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Most Power-Capacity Prices Fall in PJM Auction

Move may signal cheaper electric bills for millions of consumers from Newark to Chicago starting in 2019

Power-capacity prices fell sharply in an auction for the country’s largest grid, signaling cheaper electric bills for millions of consumers from Newark to Chicago starting in 2019.

PJM Interconnection LLC, which runs the electricity grid serving a fifth of all U.S. residents, set prices at $100/megawatt-day for the vast majority of its 13-state territory to start in 2019. That is down from the $164.77 rate set during last year’s auction.

It is a surprise to many investors and analysts, falling at the bottom of expectations that were already bearish compared to last year. A UBS survey of investors, industry executives and consultants last week forecast a baseline result of $122/megawatt-day. About a third of respondents expected prices between $100 and $110, the lowest option in the survey.

“The (demand) forecast is lower, and there was a large amount of new gas-fired combined-cycle generation clearing for the first time in the auction,” Stu Bresler, a PJM senior vice president said in a news release explaining the results.

PJM pays this money to power plants in exchange for a guarantee they will be able to run when demand peaks. The grid operators have compared it to an insurance premium that pays for reliability. The price trickles down into consumer electricity bills and also provides a baseline revenue for many power companies that own generation plants in the region.

PJM had tried to increase what it pays to those companies in recent years to ensure they build more generation and run more reliably when demand peaks, especially during extreme weather. But for this auction PJM changed its forecast methodology to more accurately account for energy efficiency and solar-power production, which lowered expectations for demand, according to Morningstar.

The region including New Jersey, the Philadelphia area and the Delmarva Peninsula into Virginia will see even larger declines. Prices there will be $119.77/megawatt-day, down from $225.42 approved last year.

Read full article at The Wall Street Journal