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FERC ALJ decision affirming AEP’s voluntary commitment to join PJM is best for consumers, EPSA says

Washington, D.C., March 12, 2004 — The Electric Power Supply Association (EPSA) lauds the initial decision Friday of Federal Energy Regulatory Commission Administrative Law Judge William J. Cowan that American Electric Power’s voluntary commitment to join the PJM regional transmission organization (RTO) constitutes “an economical utilization of facilities and resources” in the Midwest and Mid-Atlantic regions of the United States.

EPSA is particularly gratified that Judge Cowan affirmed the evidence in the record that AEP’s integration into PJM will provide a broad array of benefits to consumers.

Not only does the decision note that there are quantifiable net benefits of $230 million annually, it also states that “… the record shows beyond a preponderance of the evidence that quantifiable benefits to integration far outweigh the costs of implementation.”

The initial ALJ decision further determined that there are substantial nonquantifiable benefits for consumers, resulting from AEP’s integration into PJM, including:

• access for wholesale customers to a highly liquid market;

• consolidation of transmission functions will facilitate coordination of regional operations and improve communications;

• enhanced reliability through broader access to real-time generation resources – PJM’s locational marginal pricing (LMP) methodology recognizes congestion problems sooner and solves them faster than AEP’s current Transmission Line- Loading Relief (TLR) method;

• improved planning for regional transmission and resource adequacy;

• incentives for new investment in generation;

• increased efficiency from LMP-not only can LMP congestion management accommodate more transaction volume through the same constrained facilities than the TLR methodology, but LMP also does it at a lower cost.

EPSA also welcomes Judge Cowan’s decisions on the other two critical questions in this case. First, he found that the laws, rules or regulations of Virginia and Kentucky are preventing AEP from fulfilling its 1999 voluntary commitment to join an RTO.

Second, he affirmed that the provisions of Kentucky and Virginia law or regulation in question “are not required by any authority of Federal law, and are not designed to protect public health, safety, or welfare, or the environment or conserve energy or are designed to mitigate the effects of emergencies resulting from fuel shortages,” as specified in the Public Utility Regulatory Policies Act of 1978.

In short, as the initial decision states, “AEP should be exempted from the requirements of the Virginia and Kentucky laws, rules or regulations … to the extent required to consummate its timely integration into PJM.”

Finally, EPSA supports the decision’s characterization of this case as one attempting to determine whether the legal actions of two states are impeding and frustrating the preferences and legal actions of many other states in a particular region in the collective effort to improve coordination of electric system operations for the benefit of all affected consumers in the entire region, including Kentucky and Virginia.

On balance, the ALJ decision confirms that organized competitive markets operated by independent RTOs improve the reliability of regional transmission systems and provide tangible and substantial economic benefits, EPSA said.

Source: Electric Power Supply Association