Direct Energy Warns of "Political Consequences" From PJM Transitional Capacity Performance Mechanism (State Lawmaker Retreat from Markets)

The disruption of existing capacity procurements and prices (more fully described in our related story today, click here) under PJM's transitional capacity performance proposal, "may have unintended political consequences at the state level," and jeopardize state policymakers' acceptance of competitive wholesale and retail markets, Direct Energy warned in comments at FERC.

Direct Energy noted that the additional capacity costs under the transition period will disturb existing commercial arrangements for wholesale and retail load suppliers that in good faith relied on the prices from previously cleared auctions and may cause suppliers unable to manage the unknown and unhedgeable costs and the regulatory uncertainty to exit the market

"Such undermining of existing commercial arrangements and the related increase in costs to end-use customers are unwarranted during the IA Transition Period, particularly given that PJM already has procured surplus capacity for the 2016/2017 and 2017/2018 Delivery Years," Direct Energy said.

"Furthermore, this disruption may have unintended political consequences at the state level, as the pressures of increased costs call into question the competitive market," Direct Energy warned.

Direct Energy said it serves approximately 233,000 load accounts, representing approximately 10,551 MWs, or approximately 7 percent of PJM’s load.

"Customer contracts have already been entered into based on BRA clearing prices. As proposed, however, the IA Transition Mechanism does not appropriately recognize the positions end-use customers and LSEs took in RPM auctions, including those BRAs conducted three years in advance of the delivery year, in reasonable reliance on the currently-effective rules. Direct Energy, for example, has made commitments in the BRAs through the 2016/2017 and 2017/2018 Delivery Years. Direct Energy has had significant arrangements in place for more than five years that are based on its reasonable expectations grounded in the existing rules. Direct Energy, its end-use customers, and other LSEs should be able to reliably enter into forward contracts without unnecessary price adjustments resulting from regulatory change. PJM should not be permitted to implement the proposed changes for delivery years in which end-use customers and LSEs have already taken positions without protecting those parties’ reasonable reliance expectations. It is wholly unfair, and, as discussed below, contrary to Commission policy, to permit a transition where past obligations are being modified," Direct Energy said.