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2011: Calpine Says "Far Too Soon" to Know Whether PJM Capacity Market A Success or Failure -- Says Capacity Market Has "Proven Track Record" One Year Later
What a difference a year (or state) makes.
Due to an exchange between Texas Public Utility Commissioner Kenneth Anderson and Calpine's President, Thad Hill, during yesterday's resource adequacy workshop, we were compelled to review comments filed by Calpine in the Maryland PSC's long-term capacity procurement proceeding (Case 9214).
What we found surprised us.
On January 28, 2011, Calpine submitted comments to the Maryland Public Service Commission that, "Especially given the relatively short history of the RPM [the PJM Reliability Pricing Model capacity market] thus far, Calpine also believes it is far too soon to know whether the RPM is a success or failure." (emphasis added)
Of course, by claiming it was "far too soon" to judge the success or failure of RPM, Calpine was seeking to avoid a conclusion from the Maryland PSC that RPM was a failure due to forecasts that, notwithstanding RPM, Maryland was facing power shortages.
Apparently, however, "far too soon" came rather quickly for Calpine, because not even 600 days later -- less than two full years -- Calpine was proclaiming the PJM capacity market as having a "proven track record" of assuring reliability.
Specifically, as part of the "ERCOT Reliability Advocates'" jointly filed comments in PUCT Project 40000 on August 30, 2012, Calpine said that by adopting a forward capacity market (emphasis on forward), Texas would, "be moving forward with a framework that has a proven track record of ensuring ongoing resource adequacy." (emphasis added)
We hope nobody got whiplash from the sudden turn of PJM's Reliability Pricing Model capacity market from a market where it was "far too soon" to judge success or failure, to now having a "proven track record."
To be fair to Calpine, it doesn't define how long it believed the Maryland PSC had to wait to judge the success or failure of RPM, nor did Calpine define how long "far too soon" exactly is. But with the specific emphasis that in 2011, some four years after the introduction of RPM, that it was not only too soon to judge RPM but "far too soon" (emphasis on far), we think it's fair to say that waiting a mere 19 months longer to make a judgment would not make an appreciable difference.
But it was specifically the PJM RPM capacity market that Calpine was referencing in its August 2012 Texas comments as now, suddenly, having a proven track record (NYISO's ICAP market obviously does not fit the context as it is not conducted on a forward basis, as was the design being sought and compared by Calpine).
While ISO New England also has a forward capacity market, Calpine explicitly follows its description of the preferred capacity market design as "proven" with an example from PJM, dispelling any doubt that Calpine, some 19 months after saying it was "far" too soon to judge success or failure, was now pushing the PJM capacity market design as "proven."
Specifically, in its August 30, 2012 comments to the PUCT, Calpine said:
"This type of model [Calpine's suggested Texas capacity market] has proven effective for bringing new capacity into FRM-type [Forward Reliability Mechanism] markets. Since its inception in 2007, PJM has had a net increase in installed capacity of over 26 GW, as shown on the following chart."
Quite a reversal from saying it was "far too soon" to judge RPM less than two years ago. Now not only is Calpine saying RPM is a "proven" success, but one that is ready for export.
What does this mean? It's just another example of capacity owners saying two different things regarding capacity markets depending on their audience. As extensively chronicled by Matters in the past (here, here, and here), capacity owners tout the capacity markets as "settled", near-flawless market designs when speaking in Texas, but when discussing the markets in the Northeast, they list problem after problem.
As an aside, per Calpine's own data, only 6 GW of that new capacity total quoted above is actual steel-in-the-ground generation; the balance is demand response and energy efficiency
Oh, one more note from Calpine's January 2011 comments to the Maryland PSC, in light of various alternatives to a centralized, uniform clearing price capacity market in Texas, and protests from entities such as Calpine that such alternatives would be market-distorting and discriminatory.
With much bravado, Calpine told the Maryland PSC in January 2011 that, "we believe it is unlikely that any new merchant generation will be pursued once individual PJM states begin acquiring new resources under ratepayer-subsidized contracts."
The Maryland PSC nevertheless ordered the procurement of some 660 MW of capacity via ratepayer-subsidized contracts for differences in April 2012.
While it can be debated whether such PSC action constituted the actual "acquisition" of capacity (given various appeals), what is clear is that, just one month later, Calpine offered new generation into, and cleared, that May 2012 PJM Base Residual Auction for capacity.
As noted in its August 2012 comments to the PUCT, "Calpine recently announced its proposed Garrison CCGT generating facility project in Delaware. This project was successfully bid into the most recent PJM capacity market [May 2012], with a start date of June 2015."
Apparently, the supposedly distorting, market-interfering Maryland PSC capacity procurement did not chill this new investment as Calpine foretold.
Claims that Texas would risk investment by adopting some alternative mechanism versus a centralized capacity market to meet a reliability standard, which may appropriately pay resources differently based on their different values to load, should accordingly be given little weight.
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October 9, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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