Non-Performing Power Plants Cost Customers $600M

Customers in the region covered by the PJM transmission operator, which spans much of the Mid-Atlantic and Midwest, lost an estimated $600 million in January 2014, reports Energy Choice Matters. This happened because power plants that were paid to make their capacity available to produce power at all times were unavailable. To fill this shortfall, the system operator had to procure out-of-market generation, for which it paid a substantial premium – an amount that was ultimately passed on to customers.

Pennsylvania PUC Commissioner James Cawley criticized PJM for letting power generators off the hook. Essentially, there was an insufficient supply of natural gas transportation capacity to meet both heating and power generation needs (a common theme in the Northeast and Mid-Atlantic). Rather than buy capacity on the gas pipeline, power generators simply assumed that they would have sufficient fuel supplies – or calculated that if the supply was insufficient, there was no enforcement mechanism to punish them. The latter calculation turned out to be correct. Cawley said that non-performing generators in PJM were charged between $70,000 and $150,000, less than 0.1 percent of the $600 million that customers paid in uplift charges. Furthermore, generators received billions of dollars in capacity payments last year and were not forced to return any of this money to customers.

PJM has submitted a proposal to the Federal Energy Regulatory Commission (FERC) designed to address the issue, which could have a significant impact on future electricity prices – though the direction and magnitude of the impact is unclear. RTO Insider reported last month that the proposal would provide larger capacity payments to generators that perform as expected but would also assess significant penalties on those that fail to do so. Some generators complained that the penalties were overly harsh, while others suggested they were still too lax. FERC continues to evaluate the proposal and has allowed PJM to delay its “base residual auction for capacity to be provided from June 2018 through May 2019.

Responses to PJM’s capacity market proposal have been mixed in recent weeks. One RetailEnergyX article suggested the current proposal would result in major cost increases. Another RetailEnergyX article quotes Exelon’s CEO Christopher Crane as saying that the current rules are insufficient to ensure reliability, and they need to be revised.

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