GREENCROWN Energy would like to keep you informed about IMPORTANT INFORMATION in the energy industry. We believe you will be interested in the following article published in the Wall Street Journal. This, along with other news, prove that power-price rise will continue to happen.
We strongly suggest that if you are not on a fixed electricity contract right now, you call us immediately to lock in a rate before the summer month spikes take effect. In the northeast, July and August can represent up to 70% of a company’s annual electricity consumption.
Power Auction Foreshadows Possible Increase in Electricity Bills
Heightened Effort by Grid Operator to Encourage More Power Production and Distribution
By Timothy Puko
The price of power set at a key regional power auction doubled for many states, foreshadowing a potential increase in electricity bills in the coming years.
The increase reflected a heightened effort on the part of the nation’s largest grid operator, PJM Interconnection LLC, to encourage more power production and distribution in the swath of territory between Newark, N.J., and Chicago that supplies 61 million people, industry executives and analysts said. New state environmental regulations and a robust demand outlook, influenced by the year’s historically cold winter, also played a role, they said.
The so-called “capacity price” was set at $120 a day for every megawatt produced by power plants across most of PJM’s territory from July 2017 to May 2018, according to results of the annual auction released by PJM on Friday.
That compares with about $60 per megawatt-day established for regions that include some Washington, D.C., suburbs, Pittsburgh and Chicago at last year’s auction. Part of New Jersey between New York City and Philadelphia, will see a capacity price of $215, about the same as last year’s level.
At the auction, power producers such as Duke Energy Corp. DUK -0.33% , Exelon Corp. EXC +0.36% and FirstEnergy Corp. FE -0.06% bid for long-term contracts to supply electricity. Other businesses, including big consumers, offer to pay for improvements in efficiency or even to cut grid power. PJM chooses the best values and guarantees the winners get paid starting in 2017 even if demand drops.
PJM runs the largest capacity market in the country. There are critics who say it amounts to market manipulation and some regions, notably Texas, refuse to adopt them, saying free markets alone will encourage the construction of enough power supply.
All power bills within PJM’s 13 states include the capacity price, which accounts for about 10%-15% of their charges to consumers, experts say. Spot and near-term prices for electricity, and the administrative costs for running the system, make up the rest of electricity bills.
The higher capacity price is a boon to power producers, which rely on these payments as baseline revenues. The price set at last year’s auction dropped sharply, crimping these companies’ profit outlooks.
“Many, including us, viewed some of the prices (last year) as a bit suppressed,” said Andrew Ott, PJM’s executive vice president for markets. “The changes that we had made certainly had their intended effect.”
This year, PJM limited how much power it would buy from outside its territory. The grid operator also placed stricter limits on what types of business could benefit from demand-response programs, which pay big customers who commit to cutting power consumption from PJM’s grid at PJM’s request.
The capacity price came in well above many analysts’ expectations. “What a surprise,” said UBS analyst Julien Dumoulin-Smith. “If you think these markets are dead, that’s not the case.”
The auction results were viewed as another endorsement of natural gas, which will fuel most of the new power plants that participated. In these transactions, power companies often offer supplies from plants that have yet to be built.
FirstEnergy, one of PJM’s most vocal critics, said the capacity price still wasn’t high enough to justify running some of its power plants. FirstEnergy, based in Ohio, operates about 18,000 megawatts of generating capacity, half of it coal, spread across PJM’s system.
“It certainly helps,” spokesman Doug Colafella said. “But the prices, we still feel, don’t support the operating cost at some of our facilities, nor do they provide the incentives to build new plants.”
Article lifted from Wall St. Journal.