Report: CA Energy Crisis Overshadows Success Of PJM

----- Forwarded by Sarah Novosel/Corp/Enron on 07/05/2001 02:36 PM -----

Nancy Bagot
07/05/2001 10:00 AM

To: Ray Alvarez/NA/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Donna
Fulton/Corp/Enron@ENRON
cc:
Subject: Report: CA Energy Crisis Overshadows Success Of PJM

NGI's Daily Gas Price Index
published : July 3, 2001
Report: CA Energy Crisis Overshadows Success Of PJM
While some may argue that California's energy woes offer a prime reason for
placing the electric competition genie firmly back in its bottle, a recent
case study by a global consulting group asserts that California's energy
difficulties mask the fact that other power markets in the United States are
not only surviving, but thriving, with the PJM market serving as the perfect
example.
The report by PA Consulting, "PJM - Electric Power Competition That Works,"
notes that in the wake of California's energy crisis, the future of electric
power restructuring and deregulation in the United States is increasingly
being called into question. The growing national debate over the fate of
electric power restructuring is couched more and more in stark terms of "to
be, or not to be." But PA Consulting argues that this "simplistic debate"
presents the nation with the choice of either pushing ahead with
restructuring and potentially facing California-like difficulties in other
parts of the country or reverting back to a more intrusive,
command-and-control regulatory system.
In PA Consulting's view, limiting the national debate to these two extremes
ignores the fact that California is not the typical model for competitive
wholesale electricity markets. "Indeed, there are several competitive
wholesale markets at work in the United States that differ significantly from
California's in both structure and results." One of the most "dynamic, robust
and successful" of these other regional wholesale electricity markets is the
Pennsylvania-New Jersey-Maryland (PJM) market in the mid-Atlantic region, the
study asserts. "Understanding why the PJM model has succeeded in many areas
where the California model has failed may provide regulators, legislators and
other interested groups with a powerful reference point in the growing debate
concerning whether continued market reform in the electric power industry is
in our future."
The report notes that PJM offers an interesting example for a competitive
market case study because it is similar in size to the California market and
has a longer track record of spot market operations. While there are
similarities in market size and spot market longevity, significant
differences exist between PJM and California in terms of regulatory
jurisdiction and market composition, according to PA Consulting.
More specifically, the study points out that in terms of regulatory
authority, the PJM market -- unlike California's -- overlaps the jurisdiction
of five states and the District of Columbia. In some ways, the multiple
regulatory jurisdictions within PJM have allowed the market and market
operator to remain largely independent of any one regulatory authority. In
contrast, single-state markets such as California and New York have state
regulators and legislatures that wield considerable influence and a stronger
sense of ownership of the market and its actions, the study adds. Some have
argued that this control has been exerted to the detriment of market function
and independence, while FERC has been troubled by single-state control, the
study went on to say.
By way of comparison, the PJM experience illustrates that, in a market
operating across multiple jurisdictions, no single state can dictate
conditions. In such an environment, the wholesale market will be regulated
primarily by the Federal Energy Regulatory Commission, reducing the influence
of state politics and allowing the market to adopt a broader regional
perspective, the study notes.
"This case study provides a powerful counterpoint to those who would like to
turn back the clock on electric power competition," said Phillip Harris, CEO
of PJM. "Our market model provides a blueprint for a working competitive
marketplace that has been refined during four years of successful operation."
PA Consulting is a leading global management, systems and technology
consulting firm. A copy of the full report can be downloaded at PA
Consulting's web site at www.paconsulting.com.