Dismissing objections from Illinois utility regulators, the Federal Energy Regulatory Commission approved PJM Interconnection LLC capacity market changes for the state that account for legislation requiring gas-fired generators to zero out their carbon emissions by 2045.

However, two FERC commissioners issued separate concurrences to the agency's order, published late Jan. 19. Commissioner Allison Clements expressed concern about "singling out" state policies, while Commissioner Mark Christie predicted that the issue of cost redistribution in multistate transmission organizations will require more attention in the future.

PJM, which oversees a three-year forward power capacity market serving all or part of 13 mid-Atlantic states, filed the proposed changes (ER24-462) with FERC in November 2023 in response to Illinois' Climate and Equitable Jobs Act.

Signed into law in 2021, the act requires emitting generation resources to "permanently reduce" their carbon emissions, as well as other harmful air pollutants, to zero by 2045. That "effectively sets 2045 as the economic life end date for all natural gas-fired resources in Illinois," PJM said in its filing.

The law's impact on gas-fired generators is significant because PJM will use a gas-fired combined-cycle unit as a reference resource starting with its capacity auction covering the 2026/2027 delivery year.

More specifically, the reference resource determines the net cost of new entry (CONE) in PJM's capacity auctions. CONE, a value designed to estimate the costs an investor must be able to recover outside of PJM's energy and ancillary services markets, determines the price and amount of capacity that consumers ultimately pay for.

PJM's proposal

A key component of PJM's CONE value is the economic life of the reference resource, which is currently reflected in a 20-year amortization rate. In February 2023, FERC approved a 20-year amortization rate throughout the PJM footprint as part of a quadrennial update to PJM's auction planning parameters.

Independent power producer J-Power USA Development Co. Ltd., which in 2022 brought online its 1,200-MW Jackson Generation Energy Center in Will County, Ill., had protested the 20-year amortization period, arguing it would be unrealistic for gas-fired units operating in Illinois.

But FERC concluded that adopting a special amortization period for Illinois, while applying the new auction parameters elsewhere, would be inappropriate because the capacity area at issue also contains all or part of seven states where the Illinois climate law does not apply.

PJM subsequently decided to revisit the issue through its stakeholder process, eventually securing supermajority support for the changes filed with FERC in November 2023.

PJM's proposal would create a new CONE area for a locational deliverability area (LDA) encompassing the Commonwealth Edison Co. transmission zone. ComEd is a transmission and distribution utility subsidiary of Chicago-headquartered Exelon Corp.

ComEd's LDA is unique because it is the only modeled LDA in PJM "that is located entirely within a state that has enacted a clean energy law that materially impacts the economic life of the reference resource," PJM said.

Under PJM's proposal, the updated CONE value in the ComEd LDA will increase from $106,233 per MW-year to $128,993 per MW-year for the 2025/2026 delivery year, where PJM will continue to use a gas-fired combustion turbine with an assumed 19.5-year economic life as the reference resource. CONE in the ComEd LDA will then jump to $201,714 per MW-year for the 2026/2027 delivery year assuming an 18.5-year economic life for a theoretical combined-cycle unit.

PJM emphasized that capacity prices in the ComEd LDA will only be impacted "if retirements within Illinois outpace new generation such that transmission constraints prevent ComEd from meeting its demand from resources in the rest of [PJM]."

At the same time, PJM warned that the ComEd LDA could face reliability challenges in the coming years. The ComEd region "will likely" face a 680-MW capacity shortfall by 2030, PJM said, citing the results its most recent study on generator retirement risks.

"To address this shortfall, the capacity market clearly must send accurate price signals to attract new investment in ComEd," PJM said.

FERC rejects Illinois protests

PJM's proposal drew separate protests from the Illinois Commerce Commission (ICC) and a consumer coalition led by the Illinois Attorney General's Office.

The ICC asserted that PJM's retirements study never attempted to estimate early retirements triggered by the Illinois climate law. In addition, the study did not model renewable energy generation expected to be added to the ComEd system as a result of the climate law, the ICC said.

The consumer coalition also objected to PJM's stakeholder process, arguing that the November 2023 filing did not receive "the proper vetting from Illinois stakeholders who represent the consumers who will pay the prices for capacity."

But FERC dismissed those concerns in its Jan. 19 order.

"PJM in this filing provided evidence that continuing with a 20-year assumed economic life would not reflect the conditions generators would face in Illinois and could result in a market price insufficient to attract sufficient capacity to that region," FERC said.

The commission noted that it made a similar finding in approving a shorter amortization period for the New York ISO's reference resource. The change was made in response to a state law that requires a 100% carbon-free power supply by 2040.

In dismissing the consumer coalition's concerns, FERC noted that PJM developed the proposal through three different committees, including its Members Committee.

Clements, in a concurrence, nevertheless worried that "PJM's antagonistic approach toward state policy appears to have been exacerbated in this case by a process that took state entities by surprise."

"Singling a state policy out in this fashion suggests an adversarial position toward state policies reminiscent of PJM's failed MOPR misadventures," Clements said, recalling years of dispute over how PJM applied a minimum offer price rule to state-subsidized clean energy resources.

However, Christie argued in his own concurrence that PJM's proposal is squarely aimed at preventing "the costs of the Illinois law from being unfairly put on consumers in the other PJM states."

Christie added that "while the specific factual record of this matter may be unique, the issue of the redistribution of the costs of one state's public policies to consumers in other states in multi-state RTOs (again, the issue does not arise in single-state ISOs) is one that is not unique at all."

The issue "will require much more attention and focus in the future, both from the states and the commission," Christie said.