The PJM Market Implementation Committee voted to endorse two packages of revisions to key parameters of the capacity market out of six offered by PJM and stakeholders that resulted from the Quadrennial Review. (See PJM Stakeholders Discuss Quadrennial Review Proposals.)
The Quadrennial Review resets the variable resource requirement (VRR) curve, which defines the amount of capacity the market procures and at what cost. The review also updates the reference resource technology class, currently a combustion turbine; the cost of new entry (CONE) for the reference resource in various regions of PJM; and the energy and ancillary services (EAS) offset, which estimates revenues outside the capacity market to net against CONE.
A proposal from LS Power received the greatest degree of support: 55.6% for both endorsement and preference over the status quo. It seeks to maintain the core design of the VRR curve while updating it for the changing economics of a CT. It adopts PJM’s initial recommendation of shifting the reference resource to a four-hour battery electric storage system (BESS) in the ComEd zone, which supporters have argued reflects the shorter expected lifespan of gas generation under the Illinois Climate and Equitable Jobs Act’s (CEJA) emissions requirements.
The package tinkers with the heat rate, variable operating and maintenance costs, and net summer ICAP attributes for the General Electric 7HA.03 turbine and added wet compression capability. The changes would result in the gross CONE decreasing by about 8% to between $613 and $630/MW-day of installed capacity, depending on the CONE area.
A joint proposal from PJM and Pennsylvania Public Utility Commission Vice Chair Kimberly Barrow was also endorsed, though it did not receive support over the status quo design. It included a CT reference resource for all zones, with the gross CONE between $592 and $679/MW-day, lower than the LS Power proposals.
PJM’s Skyler Marzewski said the rationale for using a gas generator in ComEd, rather than BESS, is that the falling effective load-carrying capability (ELCC) accreditation for storage is so sharp in the long-term estimates out to 2030 that a gas capacity resource remains more economic even with the truncated asset life. The proposal includes an adjustment to the asset life factor to reflect CEJA.
Staff opted to adopt elements of Barrow’s VRR curve to address uncertainty around CONE and EAS estimates. Rather than basing the price on multiples of gross and net CONE, the joint package sets the maximum price as the greater of 115% of gross CONE minus 75% of net CONE or 20% of gross CONE, which Marzewski said would avoid the maximum price collapsing to zero. The middle point would be defined as half of the maximum and the floor would be zero. The maximum would represent 99% of the reliability requirement; the middle would be 101.5%; and the floor 106%.
Like other proposals, the package would calculate the net EAS offset using forward-looking hourly energy and gas prices, but it would take the 67th percentile of calculated zonal values, which Marzewski said is meant to reflect that developers will seek to optimize their revenues when selecting where to site a resource.
The MIC’s votes were only indicative of stakeholder support. The two endorsed packages will be voted on along with the other four by the Markets and Reliability Committee and Members Committee at their meetings Sept. 25. The Board of Managers will ultimately decide on what revisions to propose.
Other Packages
A variant of the joint PJM and Barrow proposal swapped the CT for a combined cycle reference resource, resulting in a higher gross CONE, between $752 and $860/MW-day. The package did not receive endorsement, with a vote of 26.6% and 27.1% support over the status quo.
Marzewski said PJM prefers a CC reference resource, but its modeling of the two VRR curves in its proposals found there is not a huge difference in the results between a CT and CC under this design. A stakeholder process would be needed shortly after selecting a CC reference to mitigate the risk of the net CONE falling and causing a zero Capacity Performance penalty rate. PJM had sought to implement a CC reference resource in the fifth Quadrennial Review, but it reverted to a CT for the 2026/27 Base Residual Auction and the next auction because of concerns that the higher EAS revenues could lead to depressed capacity prices and knock-on effects on other parameters derived from net CONE, such as the CP penalty rate. (See FERC OKs Changes to PJM Capacity Market to Cushion Consumer Impacts.)
LS Power proposed a second package with the same CT and BESS reference resource characteristics as its initial package while reversing the VRR curve to the shape used in the third review, in place between 2014 and 2018, with adjustments to account for the ELCC accreditation and risk modeling paradigm. The maximum price would be set at the greater of gross CONE or 1.5 times net CONE divided by the accredited unforced capacity factor; the middle point would be 75% of net CONE; and the minimum would be zero. It received 43.9% support in the endorsement vote with the same for the status quo.
A standalone proposal from Barrow used a BESS reference resource in ComEd and a CC in all other zones and included a VRR curve similar to the joint proposal without the 20% gross CONE floor to the maximum price. It also did not include wet compression in the modeling of the CC reference resource. It received 21.3% support for endorsement and the same over the status quo.
The Independent Market Monitor’s proposal used a CT, without wet compression, for all zones with the gross CONE between $474 and $561/MW-day and a 20-year levelization except in ComEd, where it would be 15 years to reflect CEJA. The maximum price on the VRR curve would be the lower of gross CONE or 150% of net CONE; the midpoint would be half of the maximum; and the minimum would be zero. The quantities would be 99% of the reliability requirement for the maximum, 101.5% for the midpoint and 104.5% for the floor. It received 22.4% support for endorsement and over the status quo.
