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Capacity Roulette

Out of market means out of luck—even for self-supply.

Fortnightly Magazine - July 2011

of New York City and various federal and state legislators to censure FERC’s ruling. U.S. Senator Charles E. Schumer wrote to FERC Chairman Jon Wellinghoff in March, complaining that FERC’s order would “significantly increase the price paid for electricity supply by New York City customers over the next three years.” And in April, New York PSC Commissioner Robert Curry sent an email to FERC commissioner Marc Spitzer, forwarding an April 1 story from the New York Post (“Exclusive: New Yorkers are about to get zapped on their electric bills …”).

“Thought you might be interested,” Curry wrote.

Lo and behold, FERC reversed itself in May, noting that the New York legislature and Governor Cuomo had changed the previously discretionary tax abatement program to “as-of-right.” (Order on Rehearing, Dkt. ER11-2224, May 19, 2011, 135 FERC ¶61,170.)

None of this escaped Stephanie Brand, Director of the New Jersey Division of Rate Counsel. She argued that the issue and the result should have been the same in the PJM MOPR case. In other words, in running the regional capacity market, regulators should honor any state-legislated scheme to drive prices down. (Motion of New Jersey Division of Rate Counsel, Dkts. EL11-20, ER11-2875, filed May 27, 2011.)

As Ms. Brand noted, “We express no opposition to the commission’s treatment of the New York tax abatement program …

“Instead, we urge the commission to apply the same logic to New Jersey’s effort to incentivize new resources.”

‘Not a Rate Case’

FERC’s MOPR order sets out a supposedly objective and quantitative test for determining what makes for an economic supply bid, stating that PJM must set the minimum offer price at the “competitive, cost-based, fixed, nominal levelized, net cost of new entry, were the resource to rely solely only on revenues from PJM-administered markets.”

This rule has drawn flak, however, with opponents claiming that a precise accounting of costs is well-nigh impossible, as many utilities and LSEs often count on intangible benefits when making capacity planning decisions.

In seeking rehearing, NRECA’s David Mohre (executive cirector, energy and power) and Paul McCurley (manager, power supply) cited a host of intangible benefits not captured in by FERC’s MOPR test:

A utility plant owner, they say, might earn excess revenues from selling excess capacity in bilateral deals during those years when excess might have been available before the LSE “grew into the resource.”

They reject the idea that revenues should be deemed inherently uneconomic or anti-market unless derived directly from PJM markets.

According to attorney Randall Speck (Kaye Scholer), representing the Maryland Commission, examples of legitimate cash flows divorced from PJM markets might include investment tax credits, preferential zoning, or taxpayer funding. Speck also highlighted how a state-sponsored resource plan must anticipate climate change and future EPA regulations that could alter the value proposition of resource choices:

Rather than stay silent, PJM has expressed a fair degree of sympathy with the concerns voiced by traditional regulated utilities.

First, in asking for clarification of the MOPR rule, PJM urged FERC to consider a new stakeholder process to seek common ground to allay concerns