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PJM auction sees power prices soar under new reliability rules

Millions of electricity users throughout the Mid-Atlantic and Midwest will pay $3.4 billion more to keep the lights on in extreme conditions three years from now following an auction run by the operator of the nation’s largest electric grid to ensure reliability.

Results of PJM Interconnection’s annual capacity auction for 2018-19 were released late Friday. This year’s auction was delayed by three months to get federal approval of new rules in response to the fallout from 2014’s polar vortex, when power plants failed, natural gas supplies were strained and power prices soared.

Utilities in PJM are required to secure enough power plant capacity three years in advance to meet projected peak demand. The lead time is meant to provide time to build or upgrade power plants if necessary.

The controversial new “capacity performance” rules approved by the Federal Energy Regulatory Commission in June are intended to provide assurances that power plants run when they’re needed the most (Greenwire, June 10). The rules establish penalties for units that don’t perform. And owners of the most reliable units can earn bonuses.

As expected, the new rules contributed to higher auction clearing prices across PJM’s 13-state footprint. Throughout most of PJM’s territory, the clearing price was $167.44 per megawatt-day (MWd), or almost 40 percent higher than last year.

In two pockets of PJM’s territory, prices surged above $200 per MWd. Those areas include the Chicago area and northern Illinois, where capacity imports were limited by transmission constraints. The eastern edge of PJM — Philadelphia, New Jersey and the Delmarva Peninsula — also saw higher prices.

Read full story at E&E Publishing