posted on Wednesday, July 20, 2005 6:25 PM
by
Gunnar Birgisson
PJM Test for Mitigating Scarcity Prices to Be Tested in Hearing
Engaging the nettlesome issue of scarcity, FERC convened an inquiry into whether the PJM Interconnection needs scarcity pricing and, if so, how a generator’s potential to exercise market power during periods of scarcity should be mitigated. FERC’s attention to these issues in PJM may herald for the MidAtlantic numerically exact mitigation price triggers, similar to what has already been established for other organized RTO and ISO markets.
The current inquiry grows out of a proceeding in which FERC explored compensation due generating units needed to run for reliability reasons. In PJM, reliability generators are generators in load pockets that are offer capped, i.e. paid their marginal costs plus 10% when there are transmission constraints, and also those generators wishing to deactivate but cannot because they are needed for reliability. PJM had proposed to FERC a new “no-three pivotal supplier test” to exempt generators from mitigation when generators able to serve a load pocket do not have market power. A pivotal supplier in PJM is one whose output is required to meet load, and PJM proposed that when four or more pivotal suppliers are considered competitive (or there are no pivotal suppliers), competitive conditions exist and mitigation is not warranted. PJM asserted that this test was consistent with the delivered price test that FERC uses when it evaluates market power resulting from proposed mergers and acquisitions. But FERC disagreed. The agency decided additional justification was required and set for hearing the appropriate test for market power in PJM load pockets. [PJM Interconnection, LLC, 112 FERC ¶ 61,031 (2005)] [NEW MATTER]