PJM Releases Capacity Auction Results, Bad News for FirstEnergy & for PJM Land Owners

Last week, PJM Interconnection released the results of this year’s Base Residual Auction for generation capacity to be delivered in 2016/2017.  In their testimony in the Harrison plant case at the WV PSC, FirstEnergy employees have been claiming that the plant has to be dumped on WV rate payers right now, because capacity prices are set to rise.  Didn’t happen.

The net increase in supply from new entry and imports in conjunction with what is effectively flat demand growth resulted in capacity prices that were lower across the PJM footprint except in parts of New Jersey. The RTO price for Annual Resources was $59.37 per megawatt-day (MW-day). Prices for Limited Demand Resources (Limited DR) and Extended Summer Demand Resources (ES DR) mirrored the Annual Resource price at $59.37/MW-day.

The PJM-wide price (“RTO price” above) for cleared capacity at last year’s auction was $136.00 and in 2011, the price was $129.55.

Here is the graph that PJM provided with their report:

PJM 2013 BRA graph copyApologies for the quality of the graph, but that’s the way it copied over from the report.  The blue line represents PJM’s system wide clearing price.  You can see the 2016/17 capacity prices on the far right.  No matter how you spin it, there is no upward trend in capacity prices on PJM’s system.

What does this mean for FirstEnergy?

Three things:

  1. The Harrison plant is facing lower prices for the capacity it sold in this year’s BRA.  This means lower profits for Allegheny Energy Supply on the 80% of the plant they currently own, when they deliver power in 2016/17 to the utilities that purchased capacity on the plant in this auction.  Mon Power will face lower prices, too, but they only own 20% of the plant.  So, more than ever, falling profits for Allegheny Energy Supply increases pressure on FirstEnergy to dump the Harrison Plant on WV rate payers.  This ain’t charity, folks.  FirstEnergy isn’t generously selling Harrison to Mon Power because the plant is an, in the words of Mr. Delmar, “an exceptional asset.”
  2. If Mon Power needs capacity, which they are claiming, they can continue to reserve capacity on PJM at lower cost.  Purchasing the 80% of the Harrison plant that Allegheny Energy Supply owns now would be a much more expensive choice than reserving capacity on PJM, given the lower prices on PJM through May 2017.
  3. So far, FirstEnergy predictions about rising capacity prices are wrong.  The price for capacity deliverable in 2016/17 is less than half the price of capacity deliverable in 2015/16 that cleared in last year’s BRA.

Beyond the impact on the Harrison case, here are some other facts about this year’s BRA:

  • Flat electricity demand is driving power prices in PJM.  PJM says that clearly.
  • New generation capacity, mainly from new gas plants and retrofits of coal to gas, is more than replacing the retirement of dangerous and obsolete coal plants.
  • While cleared demand management resources fell this year, cleared energy efficiency resources increased in the BRA.
  • Cleared wind generation capacity also increased this year.

An interesting, and under-explained, feature of this year’s BRA was an almost doubling of imported capacity.  The figure is still small, compared with overall cleared capacity, but the change raises some questions.  PJM says much of these new imports came from MISO, but doesn’t describe the source of this capacity further.  Was it from Midwest land-based wind farms?  Was it from coal plants in MISO?  PJM doesn’t say.  PJM does ominously report that:

Of the 7,482.7 MW of imports that cleared in the auction, 4,788 MW (64%) has firm transmission service from the resource into PJM that is in confirmed status and the remainder has submitted firm transmission service requests for the complete required path that are now under study.

In other words, if you live in Illinois or Ohio or Indiana, be ready, PJM has you in its sights.  You may have some 765 kV or 500 kV lines in your future.

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