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Standard-Offer Service: Beauty or Beast?

Fortnightly Magazine - September 2008

In each major energy bill over the last few decades, Congress has acted to open up the wholesale electric power market by facilitating entry of new generators to compete with traditional utilities. … The Energy Policy Act of 2005 strengthened the legal framework for continuing wholesale competition as federal policy for this country. The Commission has acted quickly and strongly over the years to implement this national policy.”  3

Given that it is the federal government and not any individual state that has jurisdiction over the PJM market and the promotion of wholesale competition, is there any role remaining for the Maryland PSC? There clearly is an important role: The Maryland PSC has stated its intentions to “continue to expand and elevate its presence as an advocate at FERC, PJM and in other forums on behalf of Maryland’s energy future, reasonable rates, and fairness in the wholesale electricity markets.” 4 This is an appropriate objective and a competitive wholesale market is crucial for the realization of fair prices at the retail level, whether the provider is the utility or a third-party generation supplier.

One recent example is the complaint filed by the Maryland PSC and several other parties at FERC ( Docket No. EL08-67 , May 30, 2008) concerning PJM’s Reliability Pricing Model (RPM). (For related article, see Commission Watch, “ Buyers Remorse .”) The filing alleges: Capacity auctions at PJM have resulted in unreasonable rates (higher than those that would be produced in a competitive market or administratively determined under cost-based regulation); capacity auctions were extremely vulnerable to the exercise of market power; and existing generators will receive an unwarranted windfall. While it remains to be seen if there are any merits to the various issues raised in the complaint, it is certainly important for all interested parties to offer suggestions for improvements in market rules that will support efficient entry and pricing within the PJM wholesale market. However, while examining market rules to implement prospective changes is appropriate, it is unreasonable to seek any refunds for the bids that already have transpired; this is retroactive ratemaking and will, after-the-fact, change the compensation to parties that have made decisions to invest in capacity or demand resources based on the bid outcomes.

PJM reported in a May 15, 2008 news release that its auction for the planning year, June 2011 through May 2012, yielded a net increase in available resources of 4,238 MW of new generation and demand response. Constellation Energy recently announced that its Gould Street power plant, a 102-MW limited duty gas-fired plant, has returned to service after being idle for five years. The company stated on June 10, “Based on a new capacity market created last year by the PJM Interconnection … Constellation made the business decision to make the necessary investment to return the Gould Street plant to service. The new capacity market will help ensure sufficient generating capacity will be available in the future to meet times of high energy demand, and rewards electric generators for adding generating capacity that will be available during these ‘peak’ times.”