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FERC Order Mandating Capacity Price Floors Leaves Ending Retail Choice as One of Few Options Available to States to Lower Retail Rates
May 13, 2011
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The Fixed Resource Requirement (FRR) alternative to the PJM Reliability Pricing Model capacity auctions is "effectively unavailable" to any state with retail choice, the Maryland PSC said in a rehearing request at FERC, which begs the question, if Maryland and New Jersey are unable to overturn FERC's decision which inhibits the development of capacity in a retail competitively neutral manner, will states be forced by FERC's decision to pursue their only remaining strategy to mitigate capacity prices -- adoption of an FRR and abandonment of retail choice?
The PSC's rehearing request (EL11-20) was in response to FERC's order which, among other things, eliminated the exemption from offer floors in RPM for sellers who were not net short on capacity. The order was specifically designed to nullify New Jersey legislation which would have built new capacity in a manner competitively neutral to the retail market (4/13).
In accepting the PJM tariffs changes which radically altered the bargain of the original RPM settlement, and which now impose price floors on all capacity offers except for certain fuels, FERC claimed that such action does not impede states' ability to ensure resource adequacy, since the FRR alternative remains an option for states.
However, the PSC said that the FRR is not a viable solution, "because it is effectively unavailable to any state such as Maryland or New Jersey that has adopted retail supply choice."
A load-serving entity seeking to exercise the FRR option must, "demonstrate[] the capability to satisfy the Unforced Capacity obligation for all load in an FRR Service Area, including all expected load growth in such area, for the term of such Party's participation in the FRR Alternative," the PSC noted.
"Thus, the FRR mechanism precludes load-serving entities from securing only a portion of their capacity through the FRR and therefore, is not a viable option for 'deregulated' states like Maryland," the PSC continued.
"Moreover, PJM's tariff imposes unreasonably restrictive conditions for participation -- e.g., the rules require election of the FRR option for a 'minimum term of five consecutive Delivery Years,' and preclude 're-elect[ion of] the FRR Alternative for a period of five consecutive Delivery Years following the effective date of such termination,'" the PSC noted.
"Additionally, all generation, demand response, load management, energy efficiency, or similar programs on which the load-serving entity intends to rely for a Delivery Year must be included in its FRR Capacity Plan submitted three years in advance," the PSC said.
"Such restrictive rules are inappropriate in retail-choice states like Maryland that seek to promote development of some resources for legitimate policy reasons without eliminating retail choice," the PSC said (emphasis added)
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