Pennsylvania PUC Approves Use Of Non-Zero Proxy Capacity Price In Upcoming Default Service Auctions At FirstEnergy EDCs

October 8, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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The Pennsylvania PUC approved a petition from Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company, and West Penn Power Company (collectively the FirstEnergy EDCs, FirstEnergy, or the Companies) for approval to modify the FirstEnergy Supplier Master Agreement (SMA) to include a capacity proxy price (CPP) for the FirstEnergy EDCs' upcoming default service auctions.

The FirstEnergy EDCs had said that the proposed change is necessary because PJM Interconnection LLC (PJM) is not expected to conduct a base residual auction (BRA) to determine the capacity price for the 2022/2023 delivery year before the FirstEnergy companies’ upcoming default service auction scheduled for October 26, 2020, which includes 24-month fixed-price products that extend into the 2022/2023 delivery year.

The EDCs had asked to use the proposed CPP for upcoming default service auctions that include fixed 24-month products extending into the 2022/2023 delivery year -- specifically the Companies’ October 2020, January 2021, and April 2021 auctions. Once the 2022/2023 capacity prices are determined at PJM, the use of a CPP for future auctions will no longer be applicable.

The following chart illustrates the Companies’ proposed CPP by EDC service territory for the 2022 to 2023 delivery year:

The EDCs had said that the proposed CPP for each Company is the average of the capacity prices for 2020/2021 and 2021/2022, i.e., the two years preceding the 2022/2023 delivery year. The most recent data available from PJM are used for the 2020/2021 and 2021/2022 delivery years.

In a motion to approve the FirstEnergy EDCs' petition which was adopted by the Commission, PUC Chairman Gladys Brown Dutrieuille wrote, "This is not the first time the Commission has been asked to address the issue of market uncertainty surrounding future capacity prices in default service programs. By Order entered July 16, 2020, the Commission modified Duquesne Light Company’s (Duquesne) default service portfolio to shorten full-requirements contracts which encompassed delivery periods lacking capacity price transparency (Duquesne Petition). FirstEnergy’s Petition seeks approval of a different approach. FirstEnergy would utilize a proxy capacity price for each of the Companies based on the average of the 2020/2021 and 2021/2022 PJM energy year capacity prices. The Companies would reconcile the proxy price with actual capacity costs when they become known and hold contracted wholesale electric providers harmless utilizing this reconciliation process."

Summarizing opposition to the FirstEnergy EDCs' petition, Brown Dutrieuille wrote, "Direct Energy (Direct) filed an Answer to the Petition asking the Commission to reject the proposal and adopt a modification to FirstEnergy’s default service program and SMA that is consistent with the outcome of the referenced Duquesne Petition. Direct contends that FirstEnergy’s proposal will lead to price distortions and is not consistent with the Commission’s decision regarding Duquesne’s Petition."

Brown Dutrieuille noted that, "In contrast, FirstEnergy posits that its proposal will preserve the diversity of different fixed product lengths and mitigate the risk premium that would be realized in default service bids should the SMA not be revised. FirstEnergy submits that this is consistent with the Commission’s requirements to offer default service at the 'least cost over time' through a 'prudent mix' of contracts. FirstEnergy also notes its approval of similar revisions in neighboring jurisdictions of Maryland, New Jersey, and Ohio."

Brown Dutrieuille wrote that, "Pennsylvania’s diverse constituency of electric distribution companies often results in a diverse establishment of policies. In this instance, I believe the Commission’s disposition to Duquesne’s Petition does not preclude us from considering and adopting alternative means to address this issue. To that end, I find the Petition of FirstEnergy persuasive, particularly given how this proposal will maintain the diversity of the Companies’ default service contracts while mitigating embedded risk premiums. Consequently, I favor approval of the Petition as filed."

The PUC adopted Brown Dutrieuille's motion and directed that an order approving the petition be prepared

Docket P-2020-3021424 et al.

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