Exelon Games Recent PJM Capacity Auction, Rigged in Favor of Big Generators

Reporter and law professor David Cay Johnson has made a career of investigative reporting.  Today he published an excellent piece detailing how Exelon rigged the recent capacity auction in the PJM cartel to rake in lots of free money for itself.

The latest major electricity auction demonstrates yet again how the industry, with help from Wall Street financial engineers, is gaming power markets, forcing customers to pay higher prices. You would not know that, however, from most news reports mentioning the auction.

Absent disclosures by the secretive markets, investigation and reform, you should expect your monthly electricity bill to rise sharply in the next few years as electricity industry investors reap outsize profits.

Losing is winning

The auction last week was not for electricity itself, but for promises to maintain the capacity to generate power in future years. The so-called capacity auction was conducted by PJM, the electricity market in 11 states serving 61 million people from New Jersey to Illinois.

Exelon informed investors that two Illinois nuclear plants and one New Jersey plant filed losing bids. The bids for these plants were higher than bids filed by other power plants owned by Exelon and other companies to provide the amount of generating capacity that PJM says will be needed for the 12 months beginning June 1, 2017.

PJM is a secretive market that does not disclose bid details even after an auction. But a list of all Exelon plants in the PJM area indicates that the losing bids affected just 17 percent of its generating capacity.

The capacity market is a so-called single-price or clearing-price auction. The highest bid needed to ensure capacity wins, with all those who bid less also getting the highest price. Those who bid above that price, like the two Exelon nuclear plants, get nothing.

Exelon alerted stock traders to these losing bids. When the markets opened on Tuesday, its share price jumped up, closing at 3.6 percent higher than on the previous trading day.

Why would losing bids make the stock price go up?

Strange as it may seem, Exelon stands to make a lot more money because it made losing bids for about one-sixth of its generating capacity. The reason is that it will collect much bigger revenues on the 83 percent of its plants that filed winning bids. Therein lies one of the many problems with the electricity market rules.

Exelon will get almost exactly double the capacity market payments than if it had placed winning bids for its entire fleet of generating plants, utility rate consultant Paul Chernick estimates.

Read the article.  It provides a clear picture of how the creation of mysterious so-called markets in the deregulation era was designed, to a large extent by Enron executives, to line the pockets of big electricity generators and Wall Street speculators, all paid for by you and me on our electric bills.  Mr. Johnson also shows why capacity prices jump around so much from year to year with little connection to the real world, because they have far more to do with companies’ fraudulent strategies du jour than with maintaining real reliability on PJM’s system.

2 thoughts on “Exelon Games Recent PJM Capacity Auction, Rigged in Favor of Big Generators

  1. We’re looking into this from the “inside.” Stay tuned.

    Merry Eisner Marketing & Operations RTO Insider Your Eyes and Ears at the PJM Interconnection Office: 301.983.0375 Mobile: 240.401.7399

    RTO Insider is an independent publication. It is neither connected with nor endorsed by PJM Interconnection, LLC.


    • Thanks, Merry. I can’t wait. We have had some hints that FERC is also investigating manipulation and resource withholding in the winter peak situation in January. As Mr. Johnson points out, these so-called markets are structured to maximize obscurity and to always keep the speculators ahead of the regulators.

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