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Electric Distribution Sector

RPM Explained

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Six years after RPM was implemented, we seem to have a major market reform every year.

These reforms seem to be driven not by the search for an optimum market but by the urging of one party or the other to obtain an advantage.

If the markets are not optimum then, by definition, someone must pay more and that is our customers.

CONSTANTLY CHANGING RULES

There have been several challenges to the Self-Supply exemption both at FERC and the Circuit Courts in the past two years.

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MINIMUM OFFER PRICE RULE

AEPMountaineer- Sporn

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COST OF NEW ENTRY

Gross CONE vs. Net CONE

Shape of the Variable Resource Requirement Curve

Offer Mitigation Rock Springs

Essential Power

Import Limit – Currently before the PJM Planning Committee

Requirement that external resources must continue to offer once they clear

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IMPORTS INTO PJM

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FERC ISSUES

SEAMs FTR ATC

Order 1000

Black PumpVatenfallGermany

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Incremental Auctions Price Floors Buying Out

Multi-Year Commitment Allowing resources to get

commitments for multiple years in the BRA

OTHER ISSUES

NCEMC Hamlet Power Plant

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OTHER ISSUES CONTINUED

Demand Response Comparability CSP Issues Day Ahead Markets

Renewables Capacity Values Storage

Ontario Hourly Wind Output Hourly by day August 2009

Market participants often overreact to changes which may

Cause uncertainty Constrain Competition Impose Additional Costs on

Customers Time is needed to assess

the effects of a change Don’t assume than any

aberration is due to the last change and continually tinker with the market 10

Reaction to Market Changes

RPM was intended to place a portion of the risk on generators and transmission owners leading to wiser decisions and better capital allocation due to normal market mechanisms.

Proposed changes to PJMs rules constantly seek to eliminate these risks

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RISK

Many aspects of RPM where developed through hard-fought give-and-take negotiations which required sectors to give on certain issues to protect their critical issues

Some changes now seek to undo that compromise by eliminating negotiated provisions harmful to one group while maintaining the benefits to that group

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UndoingCompromise

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The Stakeholder Process Lends Dignity to What Would Otherwise be a Vulgar Brawl