P3 Files Complaint at FERC Over RPM Minimum Offer Price, N.J. Contracts

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February 2, 2011  

The PJM (P3) Power Providers Group filed a complaint at FERC regarding the current Minimum Offer Price rule in the PJM Reliability Pricing Model market, nakedly claiming it is no longer "just and reasonable" because capacity suppliers stand to lose up to $3 billion annually in easy money as New Jersey, and potentially Maryland, take actions to contract for capacity.

Aside from the strained economic and jurisdictional arguments, the complaint is laughable for one simple reason: P3 admits that the actions of New Jersey, and potentially Maryland, do not violate any PJM rules as currently designed -- a design (reached through settlement) heralded by generators when originally foisted upon load.

In other words, the generators were more than happy with the PJM settlement when it was creating extremely penal capacity prices of more than $200/MW-day, but now that state policymakers, within the confines of the current RPM settlement originally pushed by generators, have found a way to mitigate the excessive costs paid by their retail customers, generators suddenly find the minimum offer price provisions of the settlement to be lacking.  Shocking.

"When it approved the PJM capacity market - known as RPM - the Commission obviously thought it was imposing an effective buyer-side mitigation regime," P3 implores.  Hopefully, in approving the settlement, FERC also thought that it was imposing an effective incentive to build new baseload generation in exchange for the capacity payments levied on load.

However, even P3 admits:

"[W]e have not seen PJM's capacity market attract material new green-field generation development...," but P3 goes on to claim that this, "reflects the simple and undeniable fact that auction clearing prices have not been high enough to support new green-field entry."

In others words, even at more than $200/MW-day, load is not paying enough to generators to support new entry.  The capacity payments are essentially worthless.

"The unmitigated exercise of buyer market power thus would start a vicious cycle that would eliminate competitive entry, ultimately destroying power markets - and the benefits they create for consumers," P3 claims, which would probably hold more water if we had actually seen any "green-field generation development" in the last four years under RPM.  "[C]ompetitive entry" cannot be "eliminate[d]" if it has never existed in the RPM market.

"In the long run, without effective mitigation, the exercise of buyer market power will sound the death knell of competitive markets - and with them the cost savings that markets create for consumers," P3 continues.

In some cases, the death knell is already sounding, driven by capacity markets themselves and their unjustifiably high capacity prices imposed on load with no corresponding results.  Mitigating these exorbitant prices, through competitive RFPs, may be the best hope for competitive markets, and stop a full blown return to monopoly ownership of generation and the provision of all services -- energy, capacity, and ancillaries -- by a single monopoly provider, because policymakers are tired of ceding control of retail pricing to FERC as is effectively accomplished under centralized capacity markets.

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