Less than 3% of generation capacity constructed in 2013 was developed solely for sale into organized electricity markets, with the majority of projects supported by long-term bilateral contracts or built by vertically integrated utilities to serve their own loads, according to a study released last week by the American Public Power Association.

Of the 14.7 GW of new generation covered in the study, two-thirds were built with purchased power agreements and about 32% were constructed by utilities or customers. APPA said the study, Power Plants Are Not Built on Spec, validates its contention that the mandatory capacity markets in PJM, ISO-NE and NYISO “do not support the stable long-term financial arrangements required to build new power plants.”

APPA wants the Federal Energy Regulatory Commission to replace the mandatory capacity markets with voluntary residual markets, where states and local public power and cooperatives can procure their capacity through bilateral contracts.

APPA released the report last week as panelists at the Organization of PJM States Inc. annual meeting were in the middle of a discussion on the future of PJM’s capacity market.

PJM Market Monitor Joe Bowring told the meeting he didn’t need to review the study to respond to it.

“We have heard these claims before,” he said. “The notion that one-off bilateral contracts are better for customers I think has been disproven time and time again. It actually gives market power to sellers. This is the same APPA that had complained it can’t get prices low enough in bilateral contracts.”

Panelist Neal Fitch, senior director of regulatory affairs for NRG Power Marketing, noted that the study did not consider how much capacity the markets retained that might have otherwise retired.

James Wilson, a consultant to the consumer advocates for New Jersey, Pennsylvania, Delaware, Maryland and D.C., said he agreed with APPA that capacity markets are a “very expensive and very administrative and very inefficient way to” ensure resource adequacy.

“The capacity market is one way to go,” Wilson said. “The other way is what ERCOT is doing. ERCOT’s got an energy-only market and every few weeks you read about another new power plant.”