Here is a link to PJM’s press release on the just concluded capacity auction results. PJM is a cartel, and these annual auctions determine what companies and power plants can sell their power in PJM three years in the future. By disguising its cartel gatekeeping as an auction, PJM maintains a facade of “market based” neutrality. In fact, we know that the RPM system is “gameable” and is really a PIG (protection of incumbent generators).
So what happened at the auction? Here’s what PJM said:
This year, the auction procured 164,561 MW of capacity resources at a base price of $136 per MW. A megawatt is enough electricity to power 800 to 1,000 homes. PJM’s all-time peak demand is 158,448 MW. Prices were higher in northern Ohio and the Mid-Atlantic region.
How much higher were prices in the Mid-Atlantic region?
The price of capacity in much of the Mid-Atlantic area will be $167 per megawatt.
That is only $31 more than the PJM overall base price. This if far below the differences in RPM prices that PJM cited as a need for PATH. What does PJM say caused this shift?
In addition to new generation, most of it natural gas-fired, the capacity auction also procured 14,833 MW of demand response, a 5 percent increase over last year, and energy efficiency, a 12 percent increase. The amount of demand response was also a record for PJM, as well as for renewable generation. Solar increased to 56 MW of solar — a 22 percent increase over last year – and wind increased to 796 MW – a 15 percent increase.
Because all of these sources of capacity are far less polluting than coal, most of them are located in Mid-Atlantic states, a trend that is accelerating. Its a good thing that PJM, FE and AEP did not railroad state regulators into approving PATH. All rate payers in PJM would have been stuck with a very expensive white elephant.
Speaking of FE, here is the auction result for the ATSI region of PJM, the northern region of Ohio and the heart of FE’s business:
In northern Ohio served by FirstEnergy, the price will be $357 per megawatt.
This is a classic example of gaming the RPM system. FE announced a lot of coal plant closures early, instead of whining like AEP’s “chiefs” have been. These plant closures, which FE said would be accomplished before 2015-16, the period of this year’s RPM auctions, resulted in a severe decline in generating capacity in FE’s home region. This will make it more likely for FE to appeal to PJM to keep these plants open to insure reliability, called Reliability Must Run, or RMR, in PJM jargon. Or, as the last paragraph of the press release describes it:
Although the RPM auction procured sufficient resources to meet the projected demand, some generating units may need to remain available beyond their proposed retirement dates until transmission upgrades are completed. These units would be operated under “reliability must run” agreements.
FE’s gaming of the RPM market in 2015-16 artificially drove up prices in the ATSI zone, insuring at least some of its plants slated for closure will get RMR status from PJM and can remain open.
As Keryn points out, FE beat AEP like a rented mule in the plant closure game.
The high ATSI zone prices also completely undercut the PATH argument that capacity prices in eastern PJM are higher than prices in western PJM. The press release also notes, as we have in recent posts on The Power Line, that the FE plant closures have completely altered the transmission picture in PJM away from Project Mountaineer and unnecessary boondoggles such as PATH.