Reregulation? How utilities and states are responding to PJM’s record capacity prices

Earlier this year, officials from Exelon, FirstEnergy, PPL and Duquesne Light sought a meeting with state utility regulators to argue that their companies could have a role helping ensure PJM has enough power supplies, according to Kent Chandler, a resident senior fellow at the R Street Institute.

They pressed their case in that meeting in February, which was held at the same time as the National Association of Regulatory Utility Commissioners’ winter policy summit, and Duke Energy and American Electric Power advanced the same talking points publicly at a June meeting of the Mid-Atlantic Conference of Regulatory Utilities Commissioners, said Chandler, whose term as chairman of the Kentucky Public Service Commission ended June 30.

“They’ve been laying the groundwork for this for a while,” Chandler said, noting that getting into generation would expand their ratebase, and thus their earnings.

But there didn’t seem to be much interest amongst regulators in moving away from restructuring in areas of PJM, according to Chandler, former president of the Organization of PJM States Inc., or OPSI, which represents state utility regulators. “In my conversations with retail regulators, there does not seem to be much interest in shifting the risk of financing generation from shareholders to customers for the exclusive benefit of utilities,” he said.

Further, in many PJM states, lawmakers would likely need to pass legislation to allow utilities to get back in the power plant business, Chandler noted. “It will be an uphill battle for these states to reregulate,” he said.

State ratepayer advocates haven’t expressed interest in reregulating utilities, according to Greg Poulos, executive director of Consumer Advocates of the PJM States. “There is some reluctance to support that approach,” he said.

Generally, ratepayer advocates in PJM support competitive wholesale markets, but the auction results are eroding their confidence in the grid operator’s ability to run the markets, he said.