Capacity Market Price Blowout for ATSI Zone; Bodes Ill for Ohio Markets; Prices Generally Up Across RTO

A blowout clearing price of $357.00/MW-day for annual resources in the American Transmission Systems, Inc. zone resulting from PJM's Base Residual Auction for capacity for the 2015/16 period will no doubt have implications for several pending cases before the Public Utilities Commission of Ohio.

The Base Residual Auction for the 2015/16 delivery year cleared annual resources at $136.00/MW-day for the Rest of RTO region; $167.46 for the MAAC, EMAAC, SWMAAC, PS, PS-NORTH, DPL-SOUTH, and PEPCO regions; and $357.00 for the ATSI region.

The auction also procured limited resources and extended summer resources, whose prices can be found here (tab 2)

The resulting LDA Capacity Price Components are $134.62/MW-day for the Rest of RTO; $166.08/MW-day for MAAC, EMAAC (including PS and DPL), SWMAAC and PEPCO; and $342.30/MW-day for ATSI.

With the exception of PS-NORTH, which did not clear separately this year, the auction resulted in higher capacity prices for all zones.

The 2014/15 Rest of RTO (which included ATSI) annual resource clearing price had been $125.99/MW-day, and the 2014/15 MAAC (and all sub-regions except PS-NORTH) annual resource clearing price had been $136.50/MW-day.

Notably, the capacity price in the ATSI region for the upcoming 2012/13 delivery year is only about $20.

Although the capacity prices are obviously for different zones and different delivery years, the $357.00/MW-day clearing price in the ATSI zone suddenly makes the disputed capacity prices at AEP Ohio look reasonable, or at least reasonable with respect to the "market" price. AEP Ohio is seeking a capacity price of about $355/MW-day under its capacity charge case (based on a formula rate), and $255/MW-day (with a limited amount of further discounted capacity) under its electric security plan.

Moreover, although PUCO had been anticipating punitive capacity prices in the ATSI zone as the zone was expected to clear separately (with PUCO directing the FirstEnergy utilities to re-examine the cost-effectiveness of efficiency measures to reduce capacity obligations), the final clearing price still has to be jaw-dropping.

The aftertaste from this auction will no doubt come into play for the two service areas (AEP Ohio and Dayton Power & Light) not yet serving customers under market based rates.

What's worse for load across PJM is that capacity market prices would have been even higher had not several states intervened to exercise control over their mandated demand for capacity in the auction (by self-supplying capacity).

In a research note to clients authored by Julien Dumoulin-Smith and Jim von Riesemann, UBS's Electric Utilities & IPPs Group said that of the new capacity which cleared the 2015/16 BRA, "we believe at least two are subsidized CCGT units (1 ea. from MD/NJ)."

Furthermore, when including Dominion's 1.3 GW Warren CCGT being built under ratebase, UBS estimated that approximately half of the new capacity cleared without real market signals.

PJM Report on 2015/16 BRA