RPM Capacity Market: PJM Spin v. Facts

My last post on the recently concluded PJM capacity auction focused on the information in the PJM press release.  This post will focus on the spin in that same release.

First, take a look at what the American Public Power Association had to say about PJM’s RPM auctions in their short and pithy summary titled “Money for Nothing in the Power Supply Business.”  Here’s the main point of the APPA story:

The Cost, So Far

Since it began in 2007, RPM has cost customers in PJM’s territory approximately $50 billion (through the end of 2011). This works out to approximately $900 per man, woman, and child living in PJM’s 13-state area. This cost, however, is not evenly distributed throughout the region; customers in the eastern portion of PJM have shouldered the main burden of this cost. New Jersey’s portion alone is over $11 billion and counting—or almost $1,300 per person living in New Jersey today. For the RTO overall, in 2010 the RPM added $140 per year to the average electric bill of a homeowner, $1,000 for a retail store, and $15,000 for an industrial facility.

The Results

While the cost has been great, the results have been slight. PJM claims that considerable capacity has been secured through its RPM mechanism (over 42,000 MWfrom 2007 through the 2011 auction)—but these claims are misleading at best. PJM includes in their figures upgrades of existing plants, withdrawn or canceled retirements, and capacity imports from other regions.

However, it is impossible to accurately separate the amount that is due to RPM and what would have been available without it. Only about 7,000 MW of new generation capacity was built in the region from 2007-2011. Considering that the total installed generating capacity of PJM is nearly 180,000 MW, this 7,000 MW of new generation amounts to only about four percent of the total capacity added through five years of RPM auctions—and again, it is impossible to determine how much would have been built without the RPM mechanism.

Perhaps most significantly, very little of the $50 billion so far for RPM is financing new generation capacity; rather it is overwhelmingly going to existing generation capacity. More than 93 percent of the total revenue paid by customers has gone to the owners of existing power plants—coal, natural gas, hydroelectric, nuclear, oil, and other existing capacity types. Only 1.8 percent of the RPM revenue so far has gone to new and “reactivated” generation resources.

The whole story is well worth the short time it will take you.  APPA essentially exposes PJM’s capacity auction as a fraud.

Now, here’s the PJM spin from Friday’s press release.  Here’s the first paragraph:

With an unprecedented amount of electric generation retiring within the next three years, PJM Interconnection’s capacity market secured record amounts of new generation, demand resources and energy efficiency to keep the grid reliable.

Note the “unprecedented” and “record amounts” statements.  As APPA points out in its critique, PJM always talks about new generation and demand resources in terms relative to past amounts of these resources, not to the overall amount of capacity traded.  Amounts of these resources set records every year because they are actively suppressed by PJM in previous years, so it is easy to set records relative to those years.  Sales of demand resources can quadruple (which they have over the last five years), but can still make up only a tiny amount of generation resources transacted.

PJM buries the amount of new generation sold in this year’s auction in the middle of the second paragraph.  Odd when you consider this is PJM’s main claim for the RPM market.  But when you compare this year’s sales to overall capacity traded, you can see why.  Here is the buried figure (note the “record amount” again):

The RPM auction procured a record amount of new generation in one year, 4,900 megawatts (MW).

But what was the total transacted in the auction?  Oh yeah, 164,561 MW.  So this year’s RPM auction resulted in new generation that made up less than 3 percent of total capacity traded.  And this was in a year with “an unprecedented amount of electric generation retiring within the next three years.”

The press release also quotes a PJM VP as saying:

PJM is effectively, efficiently and reliably handling a massive shift in generation from coal to natural gas…

And goes on to claim

The RPM auction is addressing, in a quick and orderly manner, what could have been a prolonged and uncertain process to identify replacement resources. Simply put, RPM was put to the test and performed well.

In fact, PJM has actively fought new gas fired generation for years, beginning with the TrAIL cases in WV and East VA, in which PJM pushed Project Mountaineer power line TrAIL, undercutting the development of an independent gas-fired plant in Warrenton, VA.  The plant’s developers were forced to sell to Dominion Energy, which has finally brought the plant into development many years late.  PJM has also sued the NJ Board of Public Utilities for creating a plan to develop needed gas-fired generation in NJ.  PJM and FERC actually changed their rules to prevent one of the NJ projects from bidding in this year’s RPM auction.  FERC and PJM have clearly demonstrated their willingness to game the RPM auction process.

PJM’s favorite spin word is “transparent” as they try to paint their complicated and opaque bureaucracy as open and, well, transparent.  Sure enough, the spinmeisters worked it into this press release.

If PJM had a truly transparent and effective process, they wouldn’t have to spin so hard.  But then again, their press releases wouldn’t be so entertaining.

6 thoughts on “RPM Capacity Market: PJM Spin v. Facts

  1. Perfect! Thanks for bringing it all together very nicely! If the RPM auction is supposed to encourage new generation, why is it fighting so hard against it?
    I like that despite all the groaning effort of PJM and its greedy incumbent generators, they’ve failed to stop all the new gas generation on the east coast. The economics of gas vs. coal have accomplished what PJM’s RPM auction could not and would not. I love karma!

    • the RPM auction is NOT designed to encourage new generation. It is designed to ensure reliablity at least cost. And it IS working. It is much cheaper to use existing economic resources to supply electricity than to build new billion dollar plants. New plants should be built ONLY when they are truly needed for supply. I continue to be amazed and the complete ignorance of basic supply/demand economics when it comes to the energy market. Concepts that are completely understood in all other compeititve commodity markets are just completely ignored here. PJM never tried to “block” new generation from getting built. It tried to ensure that states didn’t implement policies to blatently artificiallly manipulate market prices.

      • Well, yes, let’s talk about supply and demand as well as reliability. Let’s start with your statement that RPM auctions are not designed to encourage new generation. Then why has every PJM press release on RPM results I have ever read repeatedly touted all the new generation that year’s auction created? I challenge you to find any statement in this year’s press release that claims the RPM auction “is designed to ensure reliablity at least cost,” in your words. That may in fact be what PJM thinks it is doing, but what they actually tell the public is an entirely different story.

        So, let’s get to the reliability issue. I refer you to the links on the side of this page under the “Educate Yourself About the Facts” heading. Read grid reliability expert George Loehr’s testimony to the US Senate. Then read the article from the Industrial Physicist about the physics behind the management of AC transmission grids. The most reliable electrical grid is a grid in which generation is located as close to load as economically feasible. Some redundancy may actually be worth the higher cost, because of its contribution to reliability. PJM’s policy, since FERC intervention in eastern electricity markets following federal deregulation, has consistently been to enlarge the size and capacity of the transmission lines it controls. I, and many others, argue that this is not a practice that increases reliability of the grid.

        In 2005, Karl Pfirrmann, described as president of PJM Western Region, submitted testimony at a FERC technical conference touting something he called Project Mountaineer. Here is an item from a summary list of the topics covered in Mr. Pfirrmann’s testimony: ““Project Mountaineer” is an example of how the region can take coordinated regional planning to the next level—By way of example, PJM outlines the scope of transmission projects that would be needed to significantly enhance the ability of coal based resources to reach eastern markets. Transmission enhancements include potentially 550 to 900 miles of new backbone 500 or 765 kv transmission at an approximate cost of $3.3 to $3.9 billion. Although a large number, if such costs are spread to all customers within the PJM footprint, the cost to a typical retail customer would amount to only one mill/kwh.”

        Mr. Pfirrmann made a blatant case for moving “coal based resources to reach eastern markets,” even though the transmission development to make that possible would be extremely expensive, but not to worry, we can hide it from rate payers. At the same time Mr. Pfirrmann, a high level executive at PJM, was making this pitch, electricity rates in PJM’s Mid-Atlantic region were rising rapidly. It is clear from Mr. Pfirrmann’s Project Mountaineer blueprint, and from extensive testimony to date by PJM engineers in regulatory cases concerning all of the Project Mountaineer power lines, that PJM’s policy was never about low cost reliability. When the markets on the East Coast were sending a clear demand signal to the market that new generation needed to be built in East Coast states, high level PJM executives were focusing on building expensive transmission lines to dump surplus coal-fired power in those very same markets. This is not supply and demand, this is price-fixing in its ugliest and most expensive form.

        In 2007, PJM’s RPM auctions came along. Did these markets do anything to remedy the situation? Did PJM drop its foolish Project Mountaineer plans? No and no. PJM covered Project Mountaineer with a patently false smokescreen of “reliability” while the RPM auctions pumped life into expensive and obsolete coal-fired plants in the Ohio River Valley. And experts at the Maryland PSC and the NJ BPU screamed about how their rate payers were being bilked by PJM.

        So Ms. Jones, I am amazed that you would try to defend PJM’s past actions by claiming MD and NJ are “blatently [sic] artificiallly manipulat[ing] market prices.” Really? You want to defend PJM by making that claim? If there is one entity in the electric market in our region that is the master manipulator of market prices, it is PJM Interconnection.

      • Are those expensive Ohio Valley coal plants still “cheaper” when the $6B cost of new transmission lines to transport the product to market is figured into the price of their generation? No, of course not, Sue. However, the cost of new transmission is ignored, even though it increases the price of existing resources for distant markets. The cost of transmission is spread region-wide when only New Jersey and Maryland benefit from the resource. And PJM and it’s incumbent puppet masters DID attempt to thwart new generation. Your “fair market” fantasy is wasted here. Go tell it to the Compete Coalition…. unless maybe you already have??? I think maybe you’ve consumed so much KoolAid that it’s you who has lost sight of basic supply/demand economics.

  2. Is that a suggestion? LOL 😉 Actually, so much money changes hands through that coalition that they actually registered it as a business, and as a result it has to make tax filings… very interesting tax filings…

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