We read with great interest Constellation Energy's recent blog post, "New Englanders: Expect Higher Electric Bills Due to Capacity Costs", and particularly Constellation's discussion of the options, or lack thereof, for customers to avoid these new capacity costs.

"Capacity prices in the Southeastern Massachusetts/Rhode Island zone increased 64 percent from prices set for the previous power year, according to Forward Capacity Market auction results. Those prices were already 123 percent higher than its preceding power year. These rising capacity rates have been officially published by the ISO New England, so all power suppliers and load serving entities will be charged these rates for the next three years and pass them onto their customers," Constellation's blog states (emphasis added)

"Due to these changes, capacity is becoming a larger percentage of customers’ total bills. By 2016, it’s projected to make up about 12 percent of a customer’s total cost, and that will rise to 34 percent by 2018, according to ISO New England. That means a customer paying $10,00 a month would pay an extra $220 a month by 2018," Constellation's blog states

The blog continues:

"How Can Customers Offset Rising Capacity Costs? Capacity costs are included in a customer’s total fixed rate, indexed rate, or passed through as a separate line item. For new or renewal contracts, the difference in rates between fixed and passed-through capacity is negligible, as the rates are essentially set, but customers can manage their capacity tag to offset these cost hikes." (emphasis added)

The blog then details how customers may reduce their capacity tag (peak demand), which the blog concedes won't be updated via a new, reduced capacity tag until the year after the reduction occurs.

This blog post essentially confirms what we had been saying for the past few years in Texas -- customers can't manage or hedge their exposure to capacity market costs given the mandatory, administrative nature of the construct -- it's not a true market where customer choice drives prices

As stated succinctly in Constellation's blog, trying to negotiate away capacity cost increases in a customer's retail contract won't make an impact, "as the [capacity] rates are essentially set," and all customers can do is manage their capacity tag -- which won't help them in the immediate term.

Link: "New Englanders: Expect Higher Electric Bills Due to Capacity Costs"

-- By Paul Ring