PJM Compliance Filing
PJM April 21 Presentation
IMM Submission Window for 2023/2024 BRA
A change ordered in early September by the Federal Energy Regulatory Commission in the method by which the PJM Interconnection calculates the cap for offers by electricity sellers into its base reserve auctions could complicate bidding strategies and the pricing outlook for merchant generators in the U.S.’ largest electricity market. PJM is seeking to delay its scheduled December auction to January as its members grapple with the change.
The facilities most affected will be coal-fired and combined-cycle plants, which earn a lion’s share of revenues from electricity prices and ancillary services, according to sources. Under the new rules, these revenues must be deducted from a cost estimate calculated by its independent market monitor, or IMM. The result of this calculation is the facility’s “Market Seller Offer Cap,” or MSOC, which establishes a maximum price at which a facility can offer its power.
These new MSOCs will be substantially lower than those under PJM’s previous calculation. The new MSOCs will force a change in bidding strategies by plant owners, and the lower caps could result in the operation of many coal-fired and combined-cycle units proving to be uneconomic; this could hasten the retirement of these assets to the benefit of renewable resources, sources said. While generators can apply to have adjustments made on the default caps for specific units, this adds an administrative and cost burden to power generators, the sources said.
The rule change comes after long-running discussions between the grid and its regulators over the method of calculating offers into the auction amid concern, according to a PJM presentation dated April 21, that some power sellers “may have the ability and incentive to increase prices above competitive levels through withholding of capacity.” The IMM and consumer advocates argued that PJM’s MSOC was “overstated,” according to the Sept. 2 FERC order. FERC, for its part, determined that PJM’s MSOC was “unjust and unreasonable” and set the MSOC at too high a level.
The market caps developed by the IMM that will be used in the upcoming auction for some resource types are shown below. Coal-fired and combined-cycle plants will be most heavily affected by the rule change, as their default caps will be set far below levels that prevailed under the previous formula, according to sources.
In its Sept. 2 order, FERC ordered PJM to adopt a proposal issued by the group’s IMM that caps offers at the “unit-specific net Avoidable Cost Rate” (ACRs) - in other words, a given facility’s annual operating costs, less forward-looking net energy and ancillary service revenue. The IMM will review each specific offer. Facilities will also have the option to use “default” ACRs specific to the generator’s “technology type.”
The default gross ACR values as calculated by the IMM, from which facilities will be required to subtract net energy and ancillary services revenue, are shown below:
PJM’s default offer caps for the RTO region, as provided in an April presentation, are shown in the “Status Quo” column. The grid’s MSOCs are not technology-specific:
In a compliance filing on Sept. 10, PJM sought to delay its December base residual auction, or BRA, for the 2023/2024 delivery year by a “modest 55 days” as it seeks to implement the rules, according to a Sept. 10 regulatory filing. “Given that the Commission’s order was issued on September 2, 2021, there is simply no realistic scenario for PJM and the Market Monitor to review and make final unit- specific offer cap and must-offer determinations more than 60 days prior to the currently scheduled December 1, 2021 BRA,” PJM stated in its filing.
PJM’s proposed changes to the auction timeline are below.