TNPC Says PJM's Flawed Market Threatens Competition

The exorbitant increase in installed capacity charges (ICAP) during the first quarter 2001 within the PJM market (Pennsylvania, New Jersey and Maryland) was not cost-based, will not assure the reliable supply of energy from power plants and threatens to destroy the competitive market, The New Power Company (TNPC) said last Wednesday at a press conference in Washington, D.C.

"Installed capacity charges are remnants of the old regulatory system and were intended to help assure reliability," said Marc Manly, managing director, law and government relations for New Power. "Since we entered the market in September 2000, we have seen the ICAP charge increase from less than one dollar to over $177 per MW day. We need to replace the ICAP regime with a competitively neutral charge that directly ensures reliability."

Under current PJM market stipulations, companies that own generation in the region, or have bilateral deals with generators, don't have to pay an ICAP charge, but companies like TNPC that provide energy for small businesses and residential customers and do not hold generation, are forced to pay it.

The charge is anti-competitive, Manly said. "If [generators] pay zero and we pay $177 per MW day, that's a $177 per MW day that we are disadvantaged."

The ICAP, which spiked in early January to $350 per MW day, finally came to a rest at $177 per MW day for all of February and most of March. "The market price is allegedly developed in a spot market among willing suppliers and willing buyers," said Manly. "Both we and the market monitors are very suspicious about why it spiked. Maybe it spiked last summer, and it has not in previous summers, but it has never spiked in January, the lowest electric-use period."

Manly said it was expressed in PJM briefs that the problem occurred because of a flawed methodology, according to which efficiency charges were allocated. "One could make other arguments that there was a possibility of collusion, or other things going on by people who had this commodity to sell," he responded. He also offered reasons why the market ICAP has started a decline in recent weeks in the region. "One could also make an argument that if there is market manipulation going on, you could manipulate it on the upside, and you could manipulate it on the downside. When you have a FERC proceeding going on, looking into these practices, maybe it would be better if the price came down. Whatever the cause, it is putting us at a competitive disadvantage, therefore we want to attack it."

On March 7, PJM filed an amendment to the Reliability Assurance Agreement (RAA) among load serving entities in the PJM control area with the Federal Energy Regulatory Commission. PJM said the amendment was intended to correct a design flaw in the PJM daily capacity credit market that, in effect, allows an owner of excess capacity to set the price of capacity at the capacity deficiency rate. The amendment also alters the methodology for allocating monies generated from the collection of capacity deficiency charges. The amendment fell short of TNPC's request. While it filed an intervention in support of the filing, it added a footnote that reserves its right to propose more substantial revisions. The PJM filing is a "baby step, but at the end of the day, it is a baby step toward ameliorating apartheid," Manly said. "We are looking at this, and we have decided, apartheid is wrong. We are going to get rid of apartheid.

"Our proposal is this, to come up with a competitively neutral charge that would be an expressed reliability charge that would be imposed on every company, not withstanding differences in circumstance, or whether you own generation or not." Manly added that his company is open to discussions on guidelines surrounding the reliability charge, such as whether to make the charge more during peak periods, and less during off-peak times. Secondly, TNPC believes the monies collected from the reliability charge should be used for the purpose intended, namely, incremental generation within the region.

Manly said TNPC's goal is to try to get "some traction and consensus, because the one thing I think everyone is convinced of is that we do not have [the system] right to guarantee reliability. We don't have it right in NEPOOL (The New England Power Pool) and we don't have it right in PJM."

Currently, the only opposition of record to the PJM filing is PPL Electric Utilities Corp. and PPL EnergyPlus LLC.

Commenting on the fact that the PJM model is often cited as a role model for other power pools, Manly said that before January 2001, one could have made that argument. But as it is today, PJM "is not a model, and it needs to be fixed."

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