Playing Safe with Capacity Markets

Deck: 

PJM would minimize risk, but so did regulation.

Fortnightly Magazine - February 2015
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As we learn from the great Roman historian Tacitus, "The desire for safety stands against every great and noble enterprise." And so today, some 20 centuries on, we see a trend in many power markets to add "safety" measures as a result of perceived market failures.

PJM, a regional transmission organization (RTO) covering a large part of the Midwest and Eastern U.S., filed a proposal last December with the Federal Energy Regulatory Commission (FERC) to modify its current capacity market structure. PJM's proposal is similar to the one that FERC had approved for ISO-New England some six months earlier. The changes envisioned in these two efforts call for ever more structured markets, further reducing the scope of the competitive landscape from which RTOs arose, and to which they presumably remain dedicated. These changes evoke a desire to create a competitive market place in the generation sector of the power market, while preserving the safety that the regulated market brought. However, this desire may produce a system that is actually more costly and less innovative than regulation. Free markets by their very nature are evolutionary, requiring trial and error. But the RTOs are preventing evolution to the point that we might best go back to regulation.

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