The state agreement approach, also known as the state agreement process, is a regulatory mechanism employed by the Federal Energy Regulatory Commission (FERC) to allow states to participate in wholesale electricity markets. Under this approach, states can negotiate an agreement with the Regional Transmission Organization (RTO) or Independent System Operator (ISO) that oversees the wholesale electricity market in their region.
In the case of the PJM Interconnection, which operates the wholesale electricity market in 13 states and the District of Columbia, the state agreement approach is particularly important. PJM’s footprint covers a diverse range of states with different energy policies and regulatory frameworks. The state agreement approach allows PJM to accommodate these differences and ensure that its market operations comply with state laws and regulations.
The state agreement process typically begins with a request from a state to participate in the wholesale electricity market. PJM then works with the state to negotiate an agreement that outlines the terms and conditions of their participation. The agreement may include provisions related to resource adequacy, reliability, and environmental regulations.
Once the agreement is finalized, it must be approved by FERC. The commission reviews the agreement to ensure that it is consistent with the Federal Power Act and other applicable laws and regulations. If approved, the agreement becomes part of PJM’s tariff, which governs the rules and procedures of the wholesale electricity market.
One example of a state agreement in the PJM region is Maryland’s participation in the Capacity Performance program. Under this program, generators are required to demonstrate their ability to perform during periods of high demand, such as heat waves or extreme cold weather events. Maryland negotiated an agreement with PJM that allows it to establish its own standards for resource adequacy, which are more stringent than those required by the Capacity Performance program. This ensures that Maryland’s reliability needs are met while also maintaining the reliability of the overall PJM system.
Overall, the state agreement approach is an effective tool for balancing the needs of different states and ensuring that wholesale electricity markets operate in compliance with state laws and regulations. It allows for flexibility and customization while still maintaining the reliability of the grid. As PJM continues to evolve and adapt to changes in the energy landscape, the state agreement process will remain an important part of its operations.