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PJM is Making Major Changes to Its Capacity Market. Here’s the Impact.

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In January 2014, a staggering 22 percent of PJM Interconnection’s generation resources were knocked offline by the polar vortex.

Now, the regional transmission organization (RTO) — which manages the world’s largest wholesale electricity market, spanning 13 states and the District of Columbia — is responding with major changes to its capacity market structure. 

The new design — known as Capacity Performance — includes updated performance standards for generators as a response to poor performance during the polar vortex and the changing generation mix within its jurisdiction. The proposal was approved by the Federal Energy Regulatory Commission (FERC) last month (dockets EL15-29, ER15-623).

While the changes are intended to ensure greater reliability during extreme weather events by rewarding power generators with larger capacity payments, they are also expected to drive up energy prices for the region’s consumers and businesses as capacity is a cost component of their electricity supply service.

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The price increase is anticipated to begin impacting customers in PJM’s footprint next June. With FERC’s order, PJM gained approval to implement the first phase for next delivery year, which will bring a corresponding price increase on June 1, 2016, and another on June 1, 2017. Capacity Performance will be fully implemented for the 2018-2019 capacity delivery year, which begins on June 1, 2018. 

Stay tuned to the Direct Energy Business Blog for further developments on PJM’s capacity market changes. For more in-depth information on capacity markets and pricing, check out our “Understanding Energy” section.

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Posted: July 23, 2015