May 18, 2012 / 3:30 PM / 7 years ago

UPDATE 1-PJM market monitor withdraws capacity market complaint

* Capacity auction could be worth $10 billion

* PJM seeking about 160,000 MW of power resources

By Scott DiSavino

May 18 (Reuters) - The Independent Market Monitor for U.S. power grid operator PJM said late Thursday it filed with federal regulators to withdraw a complaint against an unnamed participant in PJM’s power capacity auction, which concluded last week.

PJM, which operates the power grid serving 60 million people in 13 Mid-Atlantic and Midwest states, will announce the results of the auction, which could be worth $10 billion, later Friday.

The auction, called the Reliability Pricing Model (RPM) and held from May 7-11, will secure about 160,000 megawatts (MW) of power resources for the 2015/2016 delivery year to help ensure the future reliability of the grid. Capacity resources include new and existing power plants, demand response and conservation programs.

On May 1, the market monitor complained to the U.S. Federal Energy Regulatory Commission (FERC) that an unnamed participant tried to bid a new project into the auction that included an out-of-market state subsidy that did not comply with PJM’s Minimum Offer Price Rule (MOPR) for new combined cycle and combustion turbine natural gas plants.

The minimum offer rule was put in place to prevent load serving entities like utilities from bidding new power plants into the market at anticompetitive offers below the cost of building the new generation.

New Jersey and Maryland offered long-term capacity contracts to New Jersey power company NRG Energy Inc, New York oil company Hess Corp and privately held Maryland power company Competitive Power Ventures (CPV) to build a few power plants in their states.

The states want the new generation to create construction jobs, spur economic growth, reduce power prices, allow for the retirement of older, dirtier plants and ensure a reliable supply of in-state generation.

The market monitor and owners of several existing power plants in PJM, however, have filed complaints with FERC and lawsuits in federal and state court, arguing these long-term state capacity contracts were anticompetitive out-of-market subsidies that could distort the capacity market.

The existing generators make millions in the capacity market so any reduction in capacity prices would eat into their revenues and may even knock some of their existing plants out of the market.


In the notice of withdrawal, the market monitor determined that “no harm to the markets will result as a consequence of the violation identified in the complaint. The complaint is therefore moot.”

Energy experts guessed the market monitor withdrew its complaint because the price was expected to come in so high that the unnamed participant’s project would clear even without the out-of-market state subsidy or prices were too low and the plant project would not clear even with the subsidy.

Last week, two power companies with dozens of power plants in PJM potentially worth over $1 billion in capacity payments, Illinois based Exelon Corp and New Jersey based Public Service Enterprise Group Inc (PSEG), joined the market monitor in complaining about the unnamed participant.

After the market monitor withdrew his complaint, PSEG and Exelon withdrew their complaint.

Looking forward, the market monitor said there were still problems with the minimum offer rule and out of market subsidies that will require resolution hopefully before the next big capacity auction, called the Base Residual Auction, in May 2013.

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