EPSA Releases Principles for Organized Markets

EPSA yesterday released a set of policy principles for organized wholesale power markets.

No surprises in the principles, which embrace mandated capacity procurements for load though centralized auctions.

Several of the recommendations further eliminate customer choice in generation, with the potential to lock customers into higher priced capacity.

"Specific examples of issues to address include a less steep demand curve," EPSA says, which would preserve higher capacity prices despite new entry.

EPSA further says that, "[s]tate mandates that procure or encourage the development of new capacity in amounts that exceed what is necessary to meet reliability requirements are problematic."

It should be noted that such state actions only "procure ... new capacity in amounts that exceed ... [the] reliability requirements" because, due to generator complaints at FERC, such state capacity procurements do not count towards LSEs' capacity obligations.

EPSA further said of such state procurements, "They artificially over supply regional capacity even beyond the excess already built into reserve margins."

Such state actions are no more "artificial" than the artificial, mandated demand for capacity in the centralized auctions.

EPSA also bizarrely says that, "Policymakers and stakeholders should determine whether impediments exist under current rules to longer term mutually agreeable bilateral capacity arrangements. The lack of adequate transparency as to key economic drivers appears to be the major impediment to such bilateral contracts."

EPSA offers this perspective despite its generation members blocking several bilateral capacity contracts in New Jersey. Indeed, the real barrier to bilateral capacity contracts is that purchasers now run the risk of their bilateral contracts being subject to buyer-side mitigation, and not clearing the RPM.

EPSA further says that, "market design and rules must not discriminate between supply resources on the basis of plant vintage or fuel type."

However, while market rules should not be discriminatory, they also must allow customers to exercise their choice in generation supply, and customers' right to procure the specific generation that customers find desirable, for either environmental, locational, or economic development reasons.