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.
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 PJM includes in their figures upgrades of existing plants, withdrawn or canceled retirements, and capacity imports from other regions.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.