APPA's Competitive Market Plan - American Public Power Association

legislation passed in 2005 and 2007 aimed at lowering congestion costs,
spurring new generation, demand response and renewable energy. 50 When
ISO New England’s Forward Capacity Market (FCM) auctions began in early
2008, Connecticut bid contracted units into the auction as “price takers.”
More recently, in early 2011, Governor Christie of New Jersey signed
legislation and the Maryland Public Service Commission issued a draft RFP
for the procurement of new generation resources through long-term
contracts with the distribution utilities. 51 In both cases, the states were
responding to the absence of new, efficient and cleaner generation resulting
from PJM’s RPM and concerns about future reliability. The contracted-for
capacity would then be bid into the capacity markets at zero or a very low
price to ensure that it would clear the auction, with the secondary benefit of a
lower capacity price for all capacity that cleared the auction.
In New England, the capacity price has reached the floor price in the last
auction and the lower bound of the price collar in the prior three auctions. 52
While it is not certain that the Connecticut resource bids directly caused the
low capacity price, which may have resulted more from the large quantity of
demand response bids, the coincidence of these state-procured resources and
the low price spurred a complaint with FERC by the merchant generator
association (the New England Power Generators Association or “NEPGA”).
Similarly, in response to concerns over a possible future reduction in capacity
market revenue from the New Jersey and Maryland actions, 53 the PJM Power
Providers or “P3” filed a complaint with FERC. In response to these
complaints, both RTOs proposed changes in their capacity markets to prevent
the price-lowering effects of such separately procured resources.
In April 2011, FERC issued its orders in both dockets. 54
At the core of each
50
Public Act 05-01, An Act Concerning Energy Independence, July 2005,
http://www.cga.ct.gov/2005/ACT/Pa/pdf/2005PA-00001-R00HB-07501SS1-PA.pdf; and Public
Act 07-242, An Act Concerning Electricity and Energy Efficiency, June 2007,
http://www.cga.ct.gov/2007/ACT/PA/2007PA-00242-R00HB-07432-PA.htm
51
New Jersey P.L.2011, Chapter 9, Senate, No. 2381, §§1,3,4 - C.48:3-98.2 to 48:3-98.4 §5 -
C.48:3-60.1, http://www.njleg.state.nj.us/2010/Bills/AL11/9_.PDF; Notice Of Comment Period
On Request For Proposals For New Generating Facilities, Maryland Public Service Commission,
December 29, 2010,
http://webapp.psc.state.md.us/Intranet/Casenum/NewIndex3_VOpenFile.cfmServer-
FilePath=C:\Casenum\9200-9299\9214\\34.pdf.
52
FCM Calendars and Auction Results, http://www.isone.com/markets/othrmkts_data/fcm/cal_results/index.html
53
Monitoring Analytics conducted analyses of the New Jersey legislation and Maryland PSC
draft RFP showing a reduction in capacity revenues of $3 billion dollars per year ($2 billion
from New Jersey and $1 billion from Maryland).
http://www.monitoringanalytics.com/reports/Reports/2011/NJ_Assembly_3442_Impact_on_PJM_Capacity_Market.pdf;
and http://www.monitoringanalytics.com/reports/Reports/2011/IMM_Comments_to_MDPSC_Case_No_9214_20110128.pdf
18 APPA’s Competitive Market Plan: 2011 Update www.PublicPower.org