Ohio Capital Journal reports that Ohio ratepayers may see further increases in their electric bills when PJM Interconnection releases its annual capacity auction results. United's Jon Gordon discussed the different factors that drove energy rate hikes in last year's PJM capacity auction, including slow interconnection processes, poor transmission planning, and rising energy demand.
Around Ohio, utility bills are rising, and they may keep climbing. Next week, the regional grid operator PJM Interconnection will announce the results of its annual capacity auction. Under normal circumstances, most people ignore the proceedings. But the auction has drawn increasing scrutiny after a dramatic spike last year.
The price power generators can charge for supplying the grid shot up 833% percent — from about $29 to $270 to provide a megawatt of energy for a day.
That figure isn’t the cost of the energy itself. Instead, GridLab Executive Director Ric O’Connell said it’s more like insurance: PJM estimates its peak load, builds in a bit of extra wiggle room, and goes to the market to ensure it can serve that load throughout the year.
“And so, I’m going to pay those generators just a fixed fee to just basically make sure that they’re there,” he described PJM’s approach. “I’m not actually paying for them to provide me energy. I’m just paying for them to be there, really — kind of like an insurance policy.”
Using the last auction price, for instance, a hypothetical 1-megawatt power plant would get a check for $270 a day on top of the revenue from actually selling its energy.
Spread across PJM’s 13-state footprint, those higher capacity costs amount to a $12.5 billion increase in utility bills.
If last month’s utility bill was a shock, last year’s PJM auction could be the culprit. The new prices took effect in June, and they’ll run through next May.
Ohio cities served by the aggregator NOPEC shared flyers warning customers of 10-15% increases on their monthly bill and sharing tips on how to save power.
Throughout the PJM area, consumer rates went up about 20% according to John Gordon, policy director for Advanced Energy United.
Supply & Demand
The basic function of the capacity market is to bring supply and demand into alignment by putting a value on power generation. When there’s plenty of power to go around, the price will be low, but when supply is tight it will be high. That price signal encourages companies to bring new plants online or retire old ones when they’re no longer economical.
The sharp uptick in capacity prices last year is a result of increasing demand for power and a slackening supply network.
Older fossil fuel plants are retiring, and PJM has been slow to connect new facilities to the grid. Some proposed plants have been waiting in line for six years. Meanwhile, Gordon said, demand on the grid has shot up.
“The economy has been going strong,” he said, “increases in manufacturing, increases in electric consumption, electric vehicles and so forth. And of course, data centers have had a dramatic impact on demand.”
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