Fortnightly Magazine - December 2005

The Western Electricity Coordinating Council continues to experience a glut of generation and historically high levels of generating reserve margins. Despite these reserve margins, state and federal regulators are asserting that all is not well, and that rolling blackouts may return.

Layered on top of ever-evolving industry restructuring and corresponding FERC rulemakings, we have the provisions of the Energy Policy Act of 2005. When viewed in totality, the new energy legislation provides the federal government with substantial new authority over generation and transmission that can, and might well be, used to alter the outcome of what a state would have decided under its previously exclusive jurisdictional domain. Whether we can avoid unhappy and rancorous confrontations with the use of joint boards, regional compacts, or regional state committees is yet to be seen, but it is my sincere hope that we can do so.

PJM applied to FERC for authority to impose a new regime of requirements for reserves of electric generating capacity. This new construct, known as the reliability pricing model (RPM), would replace PJM’s current capacity market.

Capacity and energy, although related, are not identical products. If we are to continue to rely on competitive market forces to provide new generation supplies, we need separate, long-term, installed capacity markets.