PJM Market Monitor: PJM Cartel’s Capacity Market “Is Gameable”

Keryn found this great story in Platts, the electric industry magazine.  Platts’ report of their own Northeast Power Markets conference includes quote after quote from regulators and business people attacking the “complete failure” of PJM Interconnection’s capacity markets, in which wholesale power purchasers can lock in power purchases three years in advance.

Even Joseph Bowring, president of the company that PJM spun off to act as an independent “market monitor,” described PJM’s capacity market system, officially called the Reliability Pricing Model or RPM, as “gameable.”  And how is it gameable?  Here’s how the chairman of NJ’s Board of Public Utilities described it:

Not surprisingly, Philips comments were echoed by Robert Hanna, president of the New Jersey Board of Public Utilities. “The current [PJM] capacity market is skewed to incumbents and subject to manipulation by incumbents,” he said.

Hanna said when he first took his post as head of the BPU — he was appointed in December 2011 — he was bewildered by all the acronyms used in the power sector, but he soon created his own for the RPM: PIG, which he said stands for Protection of Incumbent Generators.

“PIG rules,” he said of the RPM, though he did add that some of the blame falls on New Jersey itself, because when the state deregulated it did so in a “half-hearted manner.”

Nonetheless, he cited a key metric that he said indicates the failure of the RPM process from New Jersey’s perspective. Only 535 MW or 7% of the new capacity proposed through the RPM is slated to be built in the state.

“Money is going to incumbents for plants that should otherwise be retired,” he said.

Of course, if you read The Power Line, you knew this all three years ago.  The biggest members of PJM are also the biggest generators of electricity on the system.  They are the “incumbent generators” who are able to lock in their control of PJM through the so-called market mechanisms they create and control.

PJM said PATH was needed because there wasn’t enough generation in NJ and NJ needed more power.  And why was there not enough power generation in NJ.  See Mr. Hanna’s statement above — especially the last sentence.  The incumbents he is talking about are FirstEnergy and AEP.  It’s their plants he is talking about “that should otherwise be retired.”

NJ has taken the lead in defying the PJM cartel’s suppression of new power sources in the state.  The NJ legislature has passed new incentives for local power plants, mainly gas-fired, and PJM and FERC are fighting the state in federal court.  MD is stepping up power plant construction, and Keryn reports that East Virginia’s Dominion Virginia Power is in the process of constructing two new gas-fired power plants with a capacity of more than 1300 MW each.

Here’s a link to Keryn’s piece about the Platts story.

Mr. Bowring, a former employee of PJM, wouldn’t even describe PJM “markets” as markets:

Bowring said PJM’s capacity market is a “not a market in the pure sense. It is an administrative construct based on market principles.” It works “pretty well,” he said, but still “needs to improve.”

I like that “not a market in the pure sense.”  Yeah, like not a market at all, but a cartel.

One thought on “PJM Market Monitor: PJM Cartel’s Capacity Market “Is Gameable”

  1. PJM’s ball of twine continues to unravel at a breakneck speed. Hanna cracks me up — perhaps we should invite him for our next session of “define the acronym” in StopPATH’s blog comments section. It’s nice to see some states flexing their muscle, while our own PSC prefers to take a victim role by sticking their head in the sand and pretending none of this is happening. Changes need to be made at the PSC until their intended purpose of protecting consumers, instead of licking corporate toes like a good lapdog, snaps into focus.

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