Approved PJM Proposal Ensures Reliability, Adds Costs

June 25, 2015

In June 2015, the Federal Energy Regulatory Commission (FERC) approved PJM's Capacity Performance Proposal, imposing new and unclear costs on energy suppliers. It seems that customer costs in the PJM region—which transmits electricity throughout parts of 13 Mid-Atlantic and Midwest states—will increase because of increased capacity costs starting in 2016-2017.

Under the proposal, PJM held two incremental auctions to seek additional capacity resources, meeting 60% of PJM’s reliability requirement for 2016-2017, and 70% of the reliability requirement for 2017-2018. The proposal called for incremental procurements, with separate payment structures, to ensure that reliability is met in those delivery years.

Suppliers are concerned that the increased capacity costs interfere with their existing customer contracts, for which they have already priced and procured capacity. All suppliers must pay capacity charges to the utility for all customers. Whether those charges are passed through to customers depends on supply contract provisions and supplier decisions.

If a supplier passes through additional capacity costs to customers as a result of the newly approved Capacity Performance Proposal, a customer with a fixed-price contract may be no worse off than a customer with a capacity cost pass-through supply contract provision. Although each supplier contract is different, many suppliers exclude capacity charges and non-energy costs from their fixed price.

It remains to be seen how this change will affect utility supply tariff rates in the PJM territory. It seems reasonable to expect that utilities will include increased capacity costs in supply tariff rates.

PJM Capacity Performance Proposal aims to prevent severe electricity price spikes, such as those seen in January and February 2014. APPI Energy has monitored the PJM capacity situation for the past several years. Our team of regulatory experts will talk with our vetted suppliers about these cost increases, and determine how each supplier plans to address this change in capacity costs. We are continuing to gather information and consult new and current customers. For more information, contact us at 800-520-6685.