Energy Client Alert - May 1, 2006

On April 20, 2006, the Federal Energy Regulatory Commission ("FERC") issued an initial order in response to a proposal filed by PJM Interconnection, L.L.C. ("PJM") to restructure its existing capacity resource construct. In its order, FERC found the existing construct to be unjust and unreasonable. FERC further stated that the filed proposal needs further development before it can be found to be a just and reasonable replacement. Chairman Kelliher criticized PJM’s existing installed capacity market, in part, by stating: "A capacity market that does not recognize transmission constraints that not only exist, but are getting worse, that places no value on locating generation where it is most badly needed, that produces shortage and serious reliability problems, does not result in just and reasonable rates – nor is it good public policy."