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Report: Cost Impact Of PJM Capacity Performance Adjustments Estimated At $7.3 Billion

October 8, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

A new report, PJM’s "Capacity Performance" Tariff Changes: Estimated Impact on the Cost of Capacity, commissioned by the American Public Power Association (APPA) estimates the cost impact on consumers of PJM’s recent Capacity Performance (CP) package of changes to its Reliability Pricing Model (RPM) capacity construct to be $7.3 billion over the course of the 2016/17, 2017/18, and 2018/19 delivery years, with likely further impact in later years.

For the 2016/17 and 2017/18 delivery years, special transition auctions were recently held to acquire commitments to provide the CP capacity product. All of the cost of the commitments resulting from these transition auctions, net of the cost of the extinguished prior RPM commitments, is considered a cost of the CP implementation. The costs of these additional commitments amounted to $4 billion over the two-year period, APPA said

For the 2018/19 delivery year, an RPM base residual auction was recently held through which PJM acquired the new CP product to meet 80 percent of the reliability requirement, with the remainder satisfied with non-CP or base resources. The report estimates that the auction, which cleared at $164.77/MW-day, would have cleared at $124.23/MW-day, "but for" CP, APPA said. Based on this estimated clearing price, the total market capacity cost would have been $3.3 billion less than the $10.9 billion in market capacity cost that resulted from the auction. Therefore, total costs over the three-year period were $7.3 billion, APPA said

"PJM’s recent changes are an over-reaction to the ‘polar vortex,’ and address a problem that was largely already addressed by PJM and market participants through various other measures," said APPA Senior Vice President of Regulatory Affairs and Communications Joe Nipper. "As a result, bill-paying consumers will pay a lot more for the same product."

The report was prepared by James F. Wilson of Wilson Energy Economics for APPA.

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