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Industrial electricity consumers warn PJM not a model market

Industrial consumers warned federal regulators market flaws in the PJM Interconnection LLC have prevented large electricity users from benefiting from competition.

The Electricity Consumers Resource Council (ELCON) claimed the PJM market design is not providing the “intended benefits of competition to end-use customers.”

The group is worried the Federal Energy Regulatory Commission will replicate an unmodified PJM market model elsewhere as it structures large regional transmission organizations. FERC has said it prefers the PJM model to be used for a new northeast RTO presently under discussion.

Consumers pointed out in a filing this week structural flaws they claim need to be fixed. Problems surfaced after the market opened in 1999, including a include a lack of liquidity in the forward markets that forces purchases into the more expensive spot market. Very few alternative sellers of power are left in the market.

Most customers have already moved back to the affiliate of the incumbent utility. Finally, ELCON said the PJM market design doesn’t include provisions for demand response essential to encouraging price sensitive behavior.

Occidental Energy Ventures Corp. said the lack of liquidity in the forward markets is particularly onerous. Electricity comprises 70% of the variable costs for one of the company’s manufacturing facilities. Occidental said the PJM market structure serves as a disincentive to bilateral negotiations for power.

“PJM markets lack liquidity in the forward locational marginal price market that limits our options to PJM’s day ahead or hourly spot market,” said Joseph Marone, director of power purchasing at Occidental Energy Ventures Corp.

Occidental’s concern is with a chemical facility located in Delaware City on the peninsula. All power must originate on the peninsula or enter from the north, resulting in congestion and high prices. There is only one zone so congestion costs are borne by customers located north and south of the constraint.

Occidental also said it no longer has any choices of electricity suppliers. Out of 10 potential suppliers that expressed interest in supplying the facility, none are left in the market, Marone said. Today the only supplier is the unregulated utility affiliate.

The chemical company said the problem with the PJM market is a generator can sell into the PJM power pool at PJM’s guaranteed locational marginal price. Generators have no incentives to sell for less than the guaranteed price, Marone said. Buyers, on the other hand, have no interest in paying more than the guaranteed price.

The arrangement has effectively killed the bilateral market. “Neither party would be induced to do business bilaterally and be exposed to each other’s operational risk with no financial incentive,” Marone said. “The pool market allows suppliers to take their power to the pool with essentially no