Dive Brief:

• The Federal Energy Regulatory Commission (FERC) has placed a cap on power supply imports and the use of limited demand response programs, which can only be called upon 10 times for up to six hours at a time over the summer, and that will likely drive up electricity prices at this week's PJM Interconnection capacity auction for 2017 supply.
• Last year, prices hit a three-year low at  $59.37 per megawatt per day. The rule changes could lift prices between $75 to $100 per megawatt per day, according to projections from American Electric Power, UBS AG and Standard & Poor's. 
• Power imports will be capped at 6.3 GW, of which 4.8 GW already have an exemption from taking part in this week's auction, leaving 1.5 GW yet to be determined. This is compared to 7.5 GW of imports last year. Meanwhile, limited demand response programs will be capped at 2.3 GW, compared to 9.9 GW last year. 

Dive Insight:

Despite the caps, any price increase could be mitigated by lower demand projections by PJM and NRG Energy's recent decision to forego retiring two of its coal-fired plants in Maryland, Mackenzie Wood analyst Prajit Ghosh told Bloomberg. He estimated the price would be $60 per megawatt per day, with a range of $50 to $70 per megawatt per day. 

If prices are that low, power plant operators will think hard about the possibility of shutting down their assets, said Standard & Poor's utilities director Aneesh Prabhu. Among those who may retire plants are Exelon, FirstEnergy and NRG.

But if prices are too low and utilities do choose to retire generation, future capacity prices will rise. “These decisions will be influenced by prices set in capacity markets, but will perversely affect the pricing in future capacity auctions,” Prabhu said.