Correct. The system is supposed to encourage investment in efficient energy production so that it can sell energy at the level of the most expensive energy that is brought to market. Resources for the Future explains it like this:
The capacity market auction works as follows: generators set their bid price at an amount equal to the cost of keeping their plant available to operate if needed. Similar to the energy market, these bids are arranged from lowest to highest. Once the bids reach the required quantity that all the retailers collectively must acquire to meet expected peak demand plus a reserve margin, the market “clears”, or supply meets demand. At this point, generators that “cleared” the market, or were chosen to provide capacity, all receive the same clearing price which is determined by the bid price of the last generator used to meet demand.
That’s called artificially inflated prices
Of course it’s artificial, but knowing that doesn’t change the reality for the people who have to pay the bills.
Competition and choice lowers prices. Government “investment” usually raise prices.
Correct. The system is supposed to encourage investment in efficient energy production so that it can sell energy at the level of the most expensive energy that is brought to market. Resources for the Future explains it like this:
The capacity market auction works as follows: generators set their bid price at an amount equal to the cost of keeping their plant available to operate if needed. Similar to the energy market, these bids are arranged from lowest to highest. Once the bids reach the required quantity that all the retailers collectively must acquire to meet expected peak demand plus a reserve margin, the market “clears”, or supply meets demand. At this point, generators that “cleared” the market, or were chosen to provide capacity, all receive the same clearing price which is determined by the bid price of the last generator used to meet demand.