GOP says PJM auction shows result of Obama ‘war’ on cheap energy

House Republicans said PJM Interconnection’s May 18 announcement of results from its recent capacity auction shows that the Obama Administration’s assault on coal-fired generating capacity is taking its toll.

The PJM auction established capacity prices for 2015-2016, the first year electric generators will be required to comply with the U.S. Environmental Protection Agency’s costly Utility Maximum Achievable Control Technology (also known as the Mercury and Air Toxics Standards (MATS)) rule. “The results of the auction confirmed the predictions of Republican lawmakers who warned that EPA’s new power rules would drive up electricity costs for American consumers,” said a May 18 statement from the Republican majority in the House Energy and Commerce Committee.

The auction set capacity prices at $136/MW across the PJM footprint, which includes the Mid-Atlantic region and parts of the Midwest, the committee noted. This price is eight times higher than the $16/MW price that was set for 2012-2013, it added.

“Electricity customers in parts of Ohio will be hit the hardest, with the auction setting the price for capacity resources in northern Ohio at $357 per MW, nearly triple the 2014-2015 price set last year,” said the committee statement. “As explained by PJM, the ‘auction was impacted by an unprecedented amount of planned generation retirements (more than 14,000 MW) driven largely by environmental regulations, which drove prices higher than last year’s auction.’”

“The PJM auction forecasts a dim future where Americans will be paying more to keep the lights on. We are seeing more and more coal plants fall victim to EPA’s destructive regulatory agenda, and as a result, we are seeing more job losses and higher electricity prices,” said Energy and Power Subcommittee Chairman Ed Whitfield, R-Ky. “The Obama administration continues to wage a war on affordable energy, and it is the American people who will suffer the consequences.”

PJM takes offers for lots of new gas capacity, and less coal

PJM on May 18 announced the results of its capacity market, the annual Reliability Pricing Model (RPM) auction, for resources to meet power supply needs between June 1, 2015, and May 31, 2016. The RPM auction procured a record amount of new generation in one year, 4,900 MW. In addition, capacity imported from west of PJM increased about 8% from last year to 4,335 MW.

The RPM establishes contracts with power producers who commit to make their facilities available to provide electricity for the PJM system for a year. Prices are established through competitive bidding. PJM’s auction also includes demand response and energy efficiency providers. This year, the auction procured 164,561 MW of capacity resources at a base price of $136 per MW. PJM’s all-time peak demand is 158,448 MW. Prices were higher in northern Ohio and the Mid-Atlantic region.

“PJM is effectively, efficiently and reliably handling a massive shift in generation from coal to natural gas,” said Andy Ott, PJM senior vice president-Markets. “The RPM auction is addressing, in a quick and orderly manner, what could have been a prolonged and uncertain process to identify replacement resources. Simply put, RPM was put to the test and performed well.”

Ott added, “Nevertheless, much work needs to be done, including transmission upgrades required by plant retirements in order to deliver power supplies to population centers.”

In addition to new generation, most of it natural gas-fired, the capacity auction also procured 14,833 MW of demand response, a 5% increase over last year, and energy efficiency, a 12% increase. The amount of demand response was also a record for PJM, as well as for renewable generation. Solar increased to 56 MW of solar — a 22% increase over last year – and wind increased to 796 MW – a 15% increase.

“Capacity prices were higher than last year’s because of retirements of existing coal-fired generation resulting largely from environmental regulations which go into effect in 2015,” Ott said. “The retirements impacted northern Ohio to a larger extent than the rest of PJM for several reasons including inherent transmission restrictions, and the level of retirements in that area relative to the rest of PJM. Yesterday, PJM’s board approved significant upgrades to address the transmission issues.”

Northern Ohio sees big price tag on capacity offers

In northern Ohio served by FirstEnergy (NYSE: FE), the price will be $357/MW. FirstEnergy announced plans earlier this year to retire units at nine of its older coal-fired plants by Sept. 1 as a result of MATS and other environmental regulations. This includes units at six competitive plants in Ohio and Pennsylvania and three regulated plants (Albright, Rivesville and Willow Island) in West Virginia.

The price of capacity in much of the Mid-Atlantic area will be $167/MW, PJM noted. This area includes the regions served by Atlantic City Electric, Baltimore Gas and Electric, Delmarva Power, Jersey Central Power and Light, Metropolitan Edison, PECO, Pennsylvania Electric, Pepco, PPL Electric Utilities, Public Service Electric and Gas and Rockland Electric.

Ott said the 2015 capacity prices’ overall effect on retail consumers’ electricity rates is expected to be moderated by other factors. “Capacity is a fairly small component of the retail price of electricity, and the cost of capacity at the retail level tends to be averaged out over several years,” Ott explained. “In addition, if natural gas prices remain low, that would tend to restrain retail electricity prices.”

PJM Interconnection covers all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM coordinates and directs the operation of the region’s transmission grid, which includes 62,000 miles of transmission lines; administers a competitive wholesale electricity market; and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.