Exelon's Rowe Says Current Capacity Prices Won't Bring New Entrants

Capacity prices in PJM must rise in order for new entrants to invest in generation, Exelon CEO John Rowe said during an earnings call yesterday.

Discussing the Reliability Pricing Model capacity auction, Rowe said, "[t]he long-term trend to us is clear, however. Capacity prices must rise if new entrants," are to be supported.

The fact that the current billions of dollars spent by load in capacity payments won't result in any new entrants -- the very point of a supplemental capacity payment -- will undoubtedly sit well with regulators in states such as New Jersey and Maryland.

Rowe expects capacity prices in May's RPM auction to be higher than last year's auction, but could not say how much higher.

"The reduced demand forecast from PJM will exert some downward pressure on the markets. It is possible that the recent New Jersey legislation to pay for new gas plants will also be a downward force. However, we believe that under FERC precedent, FERC will move to require a reasonable minimum bid price for these units and do so in time for May's RPM auction. We are also evaluating other options on how we would respond in the event the governor signs this legislation into law," Rowe said.

Expanding on Rowe's comments, Joseph Dominguez, senior vice president for federal policy for Exelon Generation, cited the minimum offer price rule in the New York ISO ICAP market and activity before FERC on the same issue with respect to the ISO New England Forward Capacity Market as supporting some form of FERC intervention with respect to the New Jersey capacity contracts.

"We believe that both PJM, suppliers and others will bring this issue to the FERC very quickly, and that we'll get a ruling before the next auction," Dominguez said.

Exelon reported that the end of the below-market power purchase agreement between PECO and Exelon Generation will allow Generation to realize about $20 more per megawatt-hour in 2011 on power sold to PECO customers. Exelon Energy, Exelon's retail sales arm, is growing its presence in the East as a result of PECO going to market.

Market and Retail sales for Exelon Generation were 32,462 GWh for the fourth quarter of 2010, versus 27,800 GWh a year ago.

Exelon Generation reported fourth quarter 2010 net income was $424 million, compared with $425 million in the fourth quarter of 2009. On an adjusted basis, Generation's earnings were higher at $538 million, versus $441 million a year ago, on higher energy prices under the power purchase agreement with PECO, favorable capacity pricing related to RPM, and increased nuclear output due to fewer outage days.