Duquesne can leave PJM but must pay first - FERC

NEW YORK, Jan 17 (Reuters) - The U.S. Federal Energy Regulatory Commission on Thursday conditionally approved Pittsburgh-based Duquesne Light Co's withdrawal from the PJM Interconnection but said Duquesne must first meet its capacity obligations.

A spokesman for Duquesne said the company was disappointed with the decision but could not comment on the company's next step since they had not yet seen the complete decision.

He noted, however, that the decision could cost Duquesne about $100 million a year through 2011, or about $80 per year for each residential customer the company serves.

Duquesne, which serves about 585,000 homes and businesses in western Pennsylvania, said it wanted out of PJM in August 2007 to escape future participation in PJM's capacity market, which covers three years of future capacity payments.

Load-serving entities like Duquesne buy capacity equal to their forecast demand plus required reserves from generating companies. They can meet their capacity requirements by owning resources, contracting for them or through the PJM auction.

Capacity payments help generators cover the cost of keeping their plants available for reliability reasons even if those units do not operate. The PJM capacity model pays more for resources in transmission-constrained areas.

"RTO participation is voluntary, but members planning to depart must meet all contractual and tariff obligations before doing so," Chairman Joseph Kelliher said in a release.

DUQUESNE TO JOIN MIDWEST ISO

FERC said Duquesne plans to withdraw from PJM effective May 31, 2008, if it is able to join the Midwest Independent System Operator (Midwest ISO) and can resolve its capacity procurement commitments to PJM.

The Duquesne spokesman said the company was still committed to leaving PJM and joining the Midwest ISO despite the FERC decision. The Midwest ISO does not have a capacity market but has considered developing.

FERC did say Duquesne does not have to participate in the May 2008 PJM capacity auction provided that it commits to withdraw from PJM before 2011, which is the delivery year applicable to the May 2008 auction.

Duquesne, of Pittsburgh, Pennsylvania, transmits and distributes power but does not own any generation. In May 2007, a consortium led Macquarie Infrastructure Partners, of New York, and the DUET Group (DUE.AX) completed their acquisition of Duquesne.

The Macquarie Group Ltd (MQG.AX), an Australian investment bank, manages Macquarie Infrastructure Partners.

The DUET Group is a joint venture between Macquarie Group and another Australian investment firm AMP Ltd (AMP.AX).

PJM, of Valley Forge, Pennsylvania, operates a grid serving 51 million people in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. It also administers a $20 billion wholesale electricity market with a generating capacity of more than 168,000 MW.

The Midwest ISO, of Carmel, Indiana, operates the power grid used by more than 36 million people in all or parts of 15 states and one Canadian province -- Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Pennsylvania, South Dakota, Virginia, Wisconsin and Manitoba, and administers the wholesale electric market with a generating capacity of more than 132,000 megawatts. (Reporting by Scott DiSavino; Editing by Christian Wiessner)