Capacity Performance Reforms

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In the PJM region (i.e., Pennsylvania, New Jersey, Maryland, D.C., Delaware, Illinois, Ohio.) a proposal, recently approved by FERC, which establishes “Capacity Performance” reforms that provide greater assurance of generator performance during extreme weather conditions.

PJM’s new performance requirements, proposed last summer, took place under new federal rules designed to help avoid a repeat of the spike in prices and plant failures seen as a result of the 2014 polar vortex, when frigid temperatures froze gas lines and impeded coal transportation, causing electricity prices to rise significantly for PJM customers. At the time, many power plants that accepted capacity payments failed to perform when they were needed most, which had the potential to cause significant outages.

Under previous rules, generators had very little risk if they fail to provide power when promised. Under the new reform, generators will earn more money for reliable performance, but also face steeper penalties if they fail to run during emergency periods, such as severe weather events or when power demand is exceptionally high.

How Does This Affect You?

PJM held three capacity auctions in August and September, under the new market reforms. As a result, the new payment numbers represent a significant increase over current payments. Electricity suppliers serving the PJM territory are faced with the decision to either absorb or pass through these increased costs to customers.

Your supplier’s contracts most likely have “pass-through” or “change-in-law” provisions, which can affect your electricity bill. In this specific instance suppliers may have the option to pass through the costs to customers as a one-time-only line item on their electricity bill. Since the increased costs could be substantial, we believe most suppliers will choose to pass through the capacity performance charge.

The Capacity Performance changes will become effective on June 1, 2016. You can find the capacity auction results on our website, although it is difficult to correlate auction results to any end-user charges given the hedging activity of suppliers, among other factors.

 

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