Fortunately, the auction held last month cleared at one-third of last year’s unprecedented price. This auction set the capacity price for the one-year period beginning June 2016. So, can FirstEnergy-Ohio customers sit back and declare the auction results good news? Yes and no.
What is capacity?
However, as a result of aggressive Environmental Protection Agency regulations, several coal-fired power plants in Northern Ohio and Northwest Pennsylvania are being deactivated. Because these local closures do not impact the entire PJM region, PJM carved out an independent zone to address extreme intra-region capacity constraints. This zone, called the American Transmission Systems Inc. (ATSI) zone, includes all of FirstEnergy-Ohio territory. It independently set its own clearing price for the period beginning June 2015.
The 2016-2017 auction results
In the 2015/2016 auction, the ATSI zone cleared at $357.00 per megawatt-day, while the rest of PJM cleared at $136.00 per megawatt-day. This translates to a capacity price 163% higher in FirstEnergy-Ohio territory than the rest of the wholesale market.
In the recent 2016/2017 auction, the ATSI zone cleared at $114.23 per megawatt-day, while the rest of PJM cleared at a depressed price of $59.37 per megatwatt-day. This translates to a capacity price 92% higher in FirstEnergy-Ohio territory than the rest of the wholesale market.
It is noteworthy that the price gap between the ATSI zone and the rest of PJM narrowed on a percent basis, but still remains sizable. Due to this continuing gap, I am concerned that a similar outcome could repeat itself in future auctions. If the ATSI zone continues to clear at levels twice that of the rest of PJM, FirstEnergy-Ohio remains vulnerable to high capacity prices through the end of the decade.