Dan Dolan

1
Who Will Build the Resources for the Future?

• Dan Dolan Vice President
• Electric Power Supply Association
• September 2008

www.epsa.org
2
What is EPSA?

• The national trade association of competitive
  power sector
• Nearly 40 of installed generating capacity
• Competitive sector built almost all new
  generation since early 1990s
• New generation was largely at suppliers risk,
  not at ratepayer expense
• Nearly all wind generation is being built by
  competitive suppliers

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(No Transcript)
4
Wind Projects Completed in 2008
Rate-Base Construction 13
Competitive Suppliers 87
Total Capacity (MW)
Percentage of Total Capacity
American Wind Energy Association, 2nd Quarter
2008 Market Report, August 5, 2008
5
Wind Projects Under Construction
Rate-Base Construction 6
Competitive Suppliers 94
Total Capacity (MW)
Percentage of Total Capacity
American Wind Energy Association, 2nd Quarter
2008 Market Report, August 5, 2008
6
Build versus BuyWho Bears the Risk?

• Utility cost-over runs
• Competitive suppliers risk management
• New technologies
• Large investments

7
Joint Federal/State Report

• The FERC and NARUC on July 20 jointly released a
  report of "best practices" to ensure a fair and
  objective system of encouraging robust
  competition for utility resource needs.
• The report is titled Competitive Procurement of
  Retail Electricity Supply Recent Trends in State
  Policies and Utility Practices and was prepared
  by the Analysis Group. Available at
  www.naruc.org.

8
FERC/NARUC Report Quotes

• "...because the large capital investments
  necessary for development of these types of
  resources pose potentially valuable opportunities
  for utilities to enter new resources into rate
  base, commissions should be aware that utilities
  may attempt to shield such projects from
  competition even in situations where market
  processes are applicable. Despite these
  challenges, the potential economic gains from
  imposing the market discipline of competitive
  procurements on development of capital-intensive
  and advanced technologies may be great." (p. 19,
  emphasis added)

9
FERC/NARUC Report Quotes

• "Because the utility's (and/or its parent's)
  financial interests may not be aligned with those
  of its customers when the utility selects from
  among the options, extra care is needed to
  prevent improper self-dealing by the utility.
  Best practices under these circumstances require
  a higher degree of regulatory supervision and
  scrutiny..." (p. 12, emphasis added)
• "...as many states have determined, the benefits
  of independent monitors of competitive
  procurements seem to outweigh these costs in
  most instances, and are a necessary element
  of a credible process where the utility itself
  has a financial stake in the outcome of the
  competitive procurement itself." (p. 22, emphasis
  added)

10
Change the Way We Think of New Electricity
Supplies
11
Credible Solicitations

• Collaborative Process
• Local utility submits recommended approach
• Multi-day, commission-facilitated collaborative
  meetings
• State Commission resolves outstanding issues
• Independent, Third-party Evaluator
• Performs independent evaluation of the bids
• Monitors communication between the utility,
  affiliate
• Benefit Extra pair of eyes

12
Credible Solicitations (cont.)

• Fair Process Must
• Be free from actual, apparent conflicts of
  interest
• Provide all bidders similar access to information
  
• Require full public review of the utility
  decision-making process
• If the utility or affiliated entity participates,
  additional protections are required
• Use of an independent evaluator - reports to
  commission
• Separation of utility personnel - utilitys
  proposal vs. evaluating bids
• Utility winner must honor its bid prices

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• Dan Dolan
• Vice President,
• Policy Research Analysis
• Electric Power Supply Association
• 1401 New York Ave., NW
• 11th Floor
• Washington, DC 20005
• Telephone [phone]
• Fax [phone]
• E-mail ddolan_at_epsa.org
• Website www.epsa.org