State utility regulators complained yesterday to the Federal Energy Regulatory Commission that its new approach to meeting long-term electricity demand was too expensive.
The system will cost Pennsylvania users $5 billion too much during the next three years, the Pennsylvania Public Utility Commission said. The PUC was joined in the complaint by the utility commissions in New Jersey, Delaware and Maryland, and by consumer advocates.
The new program, called the "Reliability Pricing Model," changed the way electricity auctions are conducted by PJM Interconnection L.L.C. of Valley Forge, the federally regulated regional transmission organization, or RTO, that manages the wholesale electricity grid that includes Pennsylvania and New Jersey. PJM was the target of the complaint, although the new model was approved by the federal agency.
Under the plan, PJM last month conducted its first so-called forward-looking auction. It was for the year beginning June 1, 2011; going forward, auctions are to be held annually for the period beginning in three years.
Transitional auctions covering the next three years, held over the last year, "have produced unjust and unreasonable capacity prices in this region," the Pennsylvania PUC's announcement of the complaint said.
The system has created "additional opportunities for sellers to raise their prices while serving no legitimate function during the transition," the PUC announcement said.
Under the new "reliability pricing model," PJM collects bids on generated electricity from producers and pledges from major customers for curtailments of usage in response to peak demand periods.
Instead of the old practice of conducting daily auctions for the following day's need, the new program buys electricity three years in advance of the need. The goal is to allow time for adding new generating capacity.
When PMJ posted the 2011-2012 auction results on May 15, they were the first in which electricity was bought three years ahead. PJM senior vice president Andrew L. Ott said that the "forward-capacity auctions are creating incentives, and the marketplace is responding with investments."
"The current auction," PJM said last month, "attracted 2,333 megawatts of entirely new generating units, including solar, wind, natural gas and coal-fired units; 1,243 MW of new capacity from upgraded existing units."
The complaint is 220 pages long, "and we haven't examined the nitty-gritty details," PJM spokesman Ray E. Dotter said. "The system in place before wasn't working very well. The income wasn't enough to cover expenses of building new generators."
So the federal energy agency accepted the new model. "Instead of buying capacity on day-to-day basis, you have to buy three years in advance," Dotter said.
Additional capacity is needed, Dotter said, because usage is increasing and old generation stations are scheduled for retirement.
PJM was formed in 1927 by three utilities to allow excess power in one area to meet shortages in another. It now has 450 members - including power generators and distributors, power marketers and large consumers - and serves 51 million people in Pennsylvania, New Jersey, Delaware and nine other states, plus the District of Columbia.