[Baltimore Sun] Electric grid operator auctions saddle BGE customers with “unjust” rates, Maryland regulators say

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Maryland utility regulators want to overhaul the way the region’s electric grid operator ensures reliable service, saying the current process saddles customers with unfair and excessive rates.

The Maryland Public Service Commission, a state agency that regulates public utilities, has asked the Federal Energy Regulatory Commission to reform an auction process used by PJM Interconnection, the grid operator for the mid-Atlantic region. PJM conducts periodic auctions to ensure that sufficient electric generation capacity is available to meet peak demands in the future.

The Public Service Commission’s request supports a complaint filed Sept. 27 by environmental groups with the federal agency that blames PJM for “unreasonable and excessive” electricity costs in Maryland and demands stronger consumer protections. The complaint said the most recent auction alone will cause Baltimore Gas and Electric ratepayer bills to jump by about 19%, costing average households an additional $20 per month.

The commission said it backs the complaint’s argument that unless the process is changed, ratepayers, especially those served by BGE, will not only pay higher prices for electricity but will pay for that power twice.

“We’ve recently discovered several concerns with PJM’s capacity auction process,” said Frederick Hoover, chair of the four-member Public Service Commission, in a news release. “If FERC grants the request and directs PJM to make the required changes, ratepayers across the region can be expected to avoid over $14.5 billion in unnecessary bill payments.”

Higher costs have come about because of a situation created by the planned shutdown of two Anne Arundel County power plants, the coal-fired Brandon Shores generator and the oil-fired Wagner facility. Until reliability measures are put in place to account for those shutdowns, PJM is requiring those plants to be paid to remain in operation.

The Public Service Commission says PJM’s  auction process neglects to account for the capacity value of the two power plants, which in turn creates an artificial capacity shortage and raises prices. Ratepayers then pay twice, the agency argues, once through an inflated PJM auction and separately to the retiring generating facilities.

The commission has asked FERC to make reforms before PJM conducts its next auction.

Under PJM’s current market rules, generators that are being deactivated are not required to take part in capacity auctions, and PJM cannot require such participation, PJM officials said. Doing so could distort prices and discourage development of the new generation needed in Maryland, which imports 40% of its annual electricity from other states, said Mark Takahashi, chair of PJM’s board of managers, in a September letter responding to consumer advocates’ concerns.

The Maryland regulators’ filing supported a complaint filed at the end of September by several public interest groups challenging “unjust and unreasonable rules” followed by PJM. Those who filed the complaint include the Sierra Club, the Natural Resources Defense Council, Pubic Citizen, Sustainable FERC Project and Union of Concerned Scientists.

A July 30 PJM auction resulted in prices spiking by more than 800%, starting next June, driven partly by the upcoming power plant closures, according to an analysis by the Maryland Office of People’s Counsel, the state’s advocate for ratepayers, that the public interest groups cited in their complaint.

That recent auction led to $4 billion to $5 billion in excessive costs for consumers, the complaint said, and three upcoming auctions could add $12 billion to $15 billion more unless the commission requires reforms. Maryland consumers face especially high costs, it said.

PJM has until Friday to answer the complaint, but announced that, in the meantime, it plans to make a request to delay its next capacity auction for six months. That would give the federal commission more time to consider issues raised by the complaint and look into capacity market reforms, PJM said.

PJM officials have said that electricity demand has soared in the mid-Atlantic because of electrification and growth of high-demand data centers, retirement of generators and the slow pace of bringing new generators online.

“Given these trends, it has become very clear that our region will require the buildout of a significant quantity of new generation, including a material amount of natural gas-fueled generation, in order to maintain the reliable electricity supply our consumers expect,”  Takahashi said in the September letter.

In the advocates’ complaint, they criticized PJM for auctions that fail to account for generators at Brandon Shores and Wagner that are under the so-called “reliability must run” arrangements, requiring consumers to pay power plants that would otherwise be shut down to stay online.

“By ignoring flaws in its rules, PJM is misrepresenting the current level of energy supply and costing consumers billions of dollars in energy bills,” said Justin Vickers, a senior attorney with the Sierra Club, in a statement after filing the compliant.

The public interest groups are asking FERC to order PJM to reform its capacity market rules to account for the contributions of such generators, which it says would bring it in line with consumer protections in other regions of the U.S., such as New England and New York.

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