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PPL Denies Market Manipulation Charges In Mid-Atlantic

Wednesday, January 16, 2002 09:19 AM ET

NEW YORK (Dow Jones)--A flawed capacity market and a failure by some energy companies to secure their long-term capacity requirements in advance caused price spikes in the Mid-Atlantic's wholesale power market early last year, PPL Corp. (PPL, news, msgs) said Tuesday in a filing to Pennsylvania energy regulators.

PPL's comments came in response to the Pennsylvania Public Utility Commission's investigation into accusations from PJM Interconnection LLC, the Mid-Atlantic's market operator, that a unit of the energy company had manipulated the region's daily energy capacity market and drove up prices.

In its 34-page filing, PPL denied these charges, noted problems with PJM's capacity markets and requested that state regulators close the investigation, saying the matter is outside their jurisdiction.

"The PPL companies did not have, exercise or abuse market power," PPL wrote. " There was no price gouging."

Installed capacity, which exists for reliability, refers to the ability to generate electricity and is considered separate from electricity, the commodity. PJM determines the long-term capacity requirements of each company within the region that has an obligation to deliver power to consumers to ensure there is enough generation to meet demand.

Capacity Prices Jumped In Early 2001

Daily capacity prices jumped to an average of $177 a megawatt-hour - the market cap - from near zero in the first quarter of 2001 because the capacity obligations of load-serving entities in the region increased about 4%, or 2,000 megawatts, compared with peak loads seen the previous summer.

PJM said PPL had more capacity than the total market, which left other companies that were short their requirements with no choice but to purchase the credits they needed from PPL, allowing the company to set the market price from January through March.

More capacity became available in the Mid-Atlantic in April and prices fell back to near zero again due to new construction and capacity imports, PJM said.

But PPL said some companies were shortsighted for failing to secure enough capacity and suggested PJM require load-serving entities to obtain their credits in advance to prevent shortfalls and price spikes.

"PPL had no corner on the generation market, or on capacity bilateral or auction markets," the company wrote in its filing. "It simply showed foresight in having a temporarily long-term position in capacity credits at a time when market conditions were forecast to tighten."

The price spikes caused PJM to file with federal energy regulators changes to its capacity rules. The market operator never accused PPL of breaking the rules, but did say flaws in the market allowed for manipulation.

PUC To Examine Comments

The Pennsylvania PUC will examine the comments submitted by PPL and other concerned parties and determine its next course of action, spokesman Tom Charles said. There is no timeline under which the regulators are operating, he added.

Pennsylvania's consumer advocate also filed comments with state regulators Tuesday expressing concern that high capacity prices hindered competition in the state by preventing other companies from offering reasonable rates.

The New Power Co., an independent energy company, filed its own report with the PUC saying, in part, that installed capacity requirements allow market participants to set high rates that prohibit competition.

The U.S. Department of Justice is conducting a separate investigation of PJM's installed capacity market, but a spokeswoman wasn't immediately available Tuesday to provide an update on the department's efforts.

-By Kristen McNamara, Dow Jones Newswires
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