By David Jwanier and Rich Heidorn Jr.

Load representatives concerned by reports of generators’ bidding strategies in May’s capacity auction reacted Wednesday by threatening to block an Exelon Corp. initiative to provide more informative supply curves.

The measure — which would change the smoothing method used in the supply curves published after capacity auctions — was approved by the Market Implementation Committee with 54% support, short of the two-thirds sector-weighted vote it will need to clear the Markets and Reliability Committee June 26.

No Opposition Early

Stakeholders had approved a problem statement by Exelon’s Jason Barker on the issue without opposition last June. The proposals considered last week were developed by an MIC working group that included Barker and economist Jim Wilson, a consultant to consumer advocates in New Jersey, Pennsylvania, Delaware, Maryland and the District of Columbia.

But support for the change eroded after Market Monitor Joe Bowring signaled his opposition to the new curve. At the MRC meeting May 29, Bowring said it could reveal sensitive data about price-quantity offers and cause collusion among generators. (See Bowring: Reject Revised Supply Curves.)

In announcing Old Dominion Electric Cooperative’s opposition to the change, ODEC’s Steve Lieberman cited Bowring’s concerns and news reports indicating Exelon had helped boost clearing prices in the May auction by offering 4,255 MW of nuclear capacity at the maximum price allowed. Although the units did not clear, UBS Securities analysts estimated Exelon boosted its 2017/18 capacity revenue by about $150 million more than what it would have received had the units cleared. (See How Exelon Won by Losing.)

‘Craftier’ Bidding Behavior

“I can understand from the supply side why they want the information published,” Lieberman said. “If we give generators more information, they’re going to be craftier with their bidding behaviors. If a more transparent supply curve was to be published and supplied to suppliers with large portfolios, they could make strategic decisions to benefit themselves.

“It’s completely a one-sided discussion,” Lieberman continued. “Load has to offer in and we’re purely at the mercy of the results of the market — what [price] suppliers decide to offer in at.” He said he sees no need for the supply curve to be published.

[Correction: A previous version of this article stated that Old Dominion Electric Cooperative decided to oppose the new supply curve “based on” Market Monitor Joe Bowring’s opposition and news reports regarding Exelon’s bidding strategy. Although ODEC’s Steve Lieberman mentioned them in announcing his opposition to the change, ODEC says it made its decision to oppose the change “a few days after the problem statement was approved” in June 2013.]

Carl Johnson of the PJM Public Power Coalition agreed. “We don’t see a benefit to the market or to customers of making that information more specific,” he said. “We think there are companies that could use that info in a non-competitive way.  It could be used inappropriately and for an unfair advantage.”

Moving Average

The proposal that narrowly cleared the MIC Wednesday would use a seven-segment moving average as a smoothing method for supply curves for the RTO and MAAC. (See chart.)

Barker said Wednesday opponents of the new curve had no evidence to back their “vague assertions of market power.”

He said he did not believe market participants could use the revised curve to “back into unit-specific information.

The MIC rejected a proposal that would allow publishing curves for locational deliverability areas (LDAs) in addition to the RTO and MAAC. An LDA’s curve would be published only if it passed tests that ensured they had sufficiently diverse market concentration so that individual generators could not be identified.

Following each Base Residual Auction, the Market Monitor posts supply curves that mask individual price-quantity offers.

The current smoothing method was a compromise resulting from a Federal Energy Regulatory Commission order (ER09-1063-003) resulting from a dispute over PJM’s proposal to publish price-quantity pairs after the 2010 BRA. Due to the concentration of generation ownership in the SWMAAC LDA, Constellation Energy and the Monitor said that the data could be used to reconstruct market participants’ offers.

Current Curve Too Inaccurate

In winning support for the problem statement a year ago, Barker said the method used by the Monitor was not accurate enough for any LDA to be useful in analysis. Improving the supply curve would give stakeholders a greater ability to analyze the RPM auction process by helping market participants analyze supply and regulators ensure auction results are just and reasonable, he said.

ODEC’s Lieberman agreed that the current curve wasn’t very useful. “It’s obvious almost any formula would be more accurate” than the current one, he said in voicing his support for the problem statement. (See MIC Seeks Better Way to Draw Capacity Supply Curve.) Lieberman noted yesterday that it’s rare for stakeholders to oppose problem statements, though that doesn’t commit them to supporting changes that may result from them.

Auction Strategy

Fears that the curves could disadvantage load grew after results of the 2017/18 BRA were posted last month.

With new PJM rules limiting offers by imports and demand response, and economics and the Environmental Protection Agency’s Mercury and Air Toxics Rules forcing as much as 14 GW of PJM coal capacity into retirement, Exelon felt confident in offering its nuclear plants at the maximum price it was allowed — the Avoided Cost Rate (ACR) minus net energy revenue. Exelon confirmed afterward that its Oyster Creek plant in New Jersey, as well as Byron Units 1 and 2 and Quad Cities Units 1 and 2 in Illinois, had failed to clear the auction.

Bowring said that all generation offers were screened by his staff to ensure market power was mitigated by offer caps. That included a determination that no generator with market power could offer at a price higher than ACR minus net energy revenue.

But Wilson said the way the Monitor calculates the price caps leaves generators leeway to exercise market power without violating market rules. “There is now, and has always been, an awful lot of flex within the market power mitigation,” he said in an interview last week.

Wilson pointed to the energy and ancillary services offset, which he said is “much lower than market participants’ expectations.”

He also cited the avoidable project investment recovery rate (APIR), an adder to the offer cap, which he said “unmitigates a lot of capacity” because it is amortized over a short time period. Wilson noted that The Brattle Group’s 2008 review of the capacity market had recommended changes to the application of APIRs.

Dan Griffiths, executive director of the Consumer Advocates of the PJM States (CAPS), said his organization has not taken a formal position on the revised curve, although individual members have discussed it. He said CAPS will meet to decide whether to oppose the change or abstain when it comes up for a vote at the MRC.

“We’re not making any market power [allegations],” he said in an interview. “But if folks are successfully strategically bidding we don’t want to enhance their ability to do that.”