PUC Orders Utilities To Revise Default Service Auctions To Use Capacity "Proxy" Price -- EnergyChoiceMatters.com

PUC Orders Utilities To Revise Default Service Auctions To Use Capacity "Proxy" Price

December 13, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Public Utilities Commission of Ohio directed that the state's electric utilities modify their Standard Service Offer (SSO) auction products to price capacity at a proxy rate for years in which no actual capacity price has been established, though PUCO adopted the use of a price of $0/MW-day as the "proxy"

PUCO specifically adopted the capacity proxy rate proposal filed by PUCO Staff. While Staff's proposal had been called ill-defined by some stakeholders, it generally follows the process used in other PJM states which have adopted such a capacity proxy mechanism. However, while in general the mechanism is similar such that SSO suppliers would not reflect their own view of capacity costs in their bids, PUCO adopted Staff's recommendation that EDUs modify their SSO auction products to price the capacity obligation at $0/MW-day and directed that a pass-through charge be used to make SSO suppliers whole for all capacity costs (rather than the use of a non-zero proxy price as used in some states)

PUCO said, "we agree with Staff’s recommendation, and believe it is appropriate for the EDUs to modify their SSO auction products such that capacity is priced at a proxy rate where the actual price is not yet established."

"EDUs are ordered to work in conjunction with their auction managers to revise all supplier documents, as necessary, as well as update the pertinent information presented at bidder information sessions to be conducted prior to each auction," PUCO said

Regarding the true-up of the capacity proxy price, PUCO said, "While we are not directing any specific process by which the proxy rate will be trued-up, we recognize the expertise and experience of the auction managers in this role and find they are uniquely situated to work with the EDUs to identify a functional mechanism. However, we would note that we would expect any true-up to occur at least annually, prior to when actual power flow would begin for any given delivery period."

PUCO declined to address any other proposed modifications to SSO design or procurement in its order, but said, "nothing in this Finding and Order limits the Commission’s authority to consider and implement further amendments to the EDUs’ SSO auction format in order to reduce price volatility and to ensure consistency between the EDUs’ competitive bidding processes, including those proposed in currently pending ESP [electric security plan] proceedings."

"To the extent the filed comments go beyond those recommended modifications [to use a capacity proxy price], we will not address them here. However, we will continue 'to consider and analyze ways to improve the auction processes,'" PUCO said

PUCO said that continued consideration of capacity market changes at FERC, and the attendant capacity auction delays, "leave[] significant doubt that [PJM capacity auction] tariff schedules will not return to normal until at least the 2029/2030 delivery year."

"[SSO] Auction schedules must return to a measure of normalcy and predictability, where among other things, the blending of auctions with one-, two-, and three-year products are offered," PUCO said

Some retail suppliers had asked PUCO to allow retail suppliers to similarly pass-through unknown capacity costs in retail contracts if the PJM capacity price is not known at the time of contracting.

PUCO did not grant this request in its order, but stated, "And while we acknowledge CRES [retail] providers’ concerns that taking this [SSO] action will alter their competitive posture at auction, we also recognize that CRES providers who want to pursue those concerns further should do so in a separate proceeding."

"Our present goal is to stabilize the SSO procurement auction. And the certainty provided by a proxy price and true-up mechanism, fashioned in concert with the EDUs’ sophisticated auction managers, should alleviate the disturbance present in the capacity markets since FERC’s 2018 decision," PUCO said

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