Stakeholders Debate Capacity Construct Proposals 

After two days of discussions that drilled down into the complexities of pricing, subsidies and market forces, members of the Capacity Construct Public Policy Senior Task Force may have a day to breathe.

Then, beginning with a poll that will close at the start of next week, they will start to evaluate the merits of the 10 proposals that seek to reorganize the capacity construct in varying degrees.

The group was tasked to identify  the characteristics of a well-functioning capacity construct, and where potential state and public policy initiatives – such as resource adequacy, fuel diversity, public and environmental policies – might not be aligned.

The Sept. 11-12 meeting was the most recent round of presentations for 10 proposals. At least two more rounds of presentations of updated proposals are expected. The proposals fall into two categories:

Market re-pricing: PJM, LS Power, NRG, Old Dominion Electric Cooperative, Exelon

Non-re-pricing: American Municipal Power, Capacity Choice, NRDC/Sustainable FERC Project, Independent Market Monitor, Northern Virginia Electric Cooperative

Most of the re-pricing proposals present a  two-stage commitment and pricing approach. In PJM’s proposal, for example, the first stage clears resources as offered to establish the megawatt commitments. The second stage then replaces the offer prices of resources with actionable subsidies with reference prices and re-clears resources to establish auction clearing price.

The non-re-pricing proposals have a range of suggestions for reorganizing the capacity market.

One proposal reasons, for example, that the status quo does not sufficiently accommodate policy-preferred resources, some of which are seasonal, and that the other proposals don’t address those barriers. Another proposal asserts that the current minimum offer price rule runs counter to the economic theory that existing resources should have ability to offer as a price-taker.

The task force captured repricing triggers in the design component matrix. At the Sept. 11 meeting, PJM presented a high-level overview of the current minimum offer price rule.

The task force’s next two meetings (Sept. 26 and Oct. 16) will allow package sponsors time to refine their proposals after the task force is polled. It is possible several may refine, combine or withdraw their proposals, based on feedback.

The task force is using a set of questions to guide stakeholders in the refinement process.

The questions are designed so that task force members can see how the proposals address topics such as market manipulation, bidding behavior and long-term price suppression in the capacity or energy markets. They also call on the package sponsors to define the problem their proposals address.

Stakeholders established the task force to assess the Reliability Pricing Model (RPM) in an effort to ensure potential state public policy initiatives and RPM objectives are not at odds.