A federal agency has approved electricity grid operator PJM Interconnection’s proposal to set a price cap on its auctions this year and next, a plan that its backers estimate would save consumers in New Jersey and 12 other states $21 billion over two years, beginning sometime next year.
The Federal Energy Regulatory Commission’s unanimous approval of the proposal on Monday, April 21, comes in advance of pending hikes in electricity pricing that many fear will take place beginning June 1. The New Jersey Board of Public Utilities subsequently asked the state’s four electricity utilities to defer that to later in the year.
The estimation of the price increase, which would be reflected in the supply portion of a customer’s bill, is in the neighborhood of 17% to 20%.
FERC approved the price cap proposal despite opposition from power generator LS Power and others. The proposal does not guarantee that supply prices will not continue to rise, just that the rise will be limited.
PJM Interconnection submitted the proposal after a complaint filed by Pennsylvania’s governor and joined by other governors, including Phil Murphy, about PJM’s 2024 electricity auction, whose results were expected to lead to price increases June 1. The effects of PJM auctions are felt the following year. PJM is the grid operator for all or parts of 13 states, including all of New Jersey, and for Washington, D.C.
PJM’s proposal was to set a price cap – and a price floor – for its electricity capacity auctions for the 2026-2027 and 2027-2028 delivery years; the proposal does not affect the pricing from last July’s auction, which was expected to lead to the hikes this June.
The PJM proposal also does not affect other portions of a customer’s bill. Atlantic City Electric, for example, has asked for an 8% rate increase in the distribution portion of its customers’ bills; that request is now scheduled for action by the BPU in August.
The auction cap proposal was approved by FERC as a “balanced approach” by setting cost certainty for electricity ratepayers and revenue certainty for capacity owners.
The federal agency dismissed arguments that the pricing mechanism will harm long-term investment by creating an environment in which high capacity prices driven by market conditions would lead to interventions to lower prices. FERC said it is persuaded by PJM’s analysis that “capacity shortages or near capacity shortage conditions are likely to persist for the next two delivery years.”
Research firm ClearView Energy Partners predicted that the positions being taken by PJM and FERC will “reduce capacity market prices relative to the last auction.” The firm added the caution that the levels of mitigation of capacity prices may not be sufficient to ease political pressure from PJM member states.
Last July the auction saw a jump in prices from $29/megawatt day in the previous auction to $270/MW-day. The proposal by PJM was to set a roughly $325/MW-day price cap and a $175/MW-day floor for the next two auctions.
Still sitting before the FERC is a proposal from three state advocates, including New Jersey Rate Counsel Brian Lipman, asking the commission to throw out the auction results for the 2025-2026 delivery year and conduct a new auction.
Also in FERC’s mailbox is a letter from Murphy calling for an investigation of potential market manipulation in the July 2024 auction process.
Energy pricing is being affected by several factors, including rapid growth in demand, power plant retirements in advance of replacement sources, state and federal policies that influence the economics of the process, and slower-than-anticipated buildout of new power-generating sources.
Pressure on PJM and FERC is likely to intensify as the June 1 rate hikes approach. In New Jersey the issue is already one both political parties are putting before the voters for the June primary election and for the November general election, in which the governor’s office and all 80 seats in the state Assembly are open.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
