Dan Dolan – Vice PresidentElectric Power Supply AssociationSeptember 2008

www.epsa.org

Who Will Build the Who Will Build the Resources for the Future?Resources for the Future?

Who Will Build the Who Will Build the Resources for the Future?Resources for the Future?

What is EPSA?What is EPSA?What is EPSA?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 supplier’s risk, not at ratepayer expense

• Nearly all wind generation is being built by competitive suppliers

Wind Projects Completed in 2008Wind Projects Completed in 2008

Competitive Suppliers Rate-Base Construction

Total Capacity (MW)

Rate-Base Construction13%

Percentage of Total Capacity

2365

360

0

500

1000

1500

2000

2500

Competitive Suppliers Rate-Base ConstructionCompetitive Suppliers87%

American Wind Energy Association, 2nd Quarter 2008 Market Report, August 5, 2008

Wind Projects Under ConstructionWind Projects Under Construction

Total Capacity (MW)

Competitive Suppliers Rate-Base Construction

Rate-Base Construction6%

Percentage of Total Capacity

8446

583

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Competitive Suppliers Rate-Base ConstructionCompetitive Suppliers94%

American Wind Energy Association, 2nd Quarter 2008 Market Report, August 5, 2008

Build versus Buy:Build versus Buy:Who Bears the Risk?Who Bears the Risk?

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

Joint Federal/State ReportJoint 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.

FERC/NARUC Report QuotesFERC/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)

FERC/NARUC Report QuotesFERC/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)

Change the Way We Think of Change the Way We Think of New Electricity SuppliesNew Electricity Supplies

Change the Way We Think of Change the Way We Think of New Electricity SuppliesNew Electricity Supplies

Credible SolicitationsCredible 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”

Credible Solicitations (cont.)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 - utility’s proposal vs.

evaluating bids• Utility winner must honor its bid prices

Dan DolanVice President,

Policy Research & Analysis

Electric Power Supply Association1401 New York Ave., NW

11th FloorWashington, DC 20005

Telephone: (202) 628-8200Fax: (202) 628-8260

E-mail: ddolan@epsa.org Website: www.epsa.org