On Tuesday, Pennsylvania Governor Josh Shapiro announced a settlement with PJM, the regional electric grid operator that covers the Mid-Atlantic and parts of the Midwest. The settlement is the result of a complaint against PJM that Governor Shapiro filed in December with the Federal Energy Regulatory Commission (FERC).
Why did Pennsylvania file a complaint against PJM?
Governor Shapiro’s complaint against PJM was filed in response to a $12.5 billion dollar spike in “capacity charges” set by PJM at its capacity auction last July. Capacity charges are essentially payments to power plants who commit to providing reliable power during times of high demand, like hot summer days when everyone cranks up the air-conditioning. Capacity charges are paid by the electric consumers in the PJM region, meaning that electric bills will go up in June for the 65 million people served by PJM to pay for the $12.5 billion spike from last summer’s auction.
Capacity prices spiked for a few reasons, but the primary one is that PJM has been stalling on letting new, mostly clean and renewable, power sources from connecting to the grid. That means that as dirty, uneconomic coal plants retire, nothing has been able to replace them. When the supply of power on the grid is lower, the cost of ensuring reliable capacity is higher. In a functioning capacity market, capacity prices go up in response to low energy supply, incentivizing the development of new sources of power, such as wind farms or power plants, to meet demand. PJM, however, already has 286.7 gigawatts (GW) of proposed energy projects waiting to be connected to the grid – enough to power roughly 228 million homes for a year.
Rather than reforming its interconnection processes to meet FERC requirements, PJM—and the fossil fuel companies and utilities who dominate its membership—has proposed following its own, lengthier timeline. PJM’s delays on reforming its interconnection processes prevent those hundreds of gigawatts of energy projects from providing clean, reliable and affordable energy to the grid, and consumers pay the price
What was the original complaint?
Governor Shapiro’s complaint argued that because new power plants are not being approved and connected to the grid by PJM, it is impossible for massive spikes in capacity charges to incentivize new development. As a result, the significant increases on consumer bills will not actually help bring more capacity onto the grid – that is, these massive new costs for consumers and windfall for incumbent power plants, are for nothing. The complaint aimed to limit even further bill increases that similarly would not result in any new capacity. The governors of four other states in PJM’s service territory — Illinois, New Jersey, Maryland, and Delaware — supported Gov. Shapiro’s complaint in a joint statement to FERC.
What does the settlement do?
The settlement agreement between PJM and Pennsylvania lowers the capacity price cap— the maximum amount that PJM consumers have to pay in capacity charges—which could save consumers across the PJM region $21 billion over the next two years.
While it is impossible to go back and change the results of the last auction, this new price cap will help keep costs from increasing further in the coming auction, preventing consumers from making more and more exorbitant payments to power plants for no benefit in return.
What doesn’t the settlement do?
The settlement does not address the underlying issues in PJM, like the failure to speedily connect new resources to the grid. PJM urgently needs to reform its process for connecting new power plants, so that the hundreds of gigawatts of clean, renewable energy waiting for PJM approval can start providing low-cost green energy to PJM’s electric customers.
