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Independent Study Finds PJM's Reliability Pricing Model Producing Valuable Benefits for Consumers

On June 30, 2008, PJM released an independent study, Review of PJM's Reliability Pricing Model. The report, conducted by the Brattle Group, found that PJM's Reliability Pricing Model (RPM) has worked as intended, with the initial transition auctions of electric capacity for 2007 through 2012 producing considerably enhanced reliability for customers through additional electricity generation, the realization of demand response, and a continued trend in the reversal of planned retirement of older generation. While these early results are promising, it should be noted that, given the compressed schedule for the four transitional auctions, it was anticipated that new generation would not occur until the first full auctions, due to construction lead times. This was evidenced by the first full auction in May 2008.

  • "The positive impact of RPM already extends beyond the 2011/12 delivery year. RPM has stimulated the development of an unprecedented amount of potential new resources, which include approximately 33,000 megawatts (MW) of effective capacity from new generation projects in PJM's interconnection queue that are already eligible to offer into future RPM auctions. The vast majority of these proposed generation projects did not exist before 2006, the year in which RPM was approved and finalized." (Brattle report, pg. 4)


  • RPM has attracted and retained more than 14,500 MW of resources that likely would not have been available otherwise. Of this total amount, at least 4,500 MW of capacity has been retained that otherwise would have been retired, with almost 10,000 MW of incremental capacity attributable to new generation, uprates to existing plants, demand response and decreases in net exports. (Brattle report, pg. 2-3)


  • "The impacts RPM has had on new and existing resources show that capacity price signals are important for facilitating the most cost-effective entry, investment, and retirement decisions. RPM capacity prices have also been important for stimulating demand-side investments that can effectively compete with supply-side resources."(Brattle report, pg. 4)


  • RPM does NOT mean that customers are paying excess amounts, as some have claimed. It provides a mechanism to ensure reliability and anticipate the costs of new generation that is required to keep the lights on in the future and to make a reasonable estimate of what those costs will be when the date of the transaction arrives. In fact, RPM has led to where, "On a Regional Transmission Organization ("RTO") wide basis, committed capacity consistently exceeds target reliability levels by at least one percent in each year through the 2011/12 delivery year." (Brattle report, pg. 3)


  • "The impacts RPM has had on new and existing resources show that capacity price signals are important for facilitating the most cost-effective entry, investment, and retirement decisions by suppliers." (Brattle report, pg. 22) It is notable that prices in PJM have finally and only very recently begun to signal the need for new investment as reflected in the PJM Market Monitor's 2007 State of the Market Report released on March 11, 2008. That report states, from 1999 to 2007, "net revenue ha[d] generally been below the level required to cover the costs of new generation investment for several years and below that level on average for all unit types for the entire market period." [emphasis added] (2007 SOM Report, pp. 12-16)


The complete Brattle Report is available at http://www.brattle.com/NewsEvents/NewsDetail.asp?RecordID=532

Independent Study Finds PJM's Reliability Pricing Model Producing Valuable Benefits for Consumers

CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.