By John Funk

May 25, 2018 - The price of electricity is now expected to rise significantly in June of 2021 for customers from Chicago to Washington, D.C.

And that includes customers in Ohio, one of 13 states in which grid manager PJM Interconnection operates wholesale power markets.

These increases are not for the energy itself, which is expected to remain at historic lows in spite of the closing of a number of coal and nuclear plants.

PJM expects that new gas turbines, additional wind and solar farms, increases in energy efficiency and "demand response" contracts with customers who commit to cut consumption when told to will replace the output of the old coal and nuclear plants.

But the rush to build these new resources has slowed some, partly because prices are so low, says PJM, and possibly because of the uncertainty over whether old coal and nuclear plants will receive federal and state bailouts, say analysts.

The price increases reflect the cost of the guarantee that there will be sufficient generating capacity available three years from today to meet routine, as well as extraordinary, demand throughout the region.

What's increasing is called a "capacity charge," and it's wrapped into the wholesale price of electricity in PJM's managed competitive markets, whether that power is going to a consumer, a business or an industry.

Think of capacity charges as an insurance charge, explained Stu Bresler, PJM senior vice president for operations and markets, during a news conference late Wednesday to announce the results of this year's capacity auction locking in power plant output three years from today and setting a market price for that guaranteed capacity.

Typically, capacity charges account for about 10 to 15 percent of the cost per kilowatt-hour of electricity.

That may not look like much of a charge, considering that consumer power prices, not including delivery charges, are currently about 6 or 7 cents per kilowatt-hour in northern Ohio. But it adds up, even for industrial customers who typically pay less per kilowatt-hour than residential consumers do.

Capacity charges will increase by about 40 percent in June 2021, compared to the current capacity charges. But compared to the immediately preceding year, beginning June 1, 2020, and closing May 31, 2021, the capacity charge will have more than doubled.

PJM directs the funds raised by the capacity charges in monthly payments to the power companies whose power plants "cleared" the auction.

Bresler said the increases in capacity charges would not offset the low prices of the power itself.

PJM does not identify the power plants that have survived the annual auction, though power companies sometimes do.

But Bresler did confirm that FirstEnergy Solutions, which has said it would close its four nuclear reactors within two years and is going through bankruptcy proceedings, participated in the auction only because the company did not meet last September's deadline to say it would not. FES only announced its closing decision last month.

The news of the company's participation in the auction comes as the Trump administration continues to consider whether it will invoke national security concerns to assist FES and other owners of old nuclear and coal-fired plants.

None of the FES reactors "cleared" the auction, said a company spokesman on Thursday, meaning the bids they submitted were higher than those of competing plants. 

About a quarter of the nuclear power plants that cleared the 2017 capacity auction failed to clear this auction. Plants that do not clear will not receive the monthly PJM subsidies, but they can continue to offer their electricity into PJM's wholesale markets.

"The auction results will have no immediate impact on our operations, said FES spokesman Thomas Mulligan. "We will continue to seek legislative and regulatory relief at the state and federal levels." 

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