Requirement (VRR) curve is a downward-sloping demand curve used in capacity markets to ensure resource adequacy and reliability in electricity supply.
The VRR curve is a critical component of the Reliability Pricing Model used by regional transmission organizations. It serves to attract and retain sufficient capacity to meet reliability objectives. The curve helps to signal the market regarding the price of capacity resources based on the reliability needs of the system.
