Retail Suppliers Facing Near Doubling of Unhedgeable Capacity Costs For Next Year Under PJM Transitional Auction

While retail suppliers have more lead time to account for the higher capacity performance prices under the initial base residual auction featuring the new performance product for the 2018/19 delivery year (click here for recent results), retail suppliers are facing a near doubling of capacity prices for the 2016/17 delivery year (a time period for which many have already entered fixed price retail contracts), as a result of transitional auctions PJM is using to phase-in capacity performance requirements

Specifically, PJM said that the first capacity performance transitional auction, for 2016-17, resulted in a capacity performance clearing price of $134 per megawatt-day for all areas in the PJM footprint.

More instructive is the Adjusted Zonal Net Load Price ($/MW-day), which are shown below from the original 2016-17 base residual auction (which did not feature capacity performance), and the first capacity performance transitional auction

    2016-17 Zonal Net Load Price ($/MW-day)
Zone       2016-17 BRA      CP Transitional
                              Auction
AE           $118.89         $158.68
AEP           $59.37          $98.29
APS           $59.37          $98.29
ATSI          $90.54         $129.25
BGE          $118.89         $158.68
COMED         $59.37          $98.29
DAYTON        $59.37          $98.29
DEOK          $59.37          $98.29
DLCO          $59.37          $98.29
DOM           $59.37          $98.29
DPL          $118.89         $158.68
EKPC          $59.37          $98.29
JCPL         $118.89         $158.68
METED        $118.89         $158.68
PECO         $118.89         $158.68
PENLC        $118.89         $158.68
PEPCO        $118.89         $158.68
PL           $118.89         $158.68
PS           $177.61         $218.65
RECO         $118.89         $158.68

Note that the Zonal Net Load Price resulting from the transitional auction reflects a CP Transition IA Cost Component of $38.17/MW-day. PJM noted that this CP Transition IA Cost Component is as of 8/31/2015, and that the CP Transition IA Cost Component is subject to change since the Total RTO Obligation is not finalized until after the final Incremental Auction for the Delivery Year.