Electric industry representatives said results of a competitive capacity auction designed to secure resources needed to meet electricity needs in June of 2011 at the lowest prices, indicate that competitive electric markets work. Late last week, PJM Interconnection announced that its latest Reliability Pricing Model (RPM) auction resulted in enough capacity to provide the region with reliable electric service at a price 37% lower than previous auctions.

Douglas Biden, president of the Electric Power Generation Association, said policy makers in Harrisburg should take note of these results as they consider options to address and mitigate the impacts associated with the approaching expiration of generation rate caps and expected higher electricity prices.

Biden stated that "The PJM auction results reinforce the fact that competitive markets offer the best means to temper higher electric prices. While rates will have to go up because of dramatic increases in fuel and the cost of constructing generation during the time rate caps have been in place, competitive markets will help to provide reliable service at the lowest possible prices."

Biden noted that the competitive auction process is also bolstering reliability. The auction resulted in an 18 percent "reserve margin," or the amount of "extra" electric capacity available to meet the region's electricity needs during times of peak demand. He cautioned, "However, PJM must continue its efforts to work with the Federal Energy Regulatory Commission to ensure that the capacity auctions accurately reflect the cost of new generation entry to maintain future electric reliability."

Together with previous auctions, RPM has resulted in commitments to provide more than 16,000 additional megawatts of electricity, or enough to power 16 million homes. Biden said this is important given the fact that more capacity from new power plants will be needed to meet the steadily increasing demand for electricity in the region.

Biden said, "As America grows and older power plants retire, we know that we will have to build cleaner and more efficient plants to meet the ever-growing demand for electricity. By using competitive auctions that pit suppliers against each other on a best price basis, RPM auctions help to guarantee that only the most efficient plants will be built."

Biden pointed out that several types of new power plants were proposed. The auction, which covered the 2011-12 period, resulted in a proposed net increase of 4,238 megawatts (MW) of new generation coming from multiple sources -- coal, natural gas, wind, and solar as well as proposals to limit demand, thereby further reducing the need for even more capacity. In fact, over 660 MW of new demand response, or offers to voluntarily reduce electricity usage, cleared the auction -- the equivalent of a mid-sized power plant. Likewise, nearly 300 MWs of uprates to nuclear capacity cleared the auction, further demonstrating that all types of electricity related resources are competing to provide cost effective and reliable service.