Maryland Public Service Commission releases position on RPM

BALTIMORE, April 19, 2005 — The Maryland Public Service Commission (“Commission”) responded to PJM’s request for input regarding the PJM’s Reliability Pricing Model (“RPM”) by sending a letter advising against implementation of the RPM as currently proposed.

Chairman Kenneth Schisler stated, “Maryland is concerned about long term resource adequacy and understands the PJM staff interest in replacing the current capacity market with a construct that considers locational differences and is forward looking. However, it is critical that PJM craft a comprehensive solution that is consistent with the continued development of efficient competitive electricity markets, and fully understand the implications of its proposals on wholesale competition. PJM is not there yet with its current proposal.”

The Maryland Commission acknowledges that there are shortcomings in the current PJM capacity market. In particular, locational considerations and forward looking price elements for capacity are not included in the current model. However, the Commission argues that capacity conditions within PJM do not present the sense of urgency which necessitate the immediate abandonment of the current capacity market in favor of a design that may have serious shortcomings.

The Commission argues that the lower generation revenues we see today may not be the result of market failure but rather a function of a supply and demand imbalance. The Commission states that a transmission solution might be more efficient than new generation to address the deliverability issue. RPM, if implemented as currently designed, might bias the market toward generation alternatives even if more efficient transmission alternatives exist.

“At a minimum, the capacity market rules should be agnostic about whether the right fix to a constraint comes from a generation, transmission, or demand side solution,” said Commissioner Karen Smith.

While the RPM model may not be the best solution to address current market conditions, the Commission recommends that PJM and the other stakeholders work together to develop a comprehensive and integrated approach to ensuring reliable and efficient electricity markets.

Commissioner Allen Freifeld stated, “To craft a well-targeted solution to the problems within the capacity market we must act prudently and cautiously to ensure that we have properly defined the issues. Otherwise, we will develop a solution which does not address the true problems and may harm the competitve electric market. Ensuring system reliability is a fundamental concern of the Commission and we look forward to continuing to work with PJM and other stakeholders to develop a well balanced solution.”

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