PJM Delays Annual Power Auction, Citing Concerns About Reliability as Reason

Tom Johnson | April 27, 2015 | Energy & Environment
FERC lets grid operator postpone auction, but critics argue rescheduling could be expensive for NJ consumers and businesses

The federal government is allowing a delay in an annual power auction next month, a decision that proponents say will increase reliability of electricity supplies, but critics say could boost bills for consumers and businesses.

In a letter from the Federal Energy Regulatory Commission last week to PJM Interconnection, the operator of the nation’s largest power grid, the agency granted a waiver to postpone PJM’s May auction aimed at ensuring there is enough electricity for customers — especially in unusual circumstances.

The auction is important to consumers in New Jersey because it determines how much they will be charged for so-called capacity payments to energy suppliers, which in this state have become an increasingly large part of their utility bills. In New Jersey, because of congestion on the power grid, capacity payments are much higher than in neighboring states, costs that are passed on to consumers.

The delay is also a concern to critics of the proposal, who said it creates uncertainty among energy suppliers, a concern that could lead to generators bidding higher prices to provide the necessary capacity. They also say that it also could discourage some suppliers from participating in the auction.

New Jersey traditionally ranks among the most expensive in the nation in energy costs, a recurring problem state officials have been mostly frustrated in their attempts to fix. However, a steep drop in natural gas prices have led to some declines in heating costs for residents, as well as lower electricity bills, largely the result of newfound deposits of the fuel in the Marcellus Shale formations in Pennsylvania and neighboring states.

[related]The issue underscores how little power state regulators have to limit energy costs to consumers in a deregulated market. Most of those decisions rests with FERC and PJM, and relate to the costs of supplying the necessary power to customers — either through new power plants or high-voltage transmission lines.

The PJM filing was largely spurred by an unusual cold snap during the winter of 2014, when the power sector struggled to deliver electricity to customers as plants unexpectedly shut down unable to continue operating in the frigid temperatures.
In its filing, PJM wants to establish charges for poor performance of units designated to supply capacity and credits for facilities that deliver superior performance.

With the delay, PJM said the auction will be held no later than mid-August of this year. In granting the waiver, the federal agency said, “we find that PJM’s proposal will not have undesirable consequences.’’ That would mitigate potential impacts on market participants, according to FERC.

Critics dispute that view. They argue that the proposal to provide additional capacity during peak periods could rise in cost from $8.7 billion to as much as $15.1 billion over a four-year span.