While the PJM Interconnection has made no major changes to its prototype capacity market since it proposed the idea a year ago in August, and though it has won a tacit OK from federal regulators...
The PJM complaint and the rising cost of electric reliability.
for any RPM auction charges billed by PJM after May 31, 2008, the effective date for Duquesne’s requested withdrawal from PJM. (See, Docket ER08-194, Order issued Jan. 17, 2008, 122 FERC ¶61,039.)
Note also that Duquesne’s withdrawal of retail load from the fifth BRA auction, conducted in May, without at the same time withdrawing its supply offers, led arguably to lower-than-expected clearing prices for the 2011-12 delivery period. (See Table 1 and Figure 2.)
FERC on many occasions has made clear its reluctance to re-do market results.
Recently, for example, a surprisingly heavy influx of demand-side resources caused New England’s FCM auction to clear capacity at the minimum floor price, which triggered FCM rules requiring an automatic downward administrative adjustment to the benchmark CONE value, even as anecdotal and empirical evidence showed that gen-plant development and construction costs were rising. Market players in New England challenged this perverse result, required under the tariff, arguing that they “simply did not foresee the … precipitous decline in CONE that would result if a substantial number of new capacity resources elected to be price-takers,” as occurred in New England’s first FCM auction. Nevertheless, FERC held firm; it refused to block the automatic reset of CONE value, no matter how counter-intuitive, since it did not consider the auction results to constitute “new evidence” or “changed circumstances” that should warrant a market re-do. (See Docket ER08-633, order issued June 20, 2008, 123 FERC ¶61,290.)
Practical reasons stand in the way as well. States within the PJM footprint already have solicited energy supplies for retail consumers in reliance on the auction prices. As Constellation points out, both the New Jersey BGS auction (basic generation service) and the Maryland RFP for SOS energy (standard-offer service) tend to combine energy, capacity and ancillary services into a single bundled price, making it impossible to refigure retail costs if PJM should recalculate capacity costs at wholesale.
Investors, too have made commitments. For instance, it now appears lack of certainty of RPM auction revenues has prompted Sempra subsidiary Catoctin Power LLC to table plans to build a 600-MW plant in Frederick County, Md. Catoctin had obtained a certificate of convenience from the Maryland PSC in April 2005, but started dragging its feet recently after FERC decided this past April to deny PJM’s bid to boost the benchmark CONE value reflected in the RPM VRR curve. Catoctin now appears willing to allow certain state commitments on environmental permits to lapse. (See, Maryland PSC Case No. 8997, Order No. 82113, issued July 8, 2008.)
Crunching the Numbers
One particular accusation deserves a special mention. In a complaint, and in an affidavit and white paper prepared for the American Public Power Association and filed at FERC by James F. Wilson, an LECG consultant (see “Raising the Stakes on Capacity Incentives: PJM’s Reliability Pricing Model,” March 14, 2008, available at www.appanet.org), the buyers allege that wide fluctuations in generation-supply bids offered in the SWMAAC zone between the first and second transitional auctions, for delivery in 2007-08 and 2008-09, versus the third auction, for 2009-10, either