PJM capacity market flaws extend beyond current complaint proceeding, Maryland Office of People’s Counsel tells federal regulators
BALTIMORE – Federal regulators must address several flaws in PJM’s capacity market rules before its next auction or customers across the region could bear more than $20 billion in increased costs above the record-setting prices from this past summer’s capacity auction, the Maryland Office of People’s Counsel said in a filing this week with the Federal Energy Regulatory Commission.
“The central purpose of PJM’s auction is to send a signal for new supply and demand resources to compete with existing resources and prevent them from exercising market power and raising prices for customers,” said Maryland People’s Counsel David Lapp. “But the upcoming auction presents a perfect storm of factors that preclude competitive entry and further the market power of existing market players.”
The last capacity market auction in July resulted in an 800 percent increase in prices across the PJM region, consisting of 13 states and the District of Columbia, including Maryland. Those increases will raise many Maryland customers’ annual electricity bills by hundreds of dollars starting next June. The extraordinary price spike resulted in part because two Maryland power plants—Brandon Shores and Wagner—did not participate in the auction even though customers are paying those plants to be available for reliability purposes.
OPC’s comments support a complaint filed by several public interest organizations asking PJM to account for the capacity value of the two Maryland power plants in the auction. OPC argued that while the complaint is helpful, it understates the gravity of the market’s flaws and seeks remedies that are too narrow. OPC urges that “more must be done to ensure just and reasonable auction rates,” and informs FERC that OPC plans to file its own, more expansive complaint further highlighting flaws in PJM’s market rules and seeking remedies to address them.
The additional flaws include PJM’s backlogged interconnection queue. New entry would help to ensure competitive outcomes, and plenty of new supply resources have sought and are seeking to enter the market, but they will not be coming online anytime soon because they cannot get through PJM’s interconnection study process. In addition, OPC’s comments explain that under current PJM rules, many resource types are exempt from the obligation to sell into the market. And owners of portfolios of resources may have an incentive to withhold some capacity in order to get higher payments for their other resources that do participate. OPC argues that existing supply resources should participate in the market, because exempting them from that obligation shorts market supplies and raises prices above competitive levels.
A report OPC issued in August found that Talen, which owns the Brandon Shores and Wagner power plants near Baltimore, may have benefitted its overall generation portfolio by $360 million through the combination of plants it bid and did not bid in the July auction.
“Consumer confidence in PJM hangs in the balance,” Lapp said. “Absent relief there is every reason to expect that the upcoming auction—and potentially future ones—will produce even more extreme and unreasonable outcomes than July’s auction.”
OPC’s filing was joined by several other state consumer advocate offices, including the New Jersey Division of Rate Counsel, the Office of the People’s Counsel for the District of Columbia, the Office of the Ohio Consumers’ Counsel, the Illinois Attorney General’s Office, and the Illinois Citizens Utility Board.
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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