ThePA Electric Power Generation Associationsaid this week a decision by the Federal Energy Regulatory Commission dismissing a complaint by the “RPM Buyers’ Group” will enhance the reliability of the grid and provides further evidence that wholesale markets are providing competitive prices.

“This decision reduces regulatory uncertainty that hinders investments in new plants and in demand reduction technologies”, stated Douglas Biden, President of the Electric Power Generation Association. Biden added: “The FERC’s unanimous decision, supported by both Democrats and Republicans on the Commission, is further proof for lawmakers in Pennsylvania that wholesale markets are producing competitive prices.”

In December 2005, the FERC approved a settlement among PJM Interconnection and numerous parties adopting the “Reliability Pricing Model” – a new wholesale pricing model designed to improve the incentives to add new resources and retain economic existing resources needed to keep the lights on.

The FERC specifically concluded that PJM’s former pricing rules were not “just and reasonable” because the prices under those rules were too low over many years to allow investors to recover the fixed costs of building new generating plants.

The first four RPM auctions were successful and stimulated investment in an additional 16,000 megawatts of capacity resources to serve customers in PJM. However, these benefits were threatened by the RPM Buyers’ Group complaint that claimed the auction prices were not competitive and that demanded refunds for alleged overpayments.

The FERC decision rejected the allegation that the auction prices were uncompetitive, relying in part on testimony from the independent market monitor of PJM that the auction prices reflected the increased costs of resources needed to meet the needs of customers. In addition, the FERC recognized that the complaint threatened to undermine investor certainty needed to encourage investment.

“Wholesale and retail markets are still developing, and more work is needed to develop price signals that will encourage the efficient use of electricity and the development of the power plants of the future to meet a still-growing growing demand for electricity ,” said Biden. “But this decision helps by providing greater certainty for those investing in the resources to meet our electricity needs in the twenty-first century. We commend FERC’s continued support of competitive markets and for its balanced decision in this case, including its recommendation for a technical conference and stakeholder process to review and improve the RPM.”

For more information, visit theEPGA website.

9/26/2008