PSC, generation firms debate auction rule

State utility regulators and a coalition of investor-owned electric companies, including Constellation Energy Group, are taking shots at each other over a proposed rule change to electric wholesale auctions.

The Maryland Public Service Commission on Friday filed a protest with the Federal Energy Regulatory Commission over efforts to do away with breaks at wholesale power auctions that given to new plants that are built with state subsidies. Two groups, P3 Power Providers Group and PJM Interconnection LLC, don’t want those subsidized plants to be allowed to bid less than an administratively set benchmark price.

P3 Power Providers is a coalition made up of Constellation and 10 other investor-owned companies. PJM operates the electric grid in 13 northeastern states, including Maryland, and the District of Columbia.

The PSC said the rule change would create “formidable” barriers for any company looking to add new generation in the PJM grid. As a result, the agency said, only incumbent suppliers would benefit.

“P3’s [proposal] is a frontal attack on the responsibility and obligation of state regulators like the Maryland PSC to ensure that customers have access to adequate and reliable supplies of generation capacity,” PSC Chairman Douglas R.M. Nazarian said in written testimony to FERC. “[FERC] should not take actions that will penalize state-initiated new generation programs and, in very real terms, prevent states from taking appropriate steps to ensure reliable, long-term supplies of electric service for their citizens and ratepayers.”

P3 sees the change as vital to clearing up an inherent advantage a subsidized power plant would have against a privately owned facility.

PJM and P3 have asked that the changes be put in place by April 13, in time for the annual May auction where output from plants is pledged for a three-year period.

At the auction, PJM calculates how much electricity will be needed and then takes bids — from lowest to highest — to meet that demand. When the total demand is met, the highest bid — called the “clearance rate” — becomes what every company is paid, no matter what the company had bid.

Plants looking to guarantee that all of their capacity will be bought, bid low. Investor-owned companies are concerned that new generation facilities with state subsidies will enter the auction and bid low to sell their capacity because they have the advantage of state support. They are seeking a change that would limit how low subsidized plants could bid in the auction.

“This is about standing up for the integrity of the wholesale market, putting everyone on a level playing field,” P3 President Glen R. Thomas said. “This is not a frontal attack on Maryland. Our complaint does nothing to impact those state-level decisions. What we’re concerned about is how subsidized ones participate in the wholesale markets.

Nazarian said the rule change would stifle interest in building new electric generating facilities by making it unattractive from a profit perspective to investor-owned companies. That, he said, would only benefit the existing suppliers.

“It’s not about making things competitive, it’s about making prices go up,” Nazarian said. “It’s actually anti-competitive.”

The PSC asked that FERC, if it adopts the change, only make it applicable for this year’s auction. FERC’s decision can be appealed to the U.S. Courts of Appeal.

P3 is made up of Constellation, DPL Energy, Edison Mission Energy, Exelon, International PowerAmerica, NextEra Energy, NRG Energy, PPL, Calpine Corp., North American Energy Alliance LLC and PSEG Energy Resources & Trade LLC.

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