Download Capacity Markets Are Not the Optimal Means to Determine a

Thinking Outside the Capacity
Markets Box
APPA Proposals for Reform of the
Reliability Pricing Model
Elise Caplan
Manager, Electric Market Analysis
OPSI Meeting, October 13, 2015
APPA’s Concerns About RPM
• Restrictions on self-supply and threats to the
public power business model.
• Higher and more volatile prices, frequent rule
changes, including problematic capacity
performance rules.
• Difficult stakeholder processes.
• Uncompetitive market structure.
• Financial benefits accrue to owners of existing
capacity if the market is more constrained.
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Capacity Markets Are Not the Optimal Means
to Determine a Resource Portfolio
• RPM does not entail long-term planning for
generation diversity or public policy goals, and
every MW is paid the same, regardless of
technology, fuel access, age, emissions, etc.
• 98% of the new MW in 2013 and 96% in 2014
required a long-term contract, ownership, or
financial hedge.
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Unanswered Questions About RPM
• Is resource adequacy being met at least cost?
• Are the resources being retained those that are the
most needed?
• Do new merchant builds account for fuel diversity,
pipeline capacity, and future natural gas prices?
• How will energy and ancillary service market changes
impact the capacity markets? What is the total cost?
• Can the $7 billion cost of the capacity performance rule
be justified?
• How will states implement the Clean Power Plan
without control over capacity resource decisions?
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APPA Proposed Reforms to RPM
• Transition from mandatory market to
voluntary, residual capacity procurement
mechanisms.
• LSEs able to self-supply through ownership and
bilateral contracts without constraints.
• Retail access states would need to determine
an entity to sign long-term contracts for EDCs.
• Public power and co-ops could opt in to state
or regional resource procurement.
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Additional Features of Proposed
Reforms
• Resource adequacy standards with penalties
for non-compliance.
• FERC/state working group evaluates seller-side
market power and determines if appropriate
restrictions are needed for pivotal sellers.
• RTOs and states determine the most economic
and efficient options to relieve transmission
constraints.
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Concluding Thoughts
• Capacity “markets” should not be the primary
means to support needed capacity.
• A meaningful dialogue is needed to shift the
paradigm away from capacity constructs.
• APPA’s proposal can form the framework for
such a dialogue.
• Questions and comments are encouraged!
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