PJM Cartel’s Back Door Dealings Try to Sabotage MD and NJ Self-Reliance

This is my 1000th post on The Power Line, and Keryn, over at StopPATHWV, has given me a great way to celebrate.  In a post this week, Keryn pointed to a letter of protest filed by Douglas Nazarian, chairman of the MD PSC, with PJM Interconnection.

Chairman Nazarian’s letter illustrates the fundamental purpose of PJM, which is to operate as a cartel to insure that its biggest members, primarily power company conglomerates with large commitments to coal and nuclear generation and large transmission, can control (that is, slow down) any investment in competing technologies and projects.

This requires a little history, so bear with me.

My first introduction to the PJM propaganda came way back in the WV PSC’s final order in the TrAIL case.  In the order, the WV PSC points to PJM’s identification of new East Coast generation as key to determining the need for TrAIL.  Back in 2008, I didn’t understand all the ins and outs of PJM’s capacity markets and generation queques, but it was clear that PJM controlled the fate of all generators in the region by controlling access to the regional transmission grid.  To sell your power through PJM’s wires, you had to do what PJM said.

Of course, one of the two important functions of a cartel is to limit entry to a particular market.  Back in the spring of 2011, the NJ Board of Public Utilities issued a report documenting how the PJM cartel operates its generation capacity markets to serve the interests of the big coal burning and nuclear PJM power companies by suppressing new power generation, much of it new gas fired technologies and renewable power, in the eastern load zones where PJM claimed transmission “congestion” was highest.  As we have seen with PJM’s Project Mountaineer transmission projects, TrAIL (the only one built) and PATH (failed), the PJM cartel’s solution was to build new power lines to flood these congested eastern load zones with power from AEP and FirstEnergy.

The NJ BPU report pointed to PJM’s rules as serving only one group, what the BPU called PJM Incumbent Generators, such as AEP and FirstEnergy.  Of course, PJM Incumbent Generator can be aptly shortened to PIG, which is exactly how AEP and FirstEnergy operate in the PJM cartel.

Since 2006, the MD PSC has been fighting PJM’s suppression of new generation in MD at FERC.  At the end of 2009, MD Gov. Martin O’Malley wrote a letter to MD PSC Chairman Nazarian outlining MD’s strategy to assure its state’s electrical security.  I’ll let Gov. O’Malley speak for himself, because he says it so well:

Residential customers in Maryland are still waiting for the benefits of electricity deregulation promised in 1999. Deregulation was supposed to reduce electricity prices by spurring the development of energy supply competition and the construction of new merchant power plants to meet consumer demand. These benefits never materialized. This is the reality of deregulation:

• Energy generation companies have not built the new generation necessary to meet the State’s growing energy needs. Since 2003, the PSC has approved 11 permits for new power plants representing several thousand megawatts of potential new generating capacity, but less than 300 megawatts of new generation has come on line.  Most projects have been delayed or abandoned because of financial or commercial uncertainties.
• The lack of in-state electric generation has constrained supply, resulting in higher electricity prices, higher congestion and capacity charges, and future reliability concerns.
• A perverse system of capacity charges imposed by the regional transmission organization, PJM Interconnection has been created, adding hundreds of dollars to residential bills with little benefit. From 2008 to 2013, it is estimated that Maryland ratepayers will pay nearly $5 billion in capacity charges to incentivize the private sector to build new generation – enough to pay for seven new power plants – but no new baseload generation will be built as a result of these incentives.
• With no new generation, Maryland’s power plants continue to age, posing ongoing reliability concerns. Over 67% of the State’s total summer peak generating capacity is 30 or more years old.
• Maryland now imports almost 30% of its energy from nearby states, mostly from coal-fired power plants in West Virginia and the Ohio Valley. This negatively impacts the State’s efforts to meet its climate goals and reduce greenhouse gas emissions.
• Since 1999, fewer than 5% of Maryland’s 2.1 million residential customers have chosen retail electricity supplier offers, much of this consisting of green choice.

As a result of PJM’s attack on MD’s and NJ’s electrical reliability, the state legislatures passed laws providing for new incentives for gas fired generators and renewable power in their states.  PJM’s response was to step their attack.  PJM challenged the states at FERC and in court.  Both PJM and FERC have an interest in stopping the state rebellion because it also exposes the high cost of new PIG-serving transmission lines in PJM.

So now we get back to the latest installment in PJM’s attack on electrical reliability and low cost power.  It turns out that PJM’s efforts to stop MD and NJ weren’t moving fast enough for the PIGs and PJM so they tried something new.  PJM, in secret, changed the rules concerning pricing power from new generators on its RPM capacity markets.  Despite their constant propaganda about their inclusive and transparent processes, PJM decided this time that the “stakeholders” with the most to lose really shouldn’t be involved in the new rule change.

Chairman Nazarian caught them and let them have it.  Here is what he had to say in his letter to PJM CEO Terry Boston and supposedly independent market monitor Joseph Bowring:

I write to express our Commission’s profound disappointment and concern with the clandestine and exclusionary process that has led to the latest round of proposed changes to the Minimum Offer Price Rule (the “MOPR”). Although we have and will raise serious objections to the proposal itself, those are for another time. At this point, because the process that begat the new proposal was fatally and unfairly flawed, PJM should bring the fast-track “educational” process to an immediate stop and hold an open and transparent stakeholder discussion before proceeding further.

As you know, the contours of the MOPR were litigated before and defined anew by the FERC fewer than eighteen months ago. State Commissions were not the only parties to oppose the P3 Group’s and PJM’s proposed changes in the spring of2011. But we were the most visible opponents, and we had the most at stake: the fundamental right and duty to ensure a reliable supply of electricity in our States. Although we have continued to challenge last year’s revisions – which, it bears remembering, revised a single component of a comprehensive capacity market settlement without any attempt to rebalance the deal – we have complied with them, fully and transparently. And although the 2011 FERC proceedings also suffered from flaws of haste, atleast those proposed changes were litigated in the open.

We were not shocked to learn that certain stakeholders would like to revise the MOPR further. We were shocked, however, to learn after the fact that PJM and the Independent Market Monitor participated in, and that P JM facilitated, a secret and exclusionary negotiation to devise a new set of MOPR revisions. PJM’s own slides state that the discussions were initiated by suppliers and public power interests, but that P JM and the IMM were invited, and that selected other stakeholders were included and provided an opportunity “to represent their unique interests.”  By PJM’s own reckoning, four of its five sectors were included in the discussion – put another way, one of PJM’s stakeholder sectors, the sector that includes Consumer Advocates,  as actively excluded. And although we are not official stakeholders, State regulators – the parties most deeply interested in the terms of the MOPR and at whom these proposed changes are aimed – were excluded as well. So in spite of our well-known views on the MOPR, our “unique” and public interests were, by design, never heard or considered.

Indeed, we and the Consumer Advocates and the few others not at the table learned of the discussions only when PJM Staff began rolling out (to great fanfare in the trade press) a fully formed proposal, using PJM’s slide template, as part of a PJM-led “education process” that will fast-track this significant and targeted fait accompli from revelation to FERC filing in less than two months. Contrast this timeframe with the stakeholder discussions on new entry pricing, which began shortly after the May RPM auction and were quickly deemed too complex to bring to conclusion in time for next year’s BRA. It may well be that we would never have reached agreement with others on changes to the MOPR, but that is beside the point: these negotiations were held behind closed doors, with PJM’s blessing and assistance (if not outright leadership), specifically for the purpose of revising the MOPR to the detriment of our State’s long-term reliability needs. And the proposed changes are now being represented to the world, and will shortly be characterized to the FERC, as a PJM-endorsed proposal, despite the fact that the parties being targeted were affirmatively disinvited from the process.

PJM claims not to make policy. This time, however, PJM picked a policy winner at the beginning of the conversation, perhaps to try and preempt or moot the appeal to last year’s changes that remains pending. This time, P JM excluded altogether the parties with the most at stake. This time, PJM advocates new MOPR rules that are far more extreme than the P3 package that the FERC rejected as unjust and unreasonable in April 2011. This time, PJM diverged from its well-understood stakeholder process – which, despite its flaws, at least allows all interested voices to be heard – and relegated the dissenters to a post hoc “education” campaign. And this time, despite these shortcuts, PJM is visibly leading a forced, double-time march to the FERC on behalf of a favored group of stakeholders, all so that the new rules can be in place for the May 2013 RPM auction.

The P3 that Chairman Nazarian mentions as PJM’s co-conspirators are PJM Power Providers, the big generators in PJM, in other words, the PIGs that dictate PJM generation policy.

So the PJM cartel’s solution to disagreements is not transparency at all.  Their solution of choice is to sneak and lie.  And Chairman Nazarian caught them and had himself a PIG roast.

So when you hear someone talking about how the “free market” and deregulation operate to provide low cost electricity and the best reliability possible, you will know better.  In PJM, it’s all about PIGs and cartel control.

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