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Exelon: Looking to Victories at Court, Regulatory Agencies to "Support Our Pricing" of Competitive Generation
Exelon, the self-proclaimed leader in "competitive" generation, told investors that it will continue to pursue victories -- not in the marketplace but before the courts, regulators and legislators -- to "support our pricing" of its competitive generation assets.
"We'll continue to advocate for public policies and market designs that properly compensate our fleet, victories in the court and the legislative, regulatory fronts that will support our pricing," Exelon CEO Christopher Crane said during Exelon's third quarter conference call.
This is your end-state market design when you start layering administrative constructs and adopting government interventions to mimic the interactions of buyers and sellers, such as capacity markets. Now, pricing isn't determined by customer choices, but instead how some bureaucrat or judge thinks a power plant should be compensated. Every aspect of the market which drives pricing -- shape of the demand curve, forward commitment period, locational requirements, qualification of capacity, offer floors, performance rules, etc, etc -- is determined by regulators, legislators, or the courts -- not a market.
Doesn't sound much different from the "bad old days" of regulation, does it, where utility earnings for power plants were contested before state regulators (and on appeal to the courts), and customers could not exercise any discipline over the pricing of generating plants.
The one exception to this administrative-driven pricing had been Texas, where actual customer choices set the level at which plants were compensated. But those days appear to be over.
Though Texas has not adopted a final mechanism to achieve the mandate, the fact that Texas will adopt a mandated reserve margin necessarily implicates that regulation, not customer choice, will determine the compensation paid to power plants, to the extent there is any shortfall. Just like in the Northeast RTOs, the cost of generation will once again become a contested issue played out before regulators, and the courts, though now in "market design" proceedings rather than traditional cost-of-service rate cases.
But nevertheless it appears we've come full circle. Customers have no say in how much power plants get paid. That's how it was under the bad old days, and that was supposed to change with deregulation and customer choice. But apparently capacity owners would rather have regulators and courts set their compensation, instead of competing in a real market.
For a competitive industry, pricing should be set by buyers and sellers. Not legislators, not regulators, and certainly not the courts.
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October 31, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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