Federal regulators this week approved a settlement between Pennsylvania and PJM Interconnection, the nonprofit that operates the nation’s largest wholesale electricity grid.
Democratic Gov. Josh Shapiro filed the complaint against PJM with the Federal Energy Regulatory Commission (FERC) last December. Shapiro said at the time it was important to protect taxpayers from utility price hikes after last summer’s record-setting power auction prices.
PJM is not a power company, but a nonprofit that coordinates wholesale electricity distribution across Pennsylvania and a dozen other states. It runs capacity auctions to secure commitments from power generators.
Last year’s auction prices spiked 700 percent from $2.2 billion for 140,416 megawatts of electricity in 2023 to $14.8 billion for 135,000 MW.
In his complaint, Shapiro said those auction prices would be passed on to consumers. “Pennsylvania ratepayers face potentially the largest unjust wealth transfer in the history of U.S. energy markets due to PJM Interconnection LLC’s capacity auctions,” he asserted.
Shapiro also complained about compressed auction timelines and delays in connecting new power projects to the grid. He wanted FERC to force PJM to lower capacity price caps and reopen the interconnection queue process.
PJM countered the higher auction prices were due to simple supply and demand. “Soaring demand from data centers” is meeting impact on supply from state and federal regulators, “pushing (power) generators to retire prematurely,” a PJM spokesperson said after the complaint was filed.
“We have been warning for over two years of the prospect that parts of our country could run short of power during high-demand periods.”
On the supply side, PJM has noted that between 24,000 and 58,000 MW of electricity generation would be retired by 2030 and not be replaced. About 20,000 MW of that lost capacity can be blamed on state and federal regulations, according to PJM.
Those rules included a Biden administration mandate for existing coal-fired and new natural gas-fired power plants must capture 90 percent of all carbon emissions by 2032.
The North American Electric Reliability Corporation (NERC), which ensures PJM’s grid operates correctly, said last December there was an “elevated” risk of power outages this coming winter due to fuel supply issues, demand, and generator retirements.
NERC analysts added that renewable energy sources could not be counted on in an energy shortfall because they’re intermittent.
That didn’t stop Shapiro from increasing his anti-PJM rhetoric in mid-January, including a threat to remove the Keystone State from the grid. Both sides agreed to a settlement on Jan. 28.
The governor said the agreement will save taxpayers $21 billion over the next two years. It includes a lowered price cap for the next two auctions.
“My administration worked with FERC and PJM to find a path forward that will save Pennsylvanians billions of dollars on their electricity bills,” said Shapiro. “I will continue to work to ensure safe, reliable, and affordable power for Pennsylvanians for the long term.”
PJM spokesperson Jeffrey Shields told DVJournal the settlement reduces uncertainty for the next two upcoming capacity auctions.
”FERC’s approval of PJM’s proposed capacity market price cap and floor will maintain the effectiveness of the existing market design, while also supporting grid reliability and affordability for consumers,” he said.
