PJM Files Settlement to Raise Cost of New Entry in Capacity Market

PJM has filed a settlement at FERC to revise the Cost of New Entry (CONE) in the capacity market, with the revisions higher than an earlier PJM proposal from December 2011, and also generally higher than current values.

The settlement agreement was signed by American Electric Power Service Corporation, Dominion Resources Services, Inc., Edison Mission Energy, Exelon Corporation, FirstEnergy Service Company, GenOn, LS Power Associates, L.P., North Carolina Electric Membership Corporation, Old Dominion Electric Cooperative, PJM Industrial Customer Coalition, PJM Interconnection, L.L.C., and PJM Power Providers Group

Under the settlement, the PJM Tariff shall be revised to state the following Gross CONE values (in $/MW-yr) for the combustion turbine Reference Resource for the 2015-16 Delivery Year for each indicated CONE Area:

PS, JCP&L, AE, PECO, DPL, RECO (CONE Area 1): $140,000

BGE, PEPCO (CONE Area 2): $130,600

AEP, Dayton, ComEd, APS, DQL, ATSI, DEOK (CONE Area 3): $127,500

PPL, MetEd, Penelec (CONE Area 4): $134,500

Dominion (CONE Area 5): $114,500

Furthermore, the settlement provides that the PJM Tariff shall be revised to state a value of $128,000/MW-yr for the Gross CONE value for the PJM Region for the 2015-16 Delivery Year.

Additionally, the settlement provides that the PJM Tariff shall be revised to state the following gross CONE values (in $/MW-yr) for the combined cycle asset class for the 2015-16 Delivery Year for each indicated CONE Area:

CONE Area 1: $173,000

CONE Area 2: $152,600

CONE Area 3: $166,000

CONE Area 4: $166,000

CONE Area 5: $147,000

The CONE values were determined on a "black-box" basis and settling parties do not agree on any method for calculating the Gross CONE values.

The settlement would establish new CONE values for prospective effect only. Specifically, the CONE values stated in the Settlement Agreement would be applied in the three Incremental Auctions that are yet to be conducted for the 2015-16 Delivery Year, and the settlement values would be adjusted in accordance with the tariff to determine the Gross CONE values to be used for subsequent Delivery Years, including the Base Residual Auction for the 2016-17 Delivery Year in May 2013.

In filing the settlement, PJM quotes an affidavit from Dr. Samuel A. Newell, the Brattle Principal who led the CONE review and analysis, which states, "estimating the cost of a power plant is not an exact science. There may be reasonable differences in assumed plant configurations and cost drivers, and equally valid estimating techniques could produce a range of reasonable values."

Docket: ER12-513