Capacity Market Revenue - Forward Capacity Auction Obligation
Recording revenue from capacity market auction commitments (PJM RPM, ISO-NE FCM) where the utility receives fixed capacity payments in exchange for committing generation capacity to be available during peak demand periods.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable - Capacity Market Revenue (PJM/ISO-NE) | Asset (+) | 12,500,000.00 | - |
| Capacity Revenue - Forward Capacity Auction | Revenue (+) | - | 12,500,000.00 |
💡 Accountant's Note
Capacity markets compensate generators not for energy produced, but for being available. In PJM's Reliability Pricing Model (RPM) and ISO-NE's Forward Capacity Market (FCM), generators bid into auctions years in advance, committing to be available during the delivery year. The capacity price ($/MW-Day) is set at the clearing price. Revenue is recognized ratably over the commitment period as the availability obligation is met. Non-performance during scarcity hours results in capacity market penalties that reduce net revenue.
Practitioner & Systems Framework
💻 ERP Architecture
Capacity revenue is recognized over the performance period (typically a one-year delivery period that begins 3 years after the auction). Track capacity commitments by generating unit and delivery year in the capacity position management system. Performance penalties (for failure to perform during called hours) must be accrued as they become probable.
⚠️ Audit Flags
Auditors verify capacity market settlements against RTO auction clearing prices and committed MW. Performance penalties are a significant audit area — failure to accurately accrue penalties overstates capacity revenue. New units that fail to achieve commercial operation before the delivery year start must assess the impact on their capacity obligations.
📄 Required Documentation
RTO capacity auction clearing results (MW and $/MW-Day cleared), capacity commitment agreements, monthly capacity settlement statements from RTO, performance data during high-demand periods, penalty calculation documentation, capacity position by unit and delivery year.
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